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News & Tips: Babcock, FirstGroup, Hurricane Energy & more

Equities have taken a tumble
March 27, 2017

The first major stumble in the Trump presidency, which saw a withdrawal of attempts to repeal Obamacare late last week, has led investors confidence downwards. Click here for The Trader Nicole Elliott's latest thoughts on the markets.

IC TIP UPDATES:

There’s bad news for sell tip Stagecoach (SGC) and good news for buy tip FirstGroup (FGP). The Southwest train franchise will officially be in the latter’s hands - via its joint venture with Hong Kong group MTR - come summer 2017. The former has operated the line for the last 20 years, and chief executive Martin Griffiths said he was “disappointed” to have lost the bid. FirstGroup has promised to invest £1.2bn in service improvements, hailing the decision as “great news for rail passengers”. Our relative calls stand.

Shares in Babcock (BAB) have fallen 3 per cent after the group announced it would be bringing its Magnox decommissioning contract to an end in August 2019. The decision to end the contract was made by “mutual agreement” with the Nuclear Decommissioning Authority after it became clear the work required on the 12 sites is “materially different in volume from that specified in the NDA’s tender”, the group said in an announcement. Our buy recommendation is under review.

Hurricane Energy (HUR) has completed operations at the Halifax well, and the preliminary results are pretty positive. The good news is that the Halifax and Lancaster fields appear to be part of a single accumulation, though there was some disappointment with the result of the drill stem test, which did not clean up properly and recovered only trace amounts of formation oil. Our buy call for the shares – up 5 per cent this morning – is under review.

Mining stocks are down this morning. According to analysts, this is because the defeat of Donald Trump’s healthcare bill at the hands of the House of Representatives raises doubts that his infrastructure plans for the US will get rubber stamped. The miner which posted the slightest fall was South32 (S32), which announced a $500m share buyback programme this morning, equating to 4.5 per cent of the group’s current market capitalisation. With the shares hovering around their all-time high, this might not be the most inspired corporate strategy, but they 12 month purchase scheme would still leave a lot of cash on the balance sheet. Buy.

KEY STORIES:

There have been few weeks in 2017 that BT (BT.A) has been out of the news. This time the telecoms giant has been hit with a £42m fine from Ofcom and been forced to pay back £300m of compensation to its customers for delays in installing lines between 2013 and 2014. This is the biggest fine Ofcom has ever imposed, although BT says it won’t impact its forecasts for the year. Shares are down 1.5 per cent in early trading, a relatively modest fall which perhaps indicates that BT is already priced for disappointment.

Ocean Wilsons (OCN) managed to almost double its pre-tax profits during 2016, despite continued economic weakness in Brazil. This was primarily due to lower finance costs and the appreciation of the real against the dollar. Revenue declined 10 per cent due to lower shipyard activity, while third-party shipyard sales were around half 2015’s figure due to weaker demand for vessel construction from Brazil’s offshore oil and gas industry.

OTHER COMPANY NEWS:

Testing and certification company Exova (EXO) has received proposals from testing company Element Materials Technology, investment firm Jacobs Holdings AG and private equity house PAI Partners SAS for a possible cash offer. Each company now has until 5pm on April 24, 2017 to make a firm offer for the group. SHares are up 13 per cent on the announcement.