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News & tips: Premier Farnell, Rotork, Town Centre Securities & more

UK equities are drifting as investors await news of the Federal Reserve's rates decision
September 17, 2015

The FTSE drifted this morning after two days of strong gains, but all eyes are on the Federal Reserve's rates decision. Should we care? Read the thoughts of the Trader, Nicole Elliott, here.

IC TIP UPDATES:

Premier Farnell (PFL) shares fell 16 per cent after a second profit warning in three months. The distributor of electrical products reported that the "more difficult trading conditions" that emerged in the US and UK in the second quarter have continued into the third, prompting management to downgrade its guidance for full-year profits. It also cut the dividend by 41 per cent, announced the sale of Akros Brass, which makes fire-fighting kit, and hinted that a wide-ranging and potentially costly strategic review would be necessary to restore the group's competitive position. We downgrade to hold.

Leeds-based property company Town Centre Securities (TCSC) reported strong annual results, though the pace of recovery has slowed slightly. Rents were up 2.8 per cent on a like-for-like basis and 8 per cent including acquisitions, while property values rose 7.1 per cent as demand for regional property among investors spiked. The company continues to enhance the Merrion Centre in central Leeds - its largest asset - with adjacent developments. Buy.

Faroe Petroleum (FPM) announced an oil discovery in the main bore of its Boomerang exploration well in the Norwegian North Sea. Recoverable volumes are estimated at between 13 and 31 million barrels of oil equivalent. A side-track exploration well in the southern segment of the Boomerang prospect found no moveable oil, however. The company's shares fell 5 per cent on the announcement but we see no reason to change our advice. Buy.

Medical billing company Constellation Healthcare (CHT) delivered eye-catching growth figures for the first half, with revenues up a quarter to $32m and cash profits of $9.6m. The company's strategy of consolidating US doctors' back-office operations is expected to continue into next year, so like-for-like comparatives are not especially meaningful. But management nonetheless noted 14 per cent organic growth in its revenue-cycle management business, which accounts for about two-thirds of sales. Buy.

Wealth manager Brooks Macdonald (BRK) reported annual results showing 13 per cent growth in discretionary funds under management to £7.41bn. That drove a similar increase in underlying pre-tax profits, though a larger tax bill hit the bottom line. Chief executive Chris Macdonald noted that "volatile" investment markets remain a "headwind for the industry". Buy.

Merlin Entertainment (MERL) posted trading figures for the key summer period. Like-for-like growth of 0.3 per cent is disappointing by past standards, but reflects the poor performance of Alton Towers following the high-profile accident in June. Like-for-like sales in the theme parks business were down 11 per cent, but that was offset by strong growth in the Legoland parks. Buy.

Phoenix Group (PHNX) confirmed a report on Sky News that it was mulling an acquisition of Guardian Financial Services, a closed-book life insurer owned by private equity group Cinven. The deal makes sense for Phoenix, which has made a specialty of consolidating closed-book life businesses. Buy.

Kier Group (KIE) reported strong organic growth in all its divisions, with revenues up 14 per cent overall at £3.4bn. Underlying operating profits rose 16 per cent to £104m as a result, but that excludes an unexpectedly high £31.6m charge for exceptional items. Numis trimmed its forecasts to account for higher net debt following the Mouchel acquisition. Buy.

KEY STORIES:

Rotork's (ROR) reputation for reliability is under threat after a profit warning that prompted a 14 per cent drop in the shares. The company, which makes controls for valves used on oil pipelines, reported an increased number of project deferrals and cancellations, with "trading in August particularly weak". Cost savings won't be sufficient to offset these problems.

Annuity specialist Just Retirement (JRG) is adapting to the new pensions landscape. Sales of bulk annuities, where it takes the risk of defined benefit schemes from employers, rose more than six-fold to £609m, but that did not quite offset the 57 per cent decline in individual annuity sales. Overall, new business was down 8.5 per cent for the year.

OTHER COMPANY NEWS:

PVC-window retailer Safestyle (SFE) sold 3.8 per cent more windows in the first half at prices up 2.8 per cent. The result was solid top-line growth even against a soggy market backdrop - management reported that market volumes fell 10 per cent in the period, with a further deterioration evident in July and August. This may explain why the shares fell 4 per cent in early trading. Underlying pre-tax profits only grew 2.3 per cent due to heavy promotional spending, but this was well flagged.

Lighting specialist FW Thorpe (TFW) posted strong annual results, with sales up 20 per cent. Only about a quarter of the growth was due to the acquisition of Lightronics, a Dutch designer of outdoor lighting. Chairman Andrew Thorpe - grandson of the founder - said the market had been "buoyed by an improving economy" but noted the challenges posed by government spending cuts and China's slowdown.