IC TIP UPDATES:
The long-predicted special dividend for shareholders of recruiter Hays (HAS) has materialised. The group will pay an additional 4.25p on top of an increased core dividend of 3.22p for 2017. As guided in July, the group beat operating profit expectations for the year to June 2017, reaching £212m against expectations of £210m. Cash generation has also remained strong. Buy.
Morses Club (MCL) reported a 25 per cent rise in total credit issued during the 26 weeks to the end of August, reflecting an increase in agents. Customer numbers were up 12 per cent year-on-year to around 233,000. The proportion of loans to higher quality customers increased by 7 per cent. Management reckons its recently secured loan facility will lead to another 400 agent hires. Buy.
Shares in Restaurant Group (RTN) were up nearly 7 per cent this morning after the company announced that early signs of improved volume momentum in its struggling leisure business during the first half of the year. This included a new menu at Frankie & Bennies with entry prices reduced by more than a fifth and like-for-like dishes 7 per cent cheaper on average. Like-for-like sales across the group were down 2.2 per cent but free cash flow remained relatively flat, which helped management to maintain the dividend. Buy.
Chesnara (CSN) continued to churn out enough cash to warrant an interim dividend increase of 2.9 per cent during the first half of the year. All divisions contributed to cash generation, which more than trebled. Pre-tax profits were £52m, up from just £0.2m the same time in 2016, following the completion of its acquisition of Legal & General’s (LGEN) Dutch business. Buy.
Organic portfolio purchases were up almost a third at Arrow Global (ARW) during the first six months of the year to £125m. Core debt collections increased 11 per cent, pushing revenue up almost half to £150m. Management also announced the proposed acquisition of UK and Ireland mortgage servicing business Mars Capital for £15m. Buy.
KEY STORIES:
The UK Gambling Commission has fined 888 Holdings (888) a record £7.8m for failing to prevent problem gamblers from accessing their accounts on the bingo platform. The issue had gone unnoticed for 13 months, enough time for gamblers to deposit a total of £3.5m into their accounts. The regulator also said that 888 had failed to recognise the signs of problem gambling, which it said was “so significant that it resulted in criminal activity”. With $173m (£134m) in net cash 888 looks well placed to withstand the fine. Management stated that they are “committed to providing players with a responsible as well as enjoyable gaming experience”. Shares were up more than 4 per cent in early trading.
Ladbrokes Coral Group (LCL) saw strong digital sales over the half year with revenue in this division up 14 per cent at constant currency to £374.5m driven by multi-channel offerings in the UK and Italy as well as growth in Australia. Revenue from UK betting shops was weaker, down 6 per cent, but this was largely expected. Integration of the Coral business is ahead of schedule with cost synergies of £150m per year, which is more than double the original estimate. Management are still waiting of the outcome of the UK Government’s review of the gambling sector due in the autumn, particularly any changes made to rules around fixed odds betting terminals. Shares were up around 2 per cent in early trading.
British American Tobacco (BATS) is planning to integrate its next generation products (NGP) business fully into the larger company. Management are looking to leverage the scale and expertise of the whole group to drive growth in these alternative products which are “fast becoming a key part of our mainstream business”. A number of management changes have been made, including a managing director of NGPs, and the group believes that the new structure will allow for “better, more integrated resource allocation”.
Management at Victoria (VCP) said in a trading update prior to the annual general meeting that the floor coverings company is eyeing acquisition opportunities, particularly in Europe. They added that the company has made progress so far this year in its UK, European and Australian markets and is on track to meet its goals for the year.
Shares in Serco (SRP) are up 7.6 per cent this morning after analysts at UBS issued a note upgrading the company to a buy yesterday. The note described 2018 as an “inflection point” for the entire UK outsourcing sector, but only upgraded Serco, downgrading G4S (GFS) to neutral and maintaining its sell recommendation on Carillion (CLLN). Serco was upgraded on the basis of its enterprise value to sales trading in the bottom quartile of the sector, which is already at a 16 per cent discount to the 10 year average. It is also at an advanced stage in its turnaround plan. Food for thought, but we’re staying at hold.
OTHER COMPANY NEWS:
Alfa Financial Software (ALFA) published its maiden results after listing on the London Stock Exchange in June this year. The provider of software for the asset finance industry saw revenue growth of 57 per cent to £45.1m, pre-tax profit growth of 15 per cent and two new customer wins in the first half. The total customer number is now 31. At the time of listing, Alfa was the biggest UK technology IPO since 2015.
Microgen (MCGN), which specialises in business-critical software, has announced its acquisition of RevStream, a provider of revenue management enterprise software, for a total consideration of £9.7m. Of this, £7.7m will be payable in cash; 70 per cent was paid on completion, and 30 per cent will be paid over the next two years. The £9.7m also includes 421,582 shares in Microgen, equivalent to £2.0m, to be issued in two years’ time. RevStream also has £2.5m in debt and debt-like instruments, which will be settled by Microgen under its ownership. The acquisition will enhance Microgen’s existing Aptitude business. Shares were up 7 per cent in early trading.
Shares in Telit Communications (TCM) were up 13 per cent in early trading, after the company announced that its ME910C1-NA module is the first “Telit LTE Category M1 (Cat M1)” module to be certified for use on AT&T's LTE (long-term evolution) network. Interim chief executive Yosi Fait notes that this is an “important milestone” for Telit’s customers. Those using 2G or 3G modules from Telit “can now move to the newly certified Cat M1 module, go through the required AT&T testing with our help and start deploying Cat M1 products in a matter of weeks”. Telit is an enabler of the Internet of Things.
