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News & tips: Burberry, WH Smith, Zytronic & more

Burberry has issued a profit warning as the Chinese slowdown starts to bite, while Unilever posted strong third-quarter numbers
October 15, 2015 and Graeme Davies

Equities have started the day with a bounce as the chances of a US rate rise this year recede on weak economic data. See what The Trader Nicole Elliot thinks of the markets.

IC TIP UPDATES:

Arbuthnot Banking Group (ARBB) has enjoyed another strong trading period in the three months to September, during which assets rose through the £2bn barrier for the first time. In retail banking, the group’s significant holding in Secure Trust Bank (STB) has proved its worth with demand for both consumer products and small and medium enterprise lending proving strong, pushing lending balances through the £900m mark. In private banking, Arbuthnot has added more than 50 clients a week during the period. We maintain our buy rating (on ARBB shares).

Touch screen technology specialist Zytronic (ZYT) has reported a continued improvement in revenues during the second half of its financial year which means that full year results will now exceed expectations. The shares were up 12 per cent in morning trading. Buy.

Game Digital (GAME) released full-year results showing a stabilisation in sales offset by higher operating costs. Adjusted cash profits fell 9 per cent to £46.9m, but the balance sheet is rock-solid, with net cash of £63m. Trading in the current financial year is "in line", with the company outperforming a market weakened by lower hardware sales. We remain buyers.

Carclo (CAR) shares fell 12 per cent after the plastics and lighting engineer announced that its performance this year would be hit by Volkswagen Group's decision to make its flagship luxury car all-electric. The company provides high-end LED lighting for so-called 'supercars', and thinks VW's decision will delay the launch of its model. But we keep our buy rating.

Building products company Alumasc (ALU) reported a major project win on the east coast of the US to design and supply a screen for a new gas-fired power plant. The deal is expected to contribute about £3m to the company's top line in the 2016-17 financial year. Shares rose 3 per cent on the news. Buy.

KEY COMPANY NEWS:

Burberry (BRBY) has become the latest victim of the Chinese slowdown. Shares in the luxury clothing group fell 12 per cent after the group warned that the second quarter to September had been impacted by an "increasingly challenging environment for luxury, particularly Chinese customers". Like-for-like retail sales were up just 1 per cent as strong growth in Europe failed to offset declines in east Asia. Management shifted its rhetoric from growth to cost control.

Unilever (ULVR) posted very strong third-quarter numbers, with underlying sales growth rising to 5.7 per cent. Volumes, up 4.1 per cent, were the primary driver of the improvement, but they were helped by one-off factors - a soft comparator in China, strong ice cream sales and some advanced sales in South America. The company now expects sales growth for the year to be towards the top end of the 2-4 per cent range. The shares rose about 4 per cent in morning trading.

Tesco (TSCO) announced the latest plank in its recovery plan: the sale of 14 development sites in London and the south of England for £250m. The sites, which the grocer no longer needs for its own outlets, are "suitable for mixed use and residential development."

Wholesaler Booker (BOK) reported results for the 24 weeks to 11 September - just before the completion of its acquisition of Budgens and Londis. Total sales were down 1 per cent, reflecting the weakness of tobacco sales as well as ferocious competition in the UK grocery market. But operating profits were still up 10 per cent at £75m.

WH Smith (SMWH) posted results that underlined the surprising success of the group even as its high-profile high-street business declines. Like-for-like sales in the travel division rose 4 per cent, offsetting the impact of declining sales on the high street, while group operating profits rose 6 per cent as tight cost control continued.

OTHER COMPANY NEWS:

Electronics distributor Acal (ACL) posted a pre-close statement showing stronger growth in its acquisition-bolstered design and manufacturing division - up 4 per cent like-for-like - than in its traditional custom distribution business. Group like-for-like sales were up 2 per cent in the half to September, with the acquisitions of Noratel and Foss last year boosting reported growth and currency movements reducing it.

Gulf Keystone (GKP) announced that it had received $15m from the Kurdistan government for crude oil production at its Shaikan field in the region. The company's cash position is now $76m, though it is in the process of making interest payments worth $26m. The shares rose 6 per cent on the news, as there had been doubts that its receivables would ever be received.

Pure Wafer (PUR) upped its estimate of the insurance payout due to shareholders to 140-145p, prompting a 3 per cent jump in the share price to 173p. The company's Swansea facility, which reclaims test wafers for the semi-conductor industry, burned down last December, and the company has decided to return the insurance settlement rather than rebuild the factory. The US factory continues to serve the semi-conductor industry and is running at "record levels of productivity".

Hochschild Mining (HOC) launched a rights issue to raise £65m alongside third-quarter production figures that showed the first full quarter of mining at its flagship Inmaculada silver mine. More than half the new money will be used to pay down debt, with the rest to "ensure certainty of access to funds in light of the prevailing volatility in precious metal prices."