Join our community of smart investors

News & tips: Pearson, Gulf Keystone, Essentra & more

The UK's major stock indices trended downward in morning trading
July 29, 2016

The FTSE 100, FTSE All-Share and AIM All-Share registered losses in early trading, after market research outfit GfK's measure of consumer confidence recorded its biggest drop in 26 years. Investors' concerns were compounded by an underwhelming stimulus package from the Bank of Japan. Read The Trader Nicole Elliott's morning update here.

IC TIP UPDATES:

Wireless connectivity specialist Laird (LRD) posted a 4 per cent fall in comparable turnover in the first half of 2016, sending underlying pre-tax profits down 39 per cent to £16.4m. Management blamed the smartphone cycle, a downturn in US rail freight markets due to lower energy and commodity prices and a tough comparative period. Under review.

Keywords Studios (KWS), which provides services such as sound editing and art creation to video game companies, announced a £3m deal to acquire Volta, which provides outsourced art creation services to Capcom, Electronic Arts and other video game makers. Management expects the deal to boost earnings this financial year. Buy.

Underlying sales crept up 1 per cent at UBM (UBM) in the first half of 2016, as slightly higher event revenues were offset by lower sales of other marketing services. Nonetheless, adjusted operating profits jumped a quarter to £93.4m as management focused on higher-margin activities and reduced costs. Buy.

Shares in Barclays (BARC) spiked by around 5 per cent despite the bank reporting a fall in pre-tax profits of around a fifth for the first half of the year. While pre-tax profits for the core business increased, non-core losses more than doubled to £1.9bn, including a £372m impairment linked to the sale of its French retail and wealth and investment management businesses. We place our buy recommendation under review.

Sierra Rutile (SRX), the appropriately named Sierra Leone-based manufacturer of rutile, has received a 36p per share all-cash offer from rival Iluka, which represents a discount to last night’s closing price. Analysts speculated that the takeover may have been made in anticipation of a supply deficit of high quality titanium dioxide feedstock, and ahead of an upswing in prices. Our profitable buy recommendation is under review.

Vesuvius (VSVS) chief executive François Wanecq described his company's half-year results as "encouraging", though the stabilisation in global steel and foundry markets remains weak. Nonetheless, like-for-like margins and revenues both improved, the former thanks in part to a restructuring programme, which delivered £7.1m in cost savings. Our recommendation is under review.

KEY STORIES:

Education giant Pearson (PSON) posted a 7 per cent decline in underlying sales in the first half of 2016, driving underlying operating profits down four-fifths to £15m. Management cited declines in assessment revenues in the US and UK, as well as the timing of gross sales and returns of higher education courseware in North America.

Consumer goods giant Reckitt Benckiser (RB.) has booked a £300m exceptional charge linked to a compensation plan for consumers in South Korea who suffered lung injury from a humidifier sanitiser sold by its Korean Oxy unit between 2001 and 2011. As such, sales have suffered in the country, which has largely boycotted the group's products. The full-year outlook is still in line, but likely at the lower end of predictions.

No airline is experiencing a smooth runway right now and British Airways owner International Consolidated Airlines (IAG) is no exception. Aer Lingus was the shining light in the group's results, although there was organic growth. But air traffic control strikes, terrorism and cancellations are all weighing on the company, which has dialled down its capacity growth expectations to 4.5 per cent for the group for the full year. This is down from 5.5 per cent roughly a year ago.

Ouch. Essentra (ESNT) shares dropped by a fifth this morning, after the industrial group announced a drop in margins, revenue and operating profits in the half-year to June. To compound matters, chief executive Colin Day intends to focus on his work as a non-executive director, and is working with the board to find a successor.

Hold the front page. Days after finalising a proposal of a debt-for-equity swap and capital restructuring, struggling Kurdistan-based oil producer Gulf Keystone Petroleum (GKP) has received a takeover offer from Norwegian operator DNO. The cash and shares offer, a $300m (£228m) deal to acquire all of the enlarged share capital, will guarantee noteholders a premium and comes at a 20 per cent premium to the diluted share price of 1.09¢.

Online gaming outfit Stride Gaming (STR) has announced a placing to raise £27m to help fund two acquisitions. The company has agreed to purchase Tarco and Netboost Media. The acquisitions will double Stride's market share of the UK bingo market to 10 per cent, making it the fourth-largest online bingo operator in the UK. It will also mean the company boasts 105 brands, up from 96 at present. Shareholders have had a relatively wild ride in past year - but in spite of that the shares are up nearly a quarter in that period.

Shares in Indivior (INDV) climbed 13 per cent after the addiction treatment specialist raised its full-year forecast for constant-currency net revenue from $945m-$975m to between $1bn and $1.03bn, and adjusted net income from $155m-$180m to between $180m and $200m. However, constant-currency operating profit slid 11 per cent to $198m in the first half of 2016.

OTHER COMPANY NEWS:

Shares in Alphabet (US:GOOGL) - formerly Google - climbed 5 per cent in after-hours trading after the search and advertising titan posted its fastest growth in two years. Sales in the key Google business leapt 21 per cent due to soaring mobile ad sales, driivng total adjusted operating profits up a quarter to $7.47bn (£5.66bn).