Shares in London started the day in subdued mood as traders reflected on the minutes from the Federal Reserve's latest meeting. Click here for Nicole Elliott's latest thoughts on the markets.
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AstraZeneca’s (AZN) pivotal cancer drug trial has failed. The Mystic trial - which examined the efficacy of two drugs in combination - failed to prolong the ‘progression free survival’ in lung cancer. A slew of other announcements - including the group’s half year results failed to hide this massive disappointment from investors. In contrast, the 9 per cent sales fall reported in the first half shows just how vital a new drug launch is for Astra. Shares dropped 15 per cent in early trading, indicating how much hope investors had pinned on the outcome of this trial. We place our buy recommendation under review
Conduct provisions continued to dent Lloyds (LLOY) performance during the first six months of the year. The banking group took a £1.05bn against payment protection insurance, plus an additional £540m for items including packaged bank accounts, as well as a redress scheme for customers charged fees for mortgage arrears. Nevertheless, a 4 per cent uplift in total income plus lower operating costs helped push up pre-tax profits up by the same amount to £2.5bn. Buy.
Schroders (SDR) reported £0.8bn in net new business during the six months to June. Around £1.4bn of this was institutional business, offset by £1.2bn outflows from retail clients. However, the wealth management business gained £0.6bn in net new business. Investment returns of £17.6bn meant assets under management surpassed the £400bn-mark. Buy.
St James’s Place (STJ) gained £4.3bn in net inflows during the six months to June, an increase on the £3.1bn recorded last year. Its pensions business recorded the biggest uplift in new business at £2.3bn. Total funds under management stood at £75.3bn, a £10bn increase on 2016. Buy.
Shares in Brooks Macdonald (BRK) dipped 4 per cent after management revealed plans to deal with legacy issues relating to its 2012 acquisition of former Channel Islands-based business Spearpoint. This will cost around £6.5m. The wealth manager will also invest in its operational infrastructure and risk management ahead of MiFID II, incurring an additional £4m in operating expenses during the year to June 2018. The good news was that discretionary funds under management were up more than a quarter during the year. We place our buy recommendation under review.
Strong demand for antibodies derived from rabbits has kept sales ticking up at Abcam (ABC). The specialist biotech tools company continues to outpace market growth and has reported a 10 per cent increase in like for like revenues in the period to June 2017. Abcam’s strong share price momentum has seen its valuation become even more stretched in the last few months and now trades on more than 30 times 2018 earnings. We downgrade to hold.
Burford Capital (BUR) saw its share price rise 9 per cent in early trading, following interim numbers which comprise the‘’best ever results in Burford’s history’. The legal financing firm saw investment income rise by 148 per cent to $161.6m, and operating profit increase by 151 per cent to $175m. The firm increased its interim dividend by 14 per cent to 3.05¢. Buy.
Shares in Mitchells & Butlers (MAB) were up nearly 7 per cent in early trading after the pub group reported like-for-like sales growth of 2.6 per cent during its third quarter and a 3.1 per cent increase in total sales year-to-date. Chief executive Phil Urban attributed the sunny weather to the strong quarter, but added that cost headwinds remain “challenging”. This increase in cost pressure is expected to weigh on margins at the full year. We’re sticking with sell.
Thomas Cook Group (TCG) reported that group revenue was up 14 per cent during its third quarter to £2.3bn while gross profit increased to £468m. Bookings for the summer 2017 season were up 11 per cent, with holidays to Greece, Bulgaria, and Cyprus becoming increasingly popular destinations. The winter season is already 30 per cent sold with bookings ahead in all markets. The travel group also appointed Jürgen Schreiber and Paul Edgecliffe-Johnson as non-executive directors. Buy.
Shares in car retailer and distributor Inchcape (INCH) nudged up this morning following a good set of annual results from the group. The implementation of the company’s “Ignite” strategy is bearing fruit, sending adjusted pre-tax profits up 20 per cent. That excludes costs associated with certain business restructurings and acquisitions, but chief executive Stefan Bomhard says these costs are limited to the 2016/2017 financial year only. Currency is also flattering figures, sending the top line up 18.7 per cent. However, even at constant currency, the group still managed a 9 per cent improvement in revenues. The dividend also moved up 13 per cent to 7.9p thanks to solid cash flows. Buy.
Greencore Group (GNC) reported a 76.6 per cent increase in revenue on a reported basis to £636.5 during the third quarter, bringing group revenue year-to-date to £1.6bn, 56.6 per cent ahead of last year. The food-to-go business accounted for more than 60 per cent of the revenue in the UK and Ireland division, which saw revenue increase by 20.9 per cent in the period to £370.6m. Convenience foods in the US saw revenue growth of 393 per cent to £265.9m over the quarter, driven primarily by the acquisition of Peacock Foods at the end of last year. Shares rose 1 per cent. Buy.
