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News & Tips: Babcock, Renew, Reckitt Benckiser & more

Equities are holding steady
April 3, 2017

Equities are flat at the start of the week as traders enter the second quarter wary of geopolitical upheaval. Click here for The Trader Nicole Elliott's latest views.

IC TIP UPDATES:

Engineering support services company Babcock (BAB) has been selected as preferred bidder on a Ministry of Defence contract potentially worth around £360m over the next seven years. The contract would see the company become marine systems support partner for the Royal Navy’s new Queen Elizabeth Class aircraft carriers and type 45 destroyers. Shares are up a little under 1 per cent on the news and we stay buyers.

Development and construction group Watkin Jones (WJG) has delivered five student accommodation developments in the six months to 31 March 2017, representing 2,347 beds, and with a gross development value of £192m. All the developments for completion by September this year have been forward sold and five for September 2018 have also been forward sold. All in all, 16 developments representing 5,679 beds for delivery before September 2019 have been forward sold. There has also been positive progress on the private rental side, having completed its first scheme of 322 units in Leeds. Buy

Liontrust Asset Management (LIO) has completed its acquisition of Alliance Trust for £30m. The purchase will add £2.5bn in assets under management. The active asset manager has also carried out a placing of 4,060,792 new shares to Alliance Trust in part payment. Buy.

Renew Holdings (RNWH) will report an improvement in trading for the half year to 31 March 2017. The group announced it was trading in line with board expectations, while it is in a net debt position following the acquisition of Giffen Holdings. Shares are up slightly on the news. Buy.

KEY STORIES:

Luceco (LUCE), a manufacturer of LED lighting, delivered strong revenue growth in its maiden full-year figures, helped along by currency benefits as 55 per cent of sales are booked in US dollars. A favourable product mix and improved efficiencies bolstered margins and fed into a 30.4 per cent increase in operating profits to £15m.

Reckitt Benckiser (RB.) has announced it is starting a strategic review of its food business - which will include the French’s brand - with the possible intention to sell the division. Reports over the weekend have suggested a potential disposal could net the company around £2.4bn, which would go a long way in helping the company finance its takeover of baby food maker Mead Johnson. Bosses there say they will update the market further when appropriate.

Reports are also circulating this morning of further dissatisfaction of over the impending combination of Tesco (TSCO) and wholesaler Booker (BOK). Having spoken to The Times, chief executive of Hermes Fund Managers Saker Nusseibeh said the deal could give the combined entity too much power over the supply chain, causing resentment across its convenience store estate. Hermes is not a shareholder in either Tesco or Booker, but its criticism follows Schroders and Artisan Partners - two major shareholders - who both expressed their concerns over the deal last week.

The Forties pipeline system has been in BP (BP.) hands since the oil major opened the system in 1975. Today, the company confirmed the pipeline’s sale to INEOS, in a deal worth up to $250m. Commenting on the transaction, BP chief Bob Dudley said: “While the Forties pipeline had great significance in BP’s history, our business here is now centred around our major offshore interests west of Shetland and in the Central North Sea.”

Dubai-based oil and gas services outfit ADES has announced it will list on London’s main market next month, in a bid to raise up to $170m through the issue of new shares. ADES, which currently has a backlog of work split between Saudi Arabia, Egypt and Algeria, employs nearly 1,300 people and works with the likes of Saudi Aramco, BP and Eni. Despite the fall in average oil prices in recent years, the company has managed to grow revenues by 34 per cent a year since 2016, doubling its backlog in both 2015 and 2016.

OTHER COMPANY NEWS:

Experian (EXPN) has sold a 75 per cent interest in its email and cross channel marketing business to Vector Capital for $400m on a cash and debt free basis. The deal is expected to complete during the first half of the year ending March 31 2018. The shares have barely moved on the news.

Security company G4S (GFS) has completed sale if its G4S Youth Services business. The division was bought for $56.5m in cash by BHSB Holdings, a behavioural health care services company based in Florida.

Power generator Drax (DRX) has managed to buy all of the assets of Louisiana Pellets out of bankruptcy for $35.4m. Back in February the company announced it had submitted cash bids for both Lousiana Pellets and Texas Pellets, both distressed companies. A few days later, however, it released an update announcing the sellers had delayed the processes. It remains an interested party in Texas Pellets.

Ashtead (AHT) has bought rental equipment provider Pride Equipment Corporation for $279m through its US business, Sunbelt Rentals. Pride is a major provider in New York City and specialises in aerial work platforms for companies in the construction, industrial and movie industries.