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News & Tips: Pearson, RBS, EasyJet & more

The FTSE 100 index was up just before midday
August 4, 2017
by

Read this morning's take from The Trader's desk, following yesterday's announcements by the Bank of England.

TIP UPDATES:

Pearson (PSON) continues to underwhelm. The publisher has reported interim results in-line with the lowered expectations set out when the group sold its stake in Penguin Random House in early July. The first half contributes just a very small proportion of Pearson’s annual numbers so it is unclear whether the US division is benefitting from recent strategic initiatives. But we still have little confidence for the long term outlook and the rebased dividend means there is really nothing to hold on for. Sell.

RPS (RPS) - our 2017 Recovery Tip of the Year - is up 6.8 per cent in early trading following the release of its interim results. It’s not hard to see why, pre tax profits were up 35 per cent to £27.2m while leverage reduced to 1.5 times from 2.2 in June last year. Profits grew across two of its three segments. Only the smallest, North America, saw a constant currency decline of 2 per cent. Buy.

S&U (SUS) tried to reassure investors with its trading update for mid-May to the end of July, reporting a 20 per cent rise in new loans for its Advantage Finance business and an increase in quality applications. It also reaffirmed that it does not participate in the PCP market and since it has an average loan size of £6,200, any knock-on impact on residual markets would have a limited impact on S&U. However, with consumer credit sentiment changing, we place our buy recommendation under review. Buy.

KEY STORIES:

Royal Bank of Scotland (RBS) reported its first attributable profit in three years during the six months to June, at £939m. Litigation and conduct costs were much lower at £396m, while net interest income increased across its personal and business banking, commercial banking, Ulster Bank and international businesses. The net interest margin was also held stable at 2.18 per cent and its common equity tier one ratio improved to 14.8 per cent - above its 13 per cent target.

Smart Metering Systems’ (SMS) chief executive David Harris has resigned due to health reasons. Finance director David Thompson is taking over as interim chief executive with immediate effect.

Hargreaves Lansdown (HL.) has revealed it will not pay a special dividend during this financial year, after being informed by the Financial Conduct Authority that it needs to hold an additional £50m in regulatory capital. However, management reported trading figures ahead of consensus for the 12 months to June 2017, with assets under administration up more than a quarter to to £79bn.

New accommodations and attractions gave revenue a boost at Merlin Entertainment (MERL). Sales were up 9.6 per cent at constant currency to £685m during the first half with 6.2 per cent more visitors. But weak performance at the midway attractions weighed on operating profits, which fell 8.3 per cent at constant currency. UK terror attacks “immediately and significantly” hurt domestic demand and management is cautious of how the fear of other incidents could affect trading in the second half, which tends to be the busiest time for the company. Shares were up 2.5 per cent in early trading.

OTHER COMPANY NEWS:

YouGov (YOU) may only make a small proportion of its revenue from election polling, but the recent global political turbulence has served it well. High demand for data services and an improvement in profitability in the custom services division means full year results are likely to come in ahead of expectations. Shares leapt 9 per cent in early trading

Summer holidays are in full swing at easyJet (EZJ). The budget airline carried 8.2m people during July, 8.9 per cent more than it did the same time last year. Load factor increased by 1.1 percentage points during the month to 96.8 per cent. This brings the rolling 12 month total passengers carried to 78.8m with a load factor of 92.2 per cent. Shares remained flat on the news.