Flush with heady prophecies of the dawn of the electric car, comment pages have been filled with proclamations of the end of oil in recent weeks. Just as well then, that Royal Dutch Shell (RDSB) was able to beat expectations for its half-year numbers this morning. Basic earnings per share may not have been sufficient to cover a 94¢ interim dividend, but a relentless programme of disposals – and far more importantly, operating cash flow – suggests the business could be sustainable at $50 a barrel oil. Gearing also fell. Our buy call is under review.
The investment case for KAZ Minerals (KAZ) has long been reliant on a smooth ramp-up of its burgeoning operations at Aktogay and Bozshakol. Let’s face it: the copper miner also needed better prices for its key commodity. Luckily, both appear to have happened in 2017 so far. This morning, the group said production had more than doubled year-on-year to 118kt, putting KAZ on track to hit full-year guidance of 225-260kt. Handily, gold production also more than doubled to 93,000 ounces, despite a drop in grade processed. We remain buyers of KAZ.
Britvic (BVIC) reported that group revenue was up 6.5 per cent during the third quarter to £384.6m while volumes increased 2.3 per cent. In Great Britain, revenue growth in the carbonates division was driven by Pepsi Max and R Whites, while the still business saw a slight decline due to aggressive competition in grocery. France and Ireland all experienced revenue growth, though international revenue was flat and conditions in Brazil remained “challenging”. Management expects cash profits to be in line with expectations for the full year despite “challenging comparatives” for the final quarter and a tough economic backdrop. Buy.
Both the North American division and the Spanish and Moroccan business ALSA at National Express Group (NEX) reported a record half year for profits with increases of 8.2 per cent and 9.2 per cent respectively. This contributed to a 11 per cent increase to pre-tax profits at the group level of £88.9m with revenue up 6.5 per cent to £1.17bn. Management emphasised the importance of the group’s diversified business in providing stable revenue and profits. The company generates around 80 per cent of its earnings outside the UK, with the largest contract contributing just 4 per cent to profits. Shares were up nearly 4 per cent in early trading. Buy.
Shares in Diageo (DGE) were up almost 7 per cent in early trading after the spirits company reported that all its regions experienced sales growth. The company’s net sales increased 15 per cent to £12.1bn with operating profit up by a quarter to £3.6bn. North American sales grew 3 per cent, with improvements in all categories apart from vodka. Europe, Russia and Turkey delivered 5 per cent sales growth, as did Africa. The spirits division saw the strongest increase to net sales at 19 per cent, followed by 17 per cent increase in ready to drink and 7 per cent in beer. Management raised their productivity goal to £700m, with two-thirds invested back in the business. Buy.
KEY STORIES:
After spending £697m on rights to the Premier League, it’s no real surprise that Sky (SKY) has reported a drop in operating profits in its results for the year to June 2017. But considering the scale of the content investment, a £97m fall to £1.7bn is not really that surprising. Over all these are decent results with revenue up 5 per cent at constant currencies, despite the rising competition in the TV market. Shares didn’t move off the back of the announcement due to the group’s continuing merger talks with 21st Century Fox. the deal is currently being reviewed by the European Commission on competition grounds.
Shares in Charles Stanley (CAY) continued their strong run, up 3 per cent after management reported net inflows of £0.4bn during the three months to the end of June. Discretionary inflows were £0.5bn, offset slightly by £0.1bn in advisory outflows. Market movements were negative however, wiping £0.1bn off its assets under management. Nevertheless overall funds under management were up 2 per cent, pushing up core business revenue to £37.7m from £33.1m the previous year.
CMC Markets (CMCX) enjoyed a bounce in its shares after management reported a rise in revenues during the three months to June, with conditions normalising to be more in line with those experienced during the three months to September last year. The number of premium clients has increased by 10 per cent during the same period and now accounts for around 75 per cent of revenues.
Shares in Bonmarché (BON) have bounced back by 11 per cent this morning following a trading update from the struggling clothing chain. First quarter sales grew by 7.6 per cent, which represented a 4.2 per cent improvement in like-for-like store sales and a staggering 39 per cent rise in online sales. It’s still early days, but chief executive Helen Connolly says expectations for the full-year remain unchanged at this stage.
Land Securities (LAND) is to sell its 50 per cent stake in 20 Fenchurch Street (the walkie talkie building) to Hong Kong group LKK health Products for £641.3m. LKK is also buying the other half from Canary Wharf. The sale price equates to an exit yield of 3.4 per cent, which means that Land Secs has secured an exceptionally good price. Shareholders will receive £475m of the proceeds through a 60p a share dividend, accompanied by a share consolidation subject to shareholder approval. Hold
An impressive top-line performance by online takeaway service Just Eat (JE.) at the half-way stage has prompted the group’s bosses to upgrade full-year revenue expectations by 4 per cent. The company now expects to report sales in the region of £500m-£515m, although it warns that it plans to re-invest this extra income, meaning cash profit expectations have been maintained at the current level (between £157m and £163m). Is the market getting frustrated with this fast-growth, heavy-investment model? A 3 per cent downward movement in the shares during early trading might suggest so, although long-time investors could be spying a profit-taking opportunity given the 43 per cent share price growth over the last 12 months.
