- Netflix hints at stock buybacks as subscribers hit 200m
- Online sales double at Dixons Carphone
LSE’s $27bn Refinitiv takeover inches closer to completion
The end is finally in sight for London Stock Exchange (LSE) and its takeover of financial data provider Refinitiv, almost a year and a half after the transaction was first announced. Today, the capital markets group said completion of the all-share deal will occur on 29 January, subject to a handful of regulatory and merger control approvals.
Satisfying all authorities has proven both complex and expensive. In December, the LSE was forced to sell its shareholding in the Borsa Italiana Group to rival Euronext for €4.32bn, and disclosed that professional advisers on the deal were expected to collect $1.1bn in fees, in one of the largest pay-days in UK corporate history.
Shares in the LSE are up by more than 60 per cent since news of the combination first broke in July 2019, but analysts at Berenberg last week argued the FTSE 100 star could return a further 85 per cent over the next three years.
The brokerage argues that “real synergies” from the tie-up have been understated, and that an increasing focus on data, information and risk services warrants a higher multiple premium. Investors are also under-estimating the group’s capacity to pay dividends and buy-back stock, Berenberg said. AN
Netflix hints at stock buybacks as subscribers hit 200m
Netflix (US:NFLX) said that it will no longer need to raise debt to support its day-to-day operations and expects to reach cash break-even for the first time in the 2021 financial year. For the past decade the streaming giant has used high-yield bonds to fund the creation of its huge cataolgue of original content, putting it in close competition with big Hollywood studios.
It seems that strategy has paid off, as paying subscribers breached the 200m milestone in 2020. The company added 8.5m new users in its last quarter, beating its forecast for the period, as its international markets outpaced growth in domestic sales.
Netflix also flagged that as it generates excess cash, it will consider returning cash to shareholders through ongoing stock buybacks. With shares up 12 per cent in pre-market trading, lingering concerns over a slowdown seem to have retreated for now. LA
Online sales double at Dixons Carphone
If further confirmation was needed over the accelerated swing towards online retail channels, it has been provided by a peak trading update from Dixons Carphone (DC.) covering the 10 weeks ended 9 January 2021. Revenues for the electricals segment increased by 11 per cent, with strengthening sales for large-screen TVs, smart tech and all areas of computing & gaming.
However, mobile sales in the UK and Ireland were down 40 per cent after last year's store closures. But encompassing all of this was a 121 per cent hike in online sales through the key trading period. The question for investors is whether these figures reflect long-term trends, as opposed to temporary effects. Separately, it was announced that Bruce Marsh has been appointed as its new chief financial officer to replace Jonny Mason - the leaving date has not been set as yet. MR
CMC revs up for new projects
Spread-betting platform CMC Markets (CMCX) – or as it now brands itself, a leading global provider of online trading and institutional ("B2B") platform technology solutions – has continued to trade strongly in the three months to December, leading the board to predict full-year net operating income come will come in around £387m.
That’s at the upper end of the current analyst forecast range, which after a strong run of consensus-beating profit upgrades was not enough for some investors, who sold off in early trading.
Chief executive Peter Cruddas said he was “very positive about the outlook and strong momentum that is underpinned by my incessant desire to keep investing in the business through technology and quality staff". Details on a raft of new projects, dangled at the group’s interim results in November, will be released in the coming months, Mr Cruddas added.
Last month, the former Conservative party treasurer was awarded a peerage by the prime minister despite opposition from Lords Appointments Commission. AN
Hotel Chocolat: Not just for social Christmases
Anyone harbouring doubts that Hotel Chocolat’s (HOTC) business model only works when shoppers are pounding the streets and impulse drives them towards the alluring smell of roasting cocoa will have had their fears allayed by the company’s interim trading update.
It turns out that customers don’t only buy the charmingly packaged sweet treats when they need a last minute present for the distant relative they might see on Christmas day. They seek out the products, increasingly online. In the 13-weeks to 27 December, the company reported a 19 per cent increase in revenues as growth in online sales more than offset store closures.
