Companies roundup: Rolls-Royce margins & EasyJet dividend

Rolls-Royce (RR) set some ambitious targets as new chief executive Tufan Erginbilgic spelled out his strategy for reshaping the company. It pledged to make a big improvement in its civil aerospace arm, setting a medium-term operating margin target of 15-17 per cent. 

Last year, it achieved a margin of just 2.5 per cent. As well as focusing on its main market serving widebodied jets, Erginbilgic said it was “well-positioned” to enter the buoyant narrowbody market. It also plans to improve margins in its defence arm from below 12 per cent to 14-16 per cent and power systems margins from 8.4 per cent to 12-14 per cent. 

Group-wide, it is targeting a margin of 13-15 per cent and free cash flow generation of between £2.8bn-£3.1bn. Rolls-Royce is also planning to offload businesses worth between £1bn-£1.5bn over the next five years but said these would not count as part of its cash targets. Erginbilgic said the engine maker was “at a pivotal point in its history”. The company’s share price jumped by 7 per cent, taking their year-to-date gain to over 160 per cent. MF

Read more: Using Rolls-Royce to understand day trading

EasyJet confirms new dividend

Low-cost carrier easyJet (EZJ) reported a return to full-year profit following a strong summer period where revenue increased 42 per cent to £8.2bn.

The company attributed the growth to stronger pricing, an increase in passenger numbers and the continued growth of its holidays arm. Pre-tax profit moved from a £208mn prior-year loss to a pre-tax profit of £432mn. The company increased capacity by 14 per cent to 92.6mn seats and passenger numbers by 19 per cent to 82.8mn. Revenue per seat also rose by more than a fifth to £79.84. 

Early bookings for next year are also “pleasingly ahead of last year”, although the conflict in the Middle East will have some impact: flights to Israel and Jordan are currently suspended. Shares were flat in early trading, even though the results were at the top end of recent guidance and the company reinstated a dividend payment. MF

Read more: Europe's low-cost airlines face stronger headwinds

Pets at Home reiterates guidance amid CMA probe

Pets at Home Group (PETS) has declared it’s confident in delivering full-year underlying profit before tax of £136mn – even after a period of “highest execution risk”.

In the 28 weeks to 12 October, the company transitioned its stores to a new Stafford distribution centre, relaunched its brand and continued building a new digital platform. Revenue from its veterinary group was up 19 per cent, while sales in its retail business grew just over 5 per cent. All told, this looks like a successful first half, with turnover expanding as the business invests in its future. Shares were up nearly 2 per cent by mid-morning. 

However, they’re still down some 22 per cent over the last six months after the Competition and Markets Authority announced an investigation into the pricing of veterinary services. The group said it is cooperating with the regulator and that it expects “no impact on our growth strategy or ambitions”. JJ 

Read why we’re still bullish on Pets at Home

Fidelity China Special Situations to absorb rival

Fidelity China Special Situations (FCSS) is to absorb smaller rival Abrdn China (ACIC) under proposals that will be put to shareholders.

The tie-up would create a trust with £1.2bn in net assets based on current figures, with the boards arguing that any such merger would bring enhanced liquidity while also allowing some shareholders to consolidate their holdings across the two trusts. The enlarged vehicle should also be able to lower fees.

Abrdn has been in the process of aggressively consolidating its investment trusts this year, with a number merging either into other Abrdn-managed trusts or rival funds. DB

Read the IC’s special report on investment trusts here

Greencore makes volumes progress

Greencore (GNC) grew revenues by 10 per cent to £1.91bn on the back of pricing action and “volume growth ahead of the wider market” in its annual results to 29 September. Takeaway sandwiches and meal deals are being snapped up as more workers return to the office, with the company’s convenience options proving an attractive choice amidst cost-of-living pressures. 