Tate & Lyle (TATE) has made an “encouraging” start to the year. The specialty foods division saw strong volume growth in Latin America, Asia Pacific, Europe, the Middle East and Africa, though the food and beverage market in North America remained “soft” with modest volume growth. The bulk ingredients division did well thanks to demand for sweeteners and industrial starches. Shares were up 3 per cent in early trading.
Shares in recruiter Impellam (IPEL) dropped 5.6 per cent in early trading today after it announced a drop in adjusted operating profit of 33 per cent to £19.1m. The group has been struggling with tough conditions in the UK, which have impacted its specialist staffing and healthcare businesses. We are reviewing our buy recommendation.
Shares in Rentokil Initial (RTO) are up 4 per cent this morning following the release of the group’s half year report. The group’s strategy of aggressive M&A is continuing to pay off, with £206.8m spent in the period. This, combined with organic growth of 4.2 per cent drove revenues up 16 per cent in constant currencies to £1.06bn. Despite the acquisitions, net debt was only up by £0.7m. Expectations for the full year are unchanged.
Shares in Mitie (MTO) are up 4 per cent this morning, albeit after a steep fall last month. The group reported revenue of £535m, up 5.5 per cent compared with the first quarter of 2016. The group stressed Project Helix - its cost-cutting programme - was on track, but said customer service initiatives and upfront overhead costs pushed Q1 profit down on last year. Mitie also made a number of contract wins in the period, including a major grocery retailer, a high-street chemist and an online distributor.
A tough UK retail environment has made life difficult for Intu Properties (INTU). Footfall was down 0.5 per cent in the half year to the end of June, though this was better than the national ShopperTrak retail average, which was down 2.7 per cent. Gains from selling investments flattered operating profit last year to the tune of £74m, leading to a 30 per cent drop for the first half of 2017 to £198m. Like-for-like rental income was down 1.5 per cent but management are guiding second half performance should lead full year figures to be in line with expectations. Hold.
Surprise! Anglo American (AAL) is back to the dividend register, having previously told the market it would forgo an interim payout. The sources of the dramatic improvement in sentiment are threefold: stronger prices, tightly controlled capital expenditure, and a focus on costs and self-help that delivered a 20 per cent increase in productivity. Eighteen months after real existential questions hung over Anglo’s head, the diversified miner now aims to match the dividend policy of peers Rio and BHP. The shares duly responded by rising 3 per cent.
British American Tobacco (BATS) sold fewer cigarettes this year, with volumes down 5.6 per cent at the half-year. But a strong period for the “next generation products”, including the tobacco heating product glo, contributed to a 3.5 per cent increase in revenue to £7.7bn. The company completed its acquisition of Reynolds on 25 July, paying £41.7bn for the remaining 57.8 per cent of the company not already owned by British American Tobacco. The acquisition is expected to improve the group’s position in the next generation products as well as combustibles. Management expects to deliver another year of “good earnings growth” but warned of a “challenging environment” in a number of market. Hold.
OTHER COMPANY NEWS:
Advertising revenues are holding strong at The Daily Mail and General Trust (DGMT), owners of the Daily Mail publications. The rise in digital advertising through the group’s hugely popular Mail Online website has offset the decline in demand for print. Newspaper circulation is also falling meaning revenue in the media business was down 2 per cent on a like for like basis. There are few surprises in this third quarter update, but shares are still struggling, down to below 650p from an 800p peak at the end of 2016.
Indivior (INDV) saw a 12 per cent share price rise in early trading, following a 23 per cent increase in operating profit for the first half and a 40 per cent boost to EPS. Net cash increased by 125 per cent to $295m.
Jardine Lloyd Thompson’s (JLT) interim results inspired a muted market reaction, after the group reported total revenue growth of 11 per cent to £689.9m and a 12 per cent increase in underlying pre-tax profit. The firm’s underlying trading margin was maintained at c. 16 per cent. JLT’s interim dividend rose 5.2 per cent to 12.2p.
Shares in Keywords Studios (KWS) rose 7 per cent following a half-year trading update from the digital game services provider. Adjusted profit-before-tax rose 60 per cent to €9.6m and organic growth was seen across nearly all of the group’s divisions.
Sophos (SOPH), the cyber-security software firm, saw Q1 billings rise by 16 per cent during the quarter ending 30 June. However, adjusted operating profit fell. Management have reconfirmed their outlook for FY2018 with free cash flow ‘broadly unchanged’.
Small-cap mobile payments provider Monitise (MONI) gave a full-year trading update, reporting revenue fell by 27.7 per cent to £50.9m. The business continues to focus on cost control. The company expects its revenue to fall lower in FY2018.
Renishaw (RSW) has reported good growth for FY2017, with adjusted pre-tax profits of £109m slightly exceeding previous guidance of £99-108m. The group reported strong growth across its metrology and health care product lines, which helped drive record revenue of £537m, representing underlying growth of 14 per cent. The balance sheet also appears to be in good nick, with cash of £51.9m, compared to £21.3m last year. That’s provided confidence enough to warrant an 8.3 per cent rise in the dividend to 52p.
