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News & Tips: Diversified Gas & Oil, DFS, Majestic Wine & more

Today's market overview

News & Tips: Diversified Gas & Oil, DFS, Majestic Wine & more

Shares in London have taken a tumble following the further increase in interest rates in the States overnight. Click here for The Trader Nicole Elliott's latest thoughts.

IC TIP UPDATES:

Diversified Gas & Oil (DGOC), the Aim-listed US well operator focused on acreage looked over by shale firms, is set to re-list tomorrow after raising $35m at 70p a share and agreeing a new $110m loan to pay for the $84.2m acquisition of certain assets owned by Titan Energy. Full details of both will be set out in an admission document published tomorrow, but we consider the shares a buy even at the premium price of 70p.

Liontrust Asset Management (LIO) reported a 3 per cent decline in pre-tax profits during the 12 months to March 2017. This followed an increase in administration one-off expenses, including the amortisation of intangible assets. On an adjusted basis pre-tax profits were up almost a fifth to £17m. Assets under management were up more than a third to £6.5bn, the majority of which was as a result of the acquisition of Alliance Trust Investments. Buy.

The Peach Tracker, which analyses data in the casual dining market, found that like for like industry sales were down 0.4 per cent during May, with the restaurant category flat and pubs down 0.7 per cent. This like was behind the nearly 7 per cent fall in Restaurant Group’s (RTN) share price as the company struggles to get its leisure business, which includes a number of pubs and the Frankie & Benny’s chain, back on track.

KEY STORIES:

Majestic Wine (WINE) results this morning show that there’s still work to do to recover profitability across the group. Although there are signs of a turnaround following the group’s shock profit warning in 2016 - 55 per cent of sales are now considered “multi-channel”; nearly a fifth of sales are from international markets and Naked Wines generates more than 70 per cent of forecast profit growth - the company still registered an overall loss of £1.5m last year as a result of acquisition related and other restructuring charges.

A surprise profit warning from sofa specialist DFS (DFS) has sent the share price down by around a fifth this morning. The group said trading had weakened “beyond [its] expectation”, with “significant declines in store footfall” leading to “a material reduction” in orders. High street compatriot Topps Tiles (TPT) hinted at similar pressures a few weeks ago, but DFS is possibly the first retailer to admit to a consumer slowdown. Company bosses now expect cash profits for the year to fall between £82m and £87m, although strong cash generation means investors will still receive the £20m special dividend promised earlier this year.

Shares in Wizz Air (WIZZ) fell 7 per cent after private equity firm Indigo Partners announced that it would sell its 18.7 per cent stake consisting of 10.7m shares in the budget airline through an accelerated book building process to institutional investors at 2,320p per share. The firm also holds 44.8m convertible shares and convertible notes, which would entitle Indigo to an additional 24.2m new ordinary shares if fully converted.

Engineering consultancy Atkins (ATK) grew revenues 11.8 per cent in the year to 31 March 2017, growing underlying operating profits 15.7 per cent to £171.5m. The group’s acquisition by Canadian engineering group SNC-Lavalin is expected to become effective from July 3rd, it is still subject to the approval of shareholders and the court.

Consumer goods brand PZ Cussons (PZC) announced that the overhaul of a number of its brands is on track. The Imperial Leather soap brand was re-launched at the beginning of the year, while new products under the Carex and Original Source brands hit the market. Although liquidity improved in during the second half in Nigeria, the availability of US dollars remains low, though management assured shareholders that all business units continue to trade well despite inflationary pressures. Shares fell less than 1 per cent in early trading.

The screw is being turned on the Petropavlovsk (POG) board. Yesterday, hedge fund and shareholder DE Shaw joined calls by M&G and Sothic to remove executive chairman Peter Hambro and three non-executive directors in next week’s AGM, citing a litany of issues with governance and strategic direction. The DE Shaw report sparked one shareholder advisory group, ISS, to withdraw its recommendation to back the existing board. Worse still, the Takeover Panel today said that three of the four directors proposed by Renova, M&G and Sothic were deemed “independent”, and so should not be viewed by voting shareholders as “board control-seeking”. Petropavlovsk, which had approached the regulator for a view, accepted the ruling though pointed to its “narrow remit”.

Shares in Drax (DRX) are down 3 per cent following release of the company’s latest trading update. The group announced it expected to recommend a dividend of £50m for the 2017 financial year, as well as a policy that would see this grow consistent with maintaining the group’s credit rating and investing in the business. However, analysts from RBC Capital Markets said there is “no clear message on how this will grow” in light of the group’s stated intention to take account of future investment opportunities and less predictable cash flows from the group’s commodity based business.

OTHER COMPANY NEWS:

Retail sales for the month of May fell more sharply than expected according to the latest data from the Office for National Statistics (ONS). Retail sales volumes fell 1.2 percent month-on-month in May - even before recent political events threatened to destabilise the country’s economic outlook further. This has had a knock-on effect on several retail stocks this morning - along with the shock profit warning from DFS - as fears build about on overall slowdown in consumer spending.

Quiz, a new fast-fashion retailer, has announced its intention to float on the London Stock Exchange this morning. The float is scheduled for July, although specific pricing hasn’t been detailed yet. The brand has a focus on “occasionwear and dressy casual wear” primarily for 16 to 35 year old and between FY2015 and FY2017 group revenues increased 21 per cent per annum to £89.8 million. The group also delivered cash profit growth of 30.6 per cent. per annum to £10.3 million. JD Sports chairman Peter Cowgill is expected to serve as the group’s non-executive chairman.

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By Graeme Davies,
15 June 2017

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