Though light on detail the update also provides reassurance for those doubting the size of the domestic premium chocolate market and therefore the growth on offer for Hotel Chocolat; international expansion is well underway. The US and Japan - the company’s first adventures overseas - seem to suggest that the very British brand has an international audience. US sales rose 19 per cent year-on-year (albeit from a very low base), while the joint venture in Japan opened another 12 outlets.
Chief executive Angus Thirwell does hint that elevated costs from the pandemic might impact profits when the company releases its interim results in early March - in September the company revealed operational expenses from pandemic planning and a £10m impairment on the value of its St Lucia cocoa estate and its short leases on retail outlets in the UK - but this doesn’t take away from the fact that Hotel Chocolat is a well managed business with multiple growth opportunities. MB
“Going concern” uncertainties mount for Superdry
Fashion retailer Superdry (SDRY) recorded a 23.4 per cent revenue decline in the 26 weeks to 24 October 2020, almost mirroring the percentage of trading days lost over the period.
E-commerce sales were up by half, though a proportion of the sales were simply customers transferring to online channels. Problems linked to excess inventory were also apparent, indirectly leading to a 460-basis point reduction in the gross margin, as the group was forced to reduce stock levels, presumably leading to a reduction in full-price sales. The statutory loss per share increased from 7.9p a share to 18.8p year-on-year.
As at 9 January, 173 of Superdry’s owned stores (72 per cent of the estate) were closed, the highest level since April 2020. The group is witnessing a material shortfall in total sales receipts versus previous forecasts. Consequently, further doubts have emerged over the group's ability to continue as a going concern, with the uncertainty linked specifically to debt covenant tests. MR
Glencore sells Zambian copper mines for $1.5bn
Glencore (GLEN) has agreed to sell its Mopani copper assets in Zambia for $1 (£1.36) plus $1.5bn it had loaned to the business, to be paid back over time. The diversified mining and trading company has had various conflicts with the Zambian government in recent years over the assets, and management flagged a sale to the government in the December trading update.
Glencore will recoup around $1.5bn it had loaned to the mine and smelter’s holding company, through an agreement from the government to put 3 per cent of gross revenue toward the debt repayments, as well as a third of cash profits. Glencore had already pulled Mopani’s production from its 2021 guidance pending the sale. AH
Airlines need a big summer as travel corridors close
Summer bookings are up 250 per cent at easyJet (EZJ). The volume of Brits booking “well deserved holidays” is hardly surprising "after the horrendous year we have had", said chief executive Johan Lundgren in an interview with BBC Radio 4’s Today programme.
Early bookings will provide some consolation to the airlines, which have a rocky few months of restrictions ahead. The complete closure of all travel corridors - meaning everyone arriving in the UK must now self-isolate - adds further pressure to easyJet and its peers, which are already operating enormously restricted schedules. Travellers must now also show proof of a negative test three days before the start of their journey, or face a £500 fine.
Michael O’Leary at RyanAir (RYA) has previously expressed concern about the impact of this pre-departure testing, which makes it difficult for cheap, short haul airlines to put lots of flights on. Potential holiday-makers may hesitate to take an expensive test and risk quarantine for the sake of just a few days away.
But Mr Lundgren is looking with optimism to Covid-19 vaccine progress, as the rollout programme is expanded to ‘priority groups three and four’ - those over the age of 70 and patients with severe health problems. He hopes that once the elderly and the vulnerable are immunised, the government can begin to put a plan in place to help the travel sector recover. MB
Funding Circle turns a (heavily adjusted) profit
It’s getting harder to shake the notion that Funding Circle (FCH) has had a ‘good’ pandemic. Today, in another expectation-defying trading update, the peer-to-peer lender said it will make a profit of “no lower than £15m” – albeit at the heavily adjusted Ebitda level – in the second half of 2020, thanks to record lending levels and continuing participation in government-mandated business lending schemes.
Income in the six months to December rose 26 per cent year-on-year to £121m, thanks largely to a 27 per cent surge in loans under management in the UK, its core market.
