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News & Tips: Vertu, Telford Homes, Character Group & more

Spain stocks up after political mood eases but only modest gains in London’s FTSE 100
October 11, 2017

IC TIP UPDATES:

There’s a cautious tone struck today by managers at motor retailer Vertu (VTU). The group reported flat interim revenues of £1.45bn this morning and a slight nudge down in the gross margin from 11.1 per cent to 11 per cent. As expected, new car volumes suffered, with prices up 5 per cent on average to combat currency-related headwinds. On the used side, margins slipped, but management hopes a rebalance of demand and supply with ease issues there going forward. Aftersales did well, but analysts have expressed concern over the shift to lower margin warranty work in this division. Despite news of an extension to the current share buyback scheme, we remain sellers.

Jupiter Fund Management (JUP) reported net inflows of £1.3bn during the three months to the end of September and market gains of £181m. That meant assets under management were up a fifth year-on-year to £48.4bn. That was better than expected. Its investment trusts were the only product to suffer net outflows at £13m. We maintain our buy call.

Arbuthnot (ARBB) grew its aggregate number of loans written during the three months to the end of September by three-quarters, compared with the same time in 2016. The more mature loan book of its private bank grew at a slower rate than its commercial bank, but still managed an increase of a third in its loans. Buy.

Liontrust Asset Management (LIO) gained net inflows of £178m during the six months to the end of September, helping lift assets under management to £9.6bn. UK retail funds gained £126m in net inflows, although institutional assets suffered £11m in net businesses losses. Nevertheless we maintain our buy call.

Shares in Telford Homes (TEF) dipped 2 per cent after management announced pre-tax profits during the first half of its current financial year would be lower than last year and the second half of this year. This is due to the timing of developments management said. However, it said it was on track to exceed £40 million of profit before tax for the year to 31 March 2018, in accordance with market expectations. Buy.

Shares in Character Group (CCT) fell more than 20 per cent this morning after the toy developer warned that performance in the year to August will be “significantly below current market estimates”. The bankruptcy of Toy R Us, its third largest customer, hurt the group, as did a “very conservative approach” from other international customers. Management still expect cash flow to remain positive, reserves to grow, and Christmas stocks to remain under control. Our buy tip is under review.

Supply chain solutions provider Wincanton (WIN) has won a three-year contract with IKEA to provide home delivery services in South East England. The company will handle deliveries for three IKEA stores along with Harlow customer distribution centre. Shares fell nearly one per cent in early trading. Buy.

Are the remote and often frigid mines owned by Polymetal International (POLY) also overlooked? The company could easily make a claim that they are, particularly one surveys the Russian gold miner’s reserves base – equal if not larger than larger peer Randgold. Today provided another reminder of the scale of Polymetal’s assets: it upgraded its ore reserves at the Komar gold deposit in Kazakhstan by a stunning 535,000 ounces, after a busy drilling campaign. The impact will be meaningful, and immediate: the new ore will displace the lower-grade material from the previously-targeted Varvara deposit, thereby increasing production at lower costs. Buy.

The somewhat opaque nature of the rutile market means any market commentary on prices can have a big effect on share prices. That happened to Kenmare Resources (KMR) last month, when stockbroker Davy upgraded its outlook for ilmenite and zircon prices. All the better then, that the Mozambique-focused miner today reports another quarter of record ilmenite production, and assures the market that 2017 will set an annual production record. Managing director Michael Carvill also said Chinese demand was again picking up “following a slower period in the last couple of months”. Zircon prices have continued to grow in the second half of the year; accordingly Kenmare remains a buy.

KEY STORIES:

A disastrous first quarter last year has led to a better first opening period for homewares retailer Dunelm (DNLM). Weather was largely to blame for the prior year’s performance, but this time, like-for-like stores sales rose 6.5 per cent. Online did even better, up 46.2 per cent, bringing total underlying