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News & Tips: Shire, South32, Cobham & more

Equities are having an off day
February 16, 2017

After their recent surge, equities are in retreat today. Click here for The Trader Nicole Elliott's latest thoughts on the markets.

IC TIP UPDATES:

It’s a pretty busy day for results, but full-year numbers from pharma giant Shire (SHP) won’t be out until noon. We’ll be following up in more detail later today, but expect any material uptick in sales and profits to be down to the group’s recent £26bn acquisition of Baxalta. It hasn’t all been plain sailing though. Third quarter earnings disappointed the market due to lower than expected sales of specific Baxalta products. Investors will surely be keen to see if this can be rectified. Our recommendation is under review until numbers present.

South32 (S32) today reported a 197 per cent improvement in free cash flow in the half year to December, to $626m. This allowed the BHP Billiton spin-off to declare a maiden interim dividend of 3.6¢ a share, which comes in at an as-promised pay-out of 40 per cent of underlying earnings. The market shrugged off these results, despite beating expectations. Buy.

A first quarter update from UDG Healthcare (UDG) claims the company has made a good start to the year, driven both by underlying growth and the contribution from recent acquisitions. However, the translation of profits from sterling into US dollars has been a bit of a hindrance. But the group is still in a net cash position, and expects constant currency adjusted EPS growth of between 13 and 16 per cent this year. Buy.

Trifast (TRI) now expects that full-year performance will be "slightly ahead" of its previous expectations, given its strong third quarter trading and foreign exchange tailwinds. The group continued to perform strongly across its main geographies, and the Asia business returned to growth as it began to benefit from the anticipated recovery in demand during the second half. Buy.

Last April’s £150m fundraising led to a slight dip in full-year headline earnings per share at Primary Health Properties (PHP), though that wasn’t the most important number for the real estate group. That was the dividend, which came in at 5.1p per share, and was completely covered by cash. Our buy call is under review.

KEY STORIES:

Queen of florals Laura Ashley (ALY) also has half-year numbers out today, forcing the share price down more than 9 per cent in early trading. Like-for-like UK retail sales fell 3.5 per cent over the period, with online sales only nudging up by £600,000 to £25.6m. The board has described trading conditions as “demanding” - an odd word for retailers to use - but nonetheless, it’s prompted an overall profit warning for the full-year.

Lancashire Holdings (LRE) jumped a whopping 9 per cent this morning, after the insurer booked a full-year return on net tangible assets of 16 per cent, well in advance of consensus forecasts. The main contributors to a strong final quarter were bigger-than-expected reserve releases and investment returns, which are expected to grow in the coming year on the back of the recent uplift in bond yields.

OTHER COMPANY NEWS:

Respiratory group Vectura (VEC) moved up 2.5 per cent this morning on news that it has already reached the £9m royalty cap on net sales of GlaxoSmithKline’s (GSK) Ellipta inhaler products. That’s a year earlier than expected, and stems from a legacy agreement between GSK and Skyepharma - the company Vectura merged with last year. It’s expected that around £5.4m of the royalty income will be booked as part of group revenues for FY2016.

Shares in Cobham (COB) slumped after the beleaguered defence group issued another profit warning, saying it will book a £574m impairment on problems across several of its units. It will also take a £150m charge on spiralling costs relating to its contract to develop a mid-air refuelling tanker for Boeing.

The share price of Drax Group (DRX) pulled back following release of full-year figures that showed a 17 per cent drop in cash profits, coupled with a final dividend constricted through challenging commodity markets and changes to climate change regulations. On the flip side, the Yorkshire-based power generator recorded significant operational progress through the year.

As flagged in last week’s trading update, Gem Diamonds (GEMD) has decided to place its Ghaghoo mine in Botswana on care and maintenance with immediate effect. As demonstrated by a recent sale, the market for the type of diamonds recovered from Ghagoo currently suffers from weak pricing. Annual care and maintenance of the mine is expected to cost around $3m.