However, originations in the US and developing markets, which together made up just over a fifth of all loans at the end of 2020, dropped 44 and 89 per cent respectively, as the US government’s PPP programme tailed off and Germany and the Netherlands moved to a referral model.
With the loan book performing in line with expectations, chief executive Samir Desai said the group was well-placed to benefit from “an acceleration in the shift towards online in small business lending”. Shares in the group, down four-fifths since their 2018 listing, edged up 2 per cent on the news. AN
AFH gets payables boost
A sharp reduction in deferred payments to historic acquisitions was the most notable detail in preliminary numbers for Aim-listed wealth manager AFH Financial (AFHP), as headline profit figures were largely muted by the timing of the group’s financial year.
After dropping in the first half along with financial markets, the group’s underlying Ebitda edged up 5 per cent to £18.1m in the year to October, leading to a small improvement in margins and paving the way for management to hold the full-year dividend 6p per share.
A bigger swing was seen on the balance sheet, as the so-called outstanding contingent consideration on past acquisitions fell from £37.9m to £19.3m, following a rise in pay-outs and the re-calculation of performance-linked awards. This in turn led to a decline in long-term trade and other payables, and a bump in shareholder equity from £78.8m to £87.6m.
The group now expects the remaining contingent consideration to fall below £10m by April, with little sign that this has coincided with client attrition. Outflows for the year were equivalent to just 3 per cent of the £6.2bn in funds under management at the start of the period. AN
Babcock sinks as Covid pressures continue
Defence engineering group Babcock (BAB) saw its underlying operating profit plunge by more than a third year-on-year in the nine months to 31 December, to £202m. This reflects the government’s insourcing of civil nuclear contracts and weakness in civil aviation that has been exacerbated by Covid-19.
Looking ahead, the group is still facing choppy waters. While the fourth quarter is typically the strongest for the group, it says that the impact of the pandemic has “worsened in most of our markets”. The order book has also contracted from £17.2bn at the half-year stage to £16.8bn.
There are further complications as Babcock has initiated a detailed review of its balance sheet and contract profitability. Warning of potential “negative impacts” on its current and future financial years, there could be writedowns to come.
The slew of bad news in the unscheduled trading update sent the shares crashing by close to a fifth and has also prompted analysts to downgrade their forecasts. Broker Liberum says it is “not entirely surprised by another downgrade” and believes that a dilutive fundraise has now become more likely. NK
Ex-Petrofac exec admits to bribery charges
A former Petrofac (PFC) executive has pleaded guilty to another three counts of corruption, this time for bribes paid or offered to secure $3.3bn (£2.4bn) in contracts in Abu Dhabi in 2013 and 2014. This is the second set of charges against David Lufkin, who in 2019 admitted to corrupt behaviour in Iraq and Saudi Arabia.
Petrofac, where he was head of global sales, said “a small number of former Petrofac employees are alleged to have acted together with the individual concerned” but that no charges had been brought against any “group company or any other officers or employees”. The oil and gas services company’s share price was down over 20 per cent on the news, to 131p.
The specific charges this time relate to money paid in exchange for contracts at the Upper Zakum and Bab Integrated Facilities projects. The former is majority owned by the Abu Dhabi National Oil Company (ADNOC), and ExxonMobil (US:XOM) and Japan Oil Development Company, while Bab is also operated by a state-owned body controlled by ADNOC. Mr Lufkin will be given his sentence next month. AH
The lawsuits are hard to forget at Indivior
Settling the biggest opioid lawsuit in United States history is a point Indivior (INDV) chooses to ignore in its annual trading statement. Higher than expected revenue (now forecast to come in between $645m and $650m) and lower than expected operating and research expenses means management “now expects to deliver adjusted pre-tax income ahead of its previous expectations.”
But there are going to have to be some serious adjustments to rub out the legal settlement, which cost the company, its former parent Reckitt Benckiser (RB.) and its ousted chief executive a total of $2bn in July. And there’s also the more recent £1bn claim from Reckitt Benckiser, for Indivior’s role in the original lawsuit to consider. The company was charged with illegally marketing its opioid addiction treatment Suboxone Film and making false statements about the medicine’s safety “to increase its sales”.
