TIP UPDATES:
Secure Trust (STB) focused on lower risk products during the first half of the year, which also meant lower margins. Nevertheless the challenger bank grew its pre-tax profits by 11 per cent to £14m, after increasing its loan book by more than a third. Buy.
Kenmare Resources (KMR) turned in strong half-year figures with revenue up 82 per cent to $102m, on the back of strengthening production of ilmenite and sales. Total shipments were up by a fifth, while unit operating costs were down 14 per cent. It has taken some time, but global demand seems to have caught up with the increased production levels that followed in the wake of China’s construction boom. Buy.
While shares in energy consultancy Utilitywise (UTW) have been on a rollercoaster over the past few months, rival Inspired Energy (INSE) have been climbing steadily and are up another 1.5 per cent this morning with the release of the interim results. The group has achieved double digit growth across the board, with revenue up 20 per cent to £12.2m and adjusted cash profit up 26 per cent. Unfortunately, this includes the net debt, which was up 56 per cent to £12.6m. We remain buyers.
Shares in Hostelworld (HSW) were up nearly four per cent in early trading after the budget accommodation company reported a 17 per cent increase to group revenue at constant currency to €46.6m (£42.7m) during its first six months. Group bookings improved by 11 per cent but saw a slight decline year-on-year due to terrorist attacks and other geopolitical events in Europe during the period. The company has continued to focus on its core Hostelworld brand, which now makes up 92 per cent to group booking compared to 85 per cent during the same period last year. Buy.
Persimmon (PSN) reported very strong margin growth in the first half, helped by management “exercising strong control over our costs”. The gross profit margin rose to 30.5 per cent from 26.9 per cent a year earlier, while the operating margin rose to 27.3 per cent from 23.5 per cent. The group continued to make progress on its capital return plan, paying an interim dividend in March and making the sixth instalment of 110p per share just after the balance sheet date. Revenues grew by 12 per cent to £1.7bn and pre-tax profits rose by 30 per cent to £457m. Buy.
A 16th consecutive quarter of net fee income growth was not enough to please investors in specialist recruiter Empresaria (EMR). Shares were down 2.7 per cent in early trading following the release of the group’s interim results, which showed a 50 per cent increase in revenue and 12 per cent increase in adjusted profit before tax. Increased amortisation following the acquisitions of Rishworth Aviation and ConSol Partners weighed on operating profit, however, leaving it flat in constant currency terms. Net debt also crept up to £15.9m following the investments, but the group expects this to come back down to around £10m in the second half of the year. We are staying on Buy.
While full-year earnings for BHP Billiton (BLT) came in slightly behind market expectations this morning, shares in the commodities giant are 3 per cent to the good in early trading. Why? Net debt was far lower than analysts had predicted at $16.3bn, leaving sufficient liquidity for growth – which should increase towards $8bn next financial year. And it now appears that management is following the advice of Elliott and rowing back on its plans to double down on US onshore oil and gas assets. The division has now been deemed ‘non-core’ and will be sold. Our buy call is under review.
Our value tip of the year Cairn Energy (CNE) has had a bumpy ride so far in 2017, but half-year results for the Africa-focused oil and gas explorer were warmly welcomed by the market this morning. The group posted a net profit of $314m, boosted its estimated resources at the SNE field from 473 million barrels of oil (mmbbl) to 563mmbbl, and remains focused on a drilling campaign of 10 wells offshore UK and Norway between now and 2019. We remain buyers of Cairn, which ended the period with net cash of $232m.
After KAZ Minerals threw down the half-year earnings gauntlet last week, pure play copper peer Antofagasta (ANTO) today posted its own set of strong results. Helped by a better tax rate than expected, earnings per share came in at 29.5c, 232 per cent up year on year and ahead of consensus forecasts. Net debt was also trimmed, while the interim dividend stepped up in line with a policy to pay out 35 per cent of earnings. Our profitable long-term buy call is under review.
KEY STORIES:
By this time tomorrow Cape (CIU) will have some idea of the level of acceptances under the takeover bid by French scaffolding business Altrad – and whether the offer is to be extended. For, now, however, shareholders will be pleased with a first-half performance that saw revenue up by 47 per cent to £582m and operating profits increasing from £6.8m to £37.6m. Results will be weighted towards the first-half as two large contracts, including Shell’s floating Prelude platform, come to an end. But it may all prove academic depending on the success of the bid.
Half-year figures for Wood Group (WG.) – a 32 per cent drop in operating profit, an 11 per cent decline in revenue, and a higher-than-expected net debt figure – reflected the “different market conditions across our business”, according to chief executive Robin Watson. The main focus remains the merger with Amec Foster Wheeler, which remains on course to complete in the fourth quarter of 2017.
It seems the worst was not over for Provident Financial (PFG) during the first half. After reducing its home credit workforce and switching to using full-time employees, the rate of the rate of progress in restoring collections during the third quarter has been too weak. As a result, management expects a pre-exceptional loss of between £80m and £120m during 2017. Perhaps even more worryingly, the Financial Conduct Authority (FCA) is undertaking an investigation into Vanquis Bank’s repayment option plan product, which contributed around £70m in gross revenue. The FCA is investigating the period from 1 April 2014 to 19 April 2016. Vanquis agreed to suspend selling the product in April 2016. As a result of its troubles, chief executive Peter Crook has stepped-down with immediate effect and the interim dividend has been suspended. It is also unlikely a full-year dividend will be paid. We downgraded the stock from a buy to hold in July. More to follow.
