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News & Tips: Sainsbury, Marks & Spencer, ITV & more

London shares are down
May 3, 2017

Equities started the day in downbeat mood. Click here for The Trader Nicole Elliott's latest thoughts on the markets.

IC TIP UPDATES:

Sainsbury’s (SBRY) shares initially rose in early trading before falling 2 per cent on the back of full-year results from the supermarket chain. In our opinion, that’s a good reflection of the mixed bag Mike Coupe and his team presented to investors this morning. Total sales grew by an impressive 13 per cent - but most of that was down to Argos, which Sainsbury’s bought last year, and increased cross-selling opportunities. Underlying profits only dipped 1 per cent, which was better than expected, but overall profitability shrank by 8 per cent due to a £78m exceptional charge. For the coming year, management has struck a cautious tone saying the retail environment under real cost and price pressures. More to follow, but for now our recommendation is under review.

Jill McDonald, currently the chief executive at bicycle retailer Halfords (HFD) is due to leave the group in the autumn to take up the role of managing director for clothing, home and beauty at high street chain Marks and Spencer (MKS). She will report directly to M&S boss Steve Rowe. As a result, Mr Rowe will relinquish all his duties in regard to this division to Ms McDonald. We remain buyers of M&S.

A boardroom reshuffle at broadcaster and content producer ITV (ITV) too where chief executive Adam Crozier has announced his intention to leave the company after seven years at the helm to pursue other opportunities, likely to be a portfolio of City positions. The company says it has a well developed succession plan in place and will announce more detail in due course but in the meantime finance director Ian Griffiths will take on a dual role as chief operating officer and chairman Peter Bazalgette becomes executive chairman. The interim arrangement has set some tongues wagging in the City that ITV could be a bid target.

JD Wetherspoon (JDW) announced that like-for-like sales were up 4 per cent in the 13 weeks to 23 April 2017, ahead of the 2.7 per cent that had been anticipated. This translated into better operating margins, which are tracking around 7.8 per cent for the year to date, compared to 6.3 per cent last year. But chairman Tim Martin warned that the company could have a tougher second half of the year due to rising business rates, utility rates, excise duty and labour. Sell.

Shares in Galliford Try (GFRD) fell 9 per cent after the construction group warned that two legacy contracts will now have non-recurring costs of around £98m. This is considerably more than previously expected. However, trading remains strong in the construction and housebuilding operations. Buy

On balance, first quarter financial results for Centamin (CEY) were something of a disappointment. Gold production fell a fifth quarter on quarter to 109,187 ounces, largely thanks to a 29 per cent drop in grade to 7.44g per tonne. Though the production drop had been flagged, and production estimates have been maintained for the full year, shares in the group are down 4 per cent today on a lower gold price. We remain buyers of the stock.

The gold price may have fallen just 3 per cent in the last fortnight, but shares in Shanta Gold (SHG) have responded as sensitively as ever. That’s despite further encouraging news today from the Tanzania-based miner: drilling at the Nkuluwisi target, located 12km northwest of Shanta’s New Luika processing hub, revealed a maiden resource of 140,894 ounces, including indicated and inferred gold. Our buy call is under review.

The rate of growth at Amazon’s (US:AMZN) web services division may be slowing from nose-bleed levels, but it still chalked up 43 per cent year-over-year first quarter increase in revenue. That, together with an impressive 23 per cent increase in overall sales to $35.7bn, helped to push the shares up 5 per cent since the results were announced. We remain buyers.

Ophir Energy (OPHR) has finalised the terms of Fortuna FLNG between the gas project’s commercial participants and the Republic of Equatorial Guinea, in the first of four milestones for the final investment decision. OneLNG, the partnership between Ophir, Golar LNG and Schlumberger, now needs to award construction contracts, sign term-sheets with a consortium of Chinese-based lenders, and progress offtake agreements. Our buy recommendation is under review.

OneSavings Bank (OSB) reported 5 per cent loan book growth since the start of the year, with net loans and advances growing to £6.2bn. Organic new loans were £599m during the first three months of the year, while management said margins remained strong. The challenger bank also drew £451m under the Bank of England’s term lending scheme. The shares are up 56 per cent on our tip, but we’re sticking with a buy.

Action Hotels (AHCG) is set to partner with Novotel to open a new hotel in Melbourne. This will be the second Novotel-branded hotel for Action, in addition to the nine hotels it operates with parent company AccorHotels. Yesterday Action reported that revenue in the full year for 2016 was up by 22 per cent to $53.1m (£41.4m), but a net loss before tax was primarily driven by the impact of pre-opening financing costs and depreciation of new hotels. Shares are up 3.6 per cent today.

International Personal Finance (IPF) reported a recovery in its Mexico business during the first three months of the year, with the amount of credit issued growing a fifth in the home credit business and customer numbers up 4 per cent. However, increased competition and legislation changes in Poland meant customer numbers and credit issued contracted in Europe. Creditworthiness assessment regulations introduced in Romania also impacted growth levels in Southern Europe. Poor European performance pulled down overall customer numbers by 2 per cent. Sell.

Revenue at Imperial Brands (IMB) rose by 11.7 per cent to £14.3bn in the half year to 31 March, but operating profit fell by 10 per cent to £902m. The tobacco company has invested £300m this year in its growth and specialist brands as it encourages consumers to migrate to its core products. In light of the merger announced by close rival British American Tobacco (BATS), chief executive Allison Cooper said further consolidation in the tobacco market was “not impossible but very difficult”. Shares rose slightly by 0.5 per cent this morning. Buy.

KEY STORIES:

Outsourcer Mitie’s (MTO) accounting review has been completed and the group expects to write down an additional £40-50m on top of the £14m announced in the January trading update. Trading is otherwise in line with expectations, with revenues remaining flat on 2016 levels. Net debt, however, is down to £146m at March 31 2017, from £178m on the year before. Investors appear glad to put the company’s troubles in the past, sending the shares up more than 6 per cent in early trading.

Evraz (EVR) has sold its stake in its Nakhodka Port subsidiary to Lanebrook, for $354m. Under the terms of the deal, Evraz and Nakhodka Port have also agreed to tranship cargoes of coal and metals for the next five years.

In one of London’s largest oil and gas fundraisings in recent years, Kuwait Energy is planning to join the main market of the stock exchange in June. The independent energy firm, which has development and producing assets in Egypt, Iraq, Oman and Yemen, is seeking to raise $150m for a stake in a company with 810 million barrels of oil equivalent on its balance sheet, and which last year generated $139m in revenues.

A positive Cheltenham for bookmakers on top of cost savings associated with its merger doubled the operating profit for Paddy Power Betfair (PPB) to £91m in the first quarter of its financial year. Revenue was also up by 23 per cent to £416m, or 15 per cent on a constant currency basis. But the company’s sportsbook net revenue was slightly behind expectations due losses from Cheltenham last year, when only 11 races were profitable compared to 19 out of 28 this year. Shares fell 1.5 per cent in early trading.