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News & Tips: Vertu, Rio Tinto, G4S & more

European equities higher today
September 1, 2017

IC TIP UPDATES:

News this morning that Volkswagen and Toyota both plan on launching scrappage schemes to support new car sales will likely be welcomed by British motor retailers, who have been struggling to support this product category this year. It therefore seems timely for Vertu (VTU) - one such retailer - to assert that since its AGM in late July, the company has been trading in line with expectations. Not much detail on what those expectations actually are, but things didn’t look too rosy at the time of the last trading statement - particularly where used car margins were concerned. A recent property disposal in Leeds, however, has netted the company an additional £14m in cash, and will make its way into “exceptional profits” come the results in early October. We remain sellers.

News for our two large diversified mining tips today: Rio Tinto (RIO) has completed the sale of its Coal & Allied business to Yancoal, receiving $2.45bn in cash. Under the terms of the deal, Rio will also receive a further $0.24bn in guaranteed royalty payments by the end of 2018. Capital losses on the asset means the taxable gain on the asset disposal is “expected to be relatively low compared to the quantum of the taxable gain”, meaning Rio could pass on the majority of its 136c per share windfall to investors if it wanted. Elsewhere, BHP Billiton (BLT) is reported to have appointed Barclays and Citigroup to advise it on the sale of its US shale business. The group has also raised its debt buy-back offer from $2.5bn to $2.94bn. Rio and BHP are both a buy.

Micro Focus (MCRO) has completed its merger with Hewlett Packard’s software business. The $8.8bn (£6.8bn) transaction moved Micro Focus into first place as the UK’s largest public technology company. Micro Focus returned around £368m in cash to its shareholders via a share scheme, representing 168.03p per share. And, following admission, American Depositary shares representing 222m shares were issued to HPE investors; they now own around 50.1 per cent of the company’s fully diluted share capital. As planned, Chris Hsu has become chief executive of Micro Focus, having been executive vice president and general manager of HPE Software. Micro Focus’s Kevin Loosemore stays on as executive chairman. Buy.

Rathbone Brothers (RAT) has ended its talks with Smith & Williamson about a potential takeover of its investment and tax management peer. Chief executive Philip Howell said the wealth manager was unable to agree terms that offered shareholders “an appropriate balance of risk and reward”. Rathbones has incurred a non-underlying charge of £5m. Hold.  

KEY STORIES:

G4S (GFS) is back in the news for the wrong reasons this morning, after an undercover investigation by the BBC’s Panorama uncovered alleged abuse and assault of detainees at Brook House immigration removal centre near Gatwick. Nine members of staff have been suspended pending an investigation. This is not the first time Panorama has uncovered abuses by the company. In 2016 it uncovered alleged mistreatment of young people at its secure training centre in Medway (pictured above), dealing a significant reputational blow. With the shares up more than 1 per cent it’s too early to say whether the same will happen again, but management’s reaction to this will be telling.

OTHER COMPANY NEWS:

Jackpotjoy (JPJ) is on the hunt for a new UK-based independent non-executive director after Jörgen Nordlund stepped down from the role. Mr Nordlund was a co-founder of the online gambling company, which listed in London last year.

A number of directorate changes at Britvic (BVIC) have come into effect. Chairman Gerald Corbett has retired and been replaced by John Daly as of today. Ian McHoul is now senior independent director and Sue Clark is chairman of the remuneration committee. Joanne Averiss steps down from the board today to join PepsiCo.