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News & Tips: William Hill, RBS, Standard Chartered & more

Equities are ending the week on a downbeat note
February 24, 2017

Shares in London fell back in morning trading on Friday. Click here for The Trader Nicole Elliott's latest views on the markets.

IC TIP UPDATES:

Just because William Hill (WMH) had already flagged poor results back in a January trading update, doesn’t mean the market was overjoyed with full-year numbers. A 10 per cent drop in operating profits was the result of lower profits from the online business and an, albeit less dramatic, 5 per cent squeeze in retail. Customer-friendly results battered the company in the final quarter. The good news is William Hill has identified a number of different strategic priorities for 2017, although current interim chief Philip Bowcock has yet to assume the role permanently. Our recommendation is under review.

Standard Life (SL.) suffered net ouflows of £2.6bn last year, primarily from its retail and institutional businesses. This compares with £6.3bn the previous year. However, positive market movements meant assets under administration increased by £50bn. We place our buy recommendation under review.

Less than a month into its Aim listing, Diversified Gas and Oil (DGOC) has completed its first acquisition. The onshore, multi-well producer has spent $1.75m of its existing cash resources on 1,300 long-life, low-cost producing wells in Ohio and Pennsylvania, which are expected to add 5,400 barrels of oil equivalent production per day. As hinted at the time of its IPO, DGO has struck the deal at a very low multiple of cash flow; the new production is expected to add $1m to operating cash flow each year. Buy.

Pearson’s (PSON) major profit warning in January may have shielded investors from shock in these full-year numbers, but that didn’t make the results any less woeful. However John Fallon seems to have done a wonderful job at reassuring investors during the course of the morning. After an early trading decline, by mid-day shares were up almost 7 per cent. We still think that the underlying business is in trouble and Pearson's problems are being exacerbated by poor end-markets. Sell

KEY STORIES:

British Airways owner International Consolidated Airlines (IAG) bumped up 2 per cent this morning on the back of full-year results. Most of the numbers were in-line, particularly for the final quarter, with both BA and Aer Lingus trading well. The outlook was somewhat cautious, although bosses there still expect a modest uptick in operating profits this year, with consensus forecasts currently hovering around €2.56bn. It’s also planned that the company will buy back €500m shares in 2017.

Royal Bank of Scotland (RBS) reported an operating loss before tax of £4.1bn for last year, up from a loss of £2.7bn in 2015. Litigation and conduct costs jumped to £5.9bn, largely due to additional provisions taken for ongoing litigation in the US regarding the mis-selling of mortgage-backed securities. Restructuring costs were down by £0.8bn, although still sizeable at £2.1bn. These included £750m taken for the recently proposed alternative remedy package to fulfil its state aid obligations.

Industrial threat maker Coats Group (COA) declared a final dividend of 0.84 cents, giving a pro-rata figure of 1.25 cents for the full-year, after it posted pre-tax profits of $122.5m against $80.3m a year earlier. Coats said its saw continued growth in underlying sales for its Industrial division, which offset a decline in its Crafts unit in the Americas.

Shares in property marketplace Rightmove (RMV) went down five per cent following release of its full year results. Lower activity in the housing market following the EU referendum spooked investors, despite an 18 per cent jump in operating profit to £162m for the year.

IMI (IMI) reported full-year results in with expectations despite difficult market conditions. Excluding favourable exchange rate movements and disposals, group revenues on an organic basis were 5 per cent lower due to continuing difficult end markets. Likewise with operating profits, down 17 per cent on an organic basis, reflecting lower volumes, partly offset by the benefits of restructuring. Shareholders will note, however, a strengthening finish to 2016.

Standard Chartered (STAN) tipped into the black last year, reporting a pre-tax profit of $0.5bn compared with a loss of $1.4bn in 2015. Lower loan impairments were the primarily driver of this growth - £1.6bn of loan exposures were transferred to its liquidation portfolio. Restructuring costs were also lower at $0.85bn. However, operating income was down in key businesses including retail banking and corporate and institutional banking.