But the shares fell 4 per cent in early trading after the food manufacturer reported a 2.8 per cent decline in adjusted pre-tax profits and a 20-basis point contraction in adjusted operating margin. Finance costs hurt, rising 72 per cent to £21.5mn. CA

Renew keeps faith in maintenance market

Renew Holdings (RNWH) reported a 17 per cent increase in pre-tax profit on the back of a double-digit increase in revenue.

The company recorded a pre-tax profit of £58.1mn, as sales rose by 13 per cent to £961mn in the year to September. Despite more pressure being placed on the public purse, the company said demand within the maintenance and repair sector in which it operates is still increasing. The company’s shares rose by 3 per cent. MF

Read more on Renew in our Aim Top 100 special report

Treatt gets back on track

Natural extracts and ingredients manufacturer Treatt (TET) appears to be rebounding after a disappointing year for its share price. Revenue for the 12 months to the end of September was up 3 per cent in constant currency to £147mn, while the gross margin improved by 2.5 percentage points to 30.4 per cent thanks to pricing, mix and efficiency improvements. 

The group also managed to shrink its net debt pile to £10.4mn from £22.4mn. Broker Peel Hunt said sales have been “held back in the short term by destocking”, but that demand for Treatt’s products has continued to be robust. Investors are feeling similarly bullish – with shares up more than 2 per cent in this morning’s trading. JJ

Treatt is famed investor Lord Lee’s most successful investment. Find out why here

Loungers pushes ahead with site expansion

Loungers’ (LGRS) like-for-like sales were up by a quarter against pre-pandemic levels in the half year to 1 October, as the business continues to roll out new sites. The hospitality operator opened sixteen new sites in the half, with another six after the period-end. Statutory revenues rose 22 per cent to £150mn and pre-tax profits surged by 39 per cent to £3.94mn against last year. 

Chief executive Nick Collins said Loungers’ trading “should be taken as yet another reminder that it is not all doom and gloom in the UK hospitality sector”. Elsewhere, the company confirmed that chief financial officer Gregor Grant is standing down, with a hunt on for his successor. CA

Main shareholder bids for Domino’s franchisee

Shares in DP Eurasia (DPEU) jumped by more than a fifth after it received a takeover approach from its main shareholder, Jubilant Foodworks.

The 85p per share offer values DP Eurasia at around £125mn and is a 24 per cent premium to yesterday’s closing price. DP Eurasia holds the master franchise for Domino’s Pizza in Turkey, Georgia and Azerbaijan. It also used to hold the master franchise for Domino’s Pizza in Russia but had to file for bankruptcy in the country in August. That, and the hyperinflationary environment the company has faced in Turkey, has made trading difficult.

Although DP Eurasia declared a 13 per cent increase in pre-tax profit from continuing operations of 242mn Turkish lira (£6.6mn) for the first six months of this year, it also recorded a 178mn lira loss from its discontinued Russian arm. Jubilant, which holds the master franchise for Domino’s in India, Sri Lanka, Bangladesh and Nepal, bought around a third of DP Eurasia’s shares from a private equity fund in 2021 and has since increased its holding to just below 49 per cent. It said DP Eurasia shares were unlikely to achieve “the re-rating the business deserves in the medium term” due to investor concerns about geopolitical and currency risks. DP Eurasia’s shares jumped by 23 per cent to 84p by mid-morning. MF

Digital 9’s shares slump after agreeing to rejected ‘strategic review’

Digital 9 Infrastructure’s (DG9) share price sank 10 per cent in early trading after the internet infrastructure trust agreed to a “strategic review” it had previously rejected. Last month, disgruntled shareholders proposed a probe into the £349mn sale of its entire stake in data centre business Verne Global. DG9 rejected the proposal at the time because the sale was still ongoing but, having completed the deal yesterday, has now agreed to it.

Chair Phil Jordan said: “The Board has sought to maximise shareholder value from the company's ownership and development of Verne Global and in doing so, help to strengthen D9's financial position and cash resources. Having reached this milestone, the board will maintain oversight of D9's portfolio and together with our advisers, engage with D9's portfolio companies in conducting the strategic review.” ML