Shares in London were down marginally in early trading after a downbeat session in the US overnight as uncertainty stalks the markets.
IC TIP UPDATES:
Card Factory (CARD) shares have fallen dramatically this morning after higher than expected wage costs and foreign exchange movements led half-year profits to fall marginally short of analysts’ expectations. Special dividends of £51m were just what the market expected to see, (it takes the yield into the region of 7 per cent) but management has warned that a 15p special (confirmed for the third time in a row) should not be seen as an annual event. This, along with the fact that profit growth will be harder to achieve in the near term, has clearly put the market on edge this morning. Our recommendation is under review.
Shares in Close Brothers (CBG) dipped 6 per cent in early morning trading, despite the challenger bank reporting a 13 per cent increase in adjusted operating profit to £264m during the 12 months to the end of July. That’s a £3m beat on company compiled consensus. However, management did warn the trading environment post-referendum remains challenging in some of its banking businesses - retail finance profits were flat on the prior year. We place our buy recommendation under review.
Summertime bookings at Thomas Cook (TCG) were 11 per cent ahead of last year with the average selling price up 1 per cent, according to today’s trading update. Revenue for the upcoming winter period is already 6 per cent ahead of last year with growing demand for holidays to Turkey and North Africa, two regions that had recently struggled to draw tourists due to terrorism concerns. The travel group’s chief financial officer Michael Healy will retire in March next year and will be replaced by current director of financial reporting Bill Scott. Thomas Cook also announced a partnership with LMEY Investments to create a joint hotel investment platform with the aim to accelerate the growth of the company’s own-brand accommodations. It has also bought a 42 per cent stake in Aldiana, the German-based chain of premium club and activity-focused tour operator and hotel management company, from LMEY. Shares in Thomas Cook fell 1 per cent in early trading. Buy.
Next Fifteen Communications Group (NFC) has acquired financial markets research consultancy Charterhouse Research Group through its data and insights subsidiary MIG Global Limited. The £2.75m deal is meant to bolster Next 15’s financial services offering. The digital communications group also announced that revenue was up 16 per cent in the first half to £93.5m while pre-tax profits came in at £12m, a 13 per cent improvement on last year. This mainly reflected acquisitions made over the period, including business-to-business agencies Velocity and Circle, as organic growth was 2 per cent partly due to geopolitical uncertainty. But this should move into the high single digits in the second half of the year thanks to better trading in the second and third quarters. Shares fell 2 per cent. Buy.
Analysts at Numis downgraded their recommendation for Premier Technical Services Group (PTSG) even as its half year numbers beat profit expectations and led to EPS forecast upgrades. Revenues were up 19 per cent to £21.9m for the six months to June 2017, with underlying organic growth at 14 per cent. Statutory pre-tax profit, however, declined 18 per cent due to an increase in exceptionals. Buy.
KEY STORIES:
Shares in AA (AA.) dropped by as much as 10 per cent in early trading after the motor services provider held the dividend flat at 3.6p a share for the six months to the end of July. The group has also put the brakes on its IT investment upgrade programme, as new chief executive Simon Breakwell undertakes a review of the business and a more “measured” approach to the system’s integration. This delay will mean an additional £35m in capital expenditure is incurred during 2019. There was some good news: new paid personal members were up 13 per cent and motor insurance policy numbers were up 8 per cent.
United Utilities (UU.) traded in line with expectations in the six months to September 2017, with profits expected to be higher than the same period last year. Infrastructure renewals expenditure will be lower than the first six months of the last financial year, but will increase into the second half. Net debt is expected to see a “small increase”, but the group notes its credit rating was recently upgraded by Standard & Poors to A- from BBB+.
Pre-tax profits at A.G. Barr (BAG) fell around 8 per cent to £19.4m during the first half of the year as the beverages group experienced cost inflation and spent more money on advertising and new products. One such product was the reformulation of Irn Bru to contain less sugar ahead of the UK’s sugar tax. The company is aiming for at least 90 per cent of owned brands to contain less than 5g of total sugars per 100ml by the end of the financial year. Management believe the investments are paying off as market share in England and Wales was “particularly pleasing”. Shares were up nearly 1 per cent in early trading.
OTHER COMPANY NEWS:
Shares in Taptica (TAP) rose 8 per cent in early trading, after the mobile advertising group reported a 27 per cent increase in revenues in the first half, an uplift in gross profits and a 51 per cent rise in pre-tax profits. The mobile business represented 91 per cent of revenues, up from 71 per cent in the first six months of 2016.
Time Out (TMO) reported a double-digit increase in revenues, while pre-tax losses widened to £16.3m in the first half from £8.5m a year earlier, driven partly by continued investment in the Time Out Digital proposition. Costs in the second half, which had been expected to be lower than in the first half, are now likely be flat. The media and entertainment company says that trading is in line with expectations for the full year.
WANdisco (WAND) announced that its WANDisco Fusion technology has been “fully integrated” with Microsoft Azure HDInsight. This means that people using Microsoft Azure will benefit from WANDisco’s provision of continuous data replication, with data analytics and offsite disaster recovery. Shares rose 3 per cent in early trading.
Netcall’s (NET) share price rose 8 per cent in early trading after the small cap software group announced a rise in operating profit and an improvement to its mix of cloud services contracts. Revenues fell slightly because of the company’s move to a cloud revenue model.
Shares in MySale (MYSL) are up by nearly a fifth over the last 12 months, so perhaps it isn’t a surprise to see the share price fall off the back of another seemingly impressive set of numbers as investors take the opportunity to bank some of the gain. The second half was particularly strong for the members-only online retail shopping club, with gross margins widening significantly to generate a 225 per cent surge in pre-tax profits. As to the shares’ eye-watering valuation, analysts at N+1 Singer argue such growth and subsequent earnings upgrades demand a premium.