The opioid crisis in the US is an immensely thorny issue which has rattled the pharmaceutical industry. Around 50,000 Americans die every year as a result of opioid addiction - an illness which can be almost entirely attributed to irresponsible drug makers.
Indivior might claim to be playing an important role in helping the country recover from this tragic situation, but it’s hard to have much respect for a company which has spent more money on legal fees (for both fighting lawsuits and protecting its patents) than it has done on drug development since it was spun out of its parent company in 2014. MB
Building back
Americans will receive $1,400 each under President-elect Joe Biden’s coronavirus recovery spending plans. The hope is that citizens will go out and spend once free from the shackles of the deadly virus.
It’s a similar story in the UK, where some experts are confident that the economy (which shrank another 2.6 per cent in November) will bounce back in the second half of 2021 as the money saved during the pandemic will be released into the economy as everyone begins to enjoy themselves.
But this optimistic image fails to account for unemployment - which has climbed to almost 5 per cent in the UK and 3 per cent in the US - or the fact that many companies do not have the cash to survive this latest round of lockdowns.
For many businesses, recovery hopes are pinned on the deployment of the vaccine, which is encouraging on both sides of the Atlantic. Over 3m people have received either the Pfizer or Moderna jab in the US and Joe Biden has promised a further $415bn of spending to help with the rollout. In the UK around 3m people have received their first dose and with 21m vials of vaccine on British soil, the government is confident that it can hit its target of vaccinating the nation’s entire elderly population by mid-February. MB
Clinigen unfazed by industry disruption
For many healthcare providers, the opportunity cost associated with the industry focus on Covid-19 is gradually coming to light. However, it isn’t immediately obvious what effect pandemic-linked disruption has had on trading at Clinigen (CLIN). Though delays to normal hospital procedures have had a negative impact, the global pharmaceutical and services group revealed that net revenues for the second half of 2020 were at least £230m, representing a 4 per cent increase on a constant currency basis.
In addition to implementing measures to counter any Brexit-related supply chain issues, the group also focused on reducing operational leverage. Net debt came in at 2.8 times profits, well below the group's temporary banking covenant multiple of 3.5.
With elective surgery rates constricted through the northern winter, we might realistically expect a substantial industry backlog has emerged. But previous guidance for 2021 remains unchanged, with growth expected in the lower end of the 5-10 per cent medium-term range. MR
Dechra rushes beyond expectations
Dechra Pharmaceuticals (DPH) said that the outlook for FY2021 has improved markedly, exceeding earlier management expectations, on the back of a strong showing through the second quarter.
For its half-year to 31 December, net revenue was up by a fifth on the prior year comparator at constant exchange rates. The specialist veterinary pharmaceuticals group recorded strengthening growth across its European pharmaceuticals segment, with performance helped along by the acquisition of the Osurnia product portfolio from Elanco Animal Health Inc in July. The same was true of North America, which saw a 17 per cent per cent like-for-like sales increase, once the impact of recent acquisitions are factored in.
Dechra did caution that the performance metrics may have been flattered somewhat, given that they are set against “a soft comparator period which was adversely impacted by supply issues". But shareholders can certainly take heart from the performance of the new subsidiaries. MR
Lockdown 3.0 will be more challenging for Biffa
Despite the tightening of Covid-19 restrictions towards the end of 2020, waste management group Biffa (BIFF) saw a stronger-than-expected performance in its third quarter. Net revenue continued to improve between October and December, recovering to around 95 per cent of pre-pandemic levels.
However, the group has warned that the current lockdown will have a more material impact, with industrial and commercial waste volumes forecasted to drop to around 70-75 per cent of prior year levels, down from 85 per cent in November.
Still, thanks to the solid third quarter, the group’s full year expectations are unchanged, and it remains confident in the outlook for its 2022 financial year, “after the impacts of the pandemic are over”. House broker Numis anticipates that underlying cash profits (Ebitda) for the year to 31 March will come in at £123m – down from £174m in 2020 – rising to £164m in 2022. NK
Housing market slowdown flagged
Taylor Wimpey (TW.) ended 2020 with an order book of £2.7bn, up almost a quarter in value on the same point the prior year, following a strong recovery in activity since last year’s spring lockdown.
Overall UK completions declined by more than a third following that lockdown and cancellation rates were above typical levels at 20 per cent, although have since returned to a more normalised level of around 16 per cent.
Net cash improved to £719m, up on £497m at the end of June. Management expects to recommence ordinary dividend payments in 2021, starting with the payment of the 2020 final dividend and will review the special dividend in 2021 for payment in 2022.
However, expectations of a slowdown in activity across the housing market are rising, with the Royal Institution of Chartered Surveyors residential market survey revealing that a net balance of -22 per cent of respondents anticipated a contraction in sales over the next three months. A negative net balance implies that more respondents expect sales to turn negative than those positive. EP
Centrica set to top analysts’ expectations
Centrica (CNA) has guided that its adjusted EPS for 2020 will exceed company-compiled consensus of 4.8p . This comes as trading proved “resilient ” in the second half of the year.
While electricity demand from business customers was down 15 per cent year-on-year in the second half, this was an improvement from the 30 per cent decline seen in the second quarter. The number of UK energy supply and services customers has remained “broadly unchanged” from the half-year stage – good news considering Centrica has been losing customers in recent years as they turn to cheaper competitors.
The group finished 2020 with £2.8bn of net debt – down a tenth versus a year earlier – and this will come down further thanks to the £2.7bn sale of its US business, Direct Energy, which completed earlier this month. Cash collection is said to be in line with previous years and its restructuring plans are on track.
Looking ahead, Centrica remains cautious about the outlook for 2021 amid the ongoing Covid-19 restrictions, continued pressure on business energy demand and the potential for a further working capital outflow and bad debts. It is also wrangling a dispute with its workers – British gas engineers recently undertook a five -day strike over their pay conditions, and a second round of industrial action is planned for later this month. Connected to this, Labour MP Navendu Mishra is calling for the Financial Conduct Authority (FCA) to investigate whether Centrica failed to meet its obligations to British Gas insurance customers while its workers were on strike.
Despite the uncertainty Centrica is facing, this latest update provided a handy 3 per cent boost to the shares, which are now sitting at 51p. Long-suffering shareholders will be pleased to hear that analysts at RBC believe that the dividend could be reinstated towards the end of the year. NK
Tesco and Hilton post buoyant numbers
FTSE 100 supermarket chain Tesco (TSCO) enjoyed a record Christmas period, helped by the demand for online shopping also flagged by fellow grocers earlier this month. The group delivered more than 7m orders carrying more than 400m individual items, it said.
Overall UK sales for the third quarter ending 28 November grew by 6.7 per cent, rising to a rate of 8.1 per cent during the festive period. Online sales growth stood at more than 80 per cent, or almost £1bn extra sales over the full 19-week period.
Little wonder, perhaps, that Tesco supplier Hilton Food (HFG) also posted buoyant figures on Thursday, performing ahead of management’s expectations for the year ending 3 January. Hilton attributed that improvement to its own expansion as well a pandemic-induced shift to eating at home.
Hilton said turnover in the UK was underpinned largely by red meat and fish volumes. Volumes in Central Europe “have remained buoyant”, it said, with volume growth in fresh food across Tesco and Polish store chain Zabka. HC
Retirement products surge at Just Group
Just Group (JUST) shares climbed up a tenth after it said that sales of its defined benefit de-risking products hit £1bn in the second half of 2020. That pushed overall retirement income sales up by 12 per cent for the year, which together with further de-risking of the group’s lifetime mortgage portfolio has been received as a sign of further recovery under chief executive David Richardson.
Though its shares are up more than 70 per cent in the past three months, the group still trades at less than half book value, though an average 12-month broker target price of 98p suggests analysts believe a heavy discount is still warranted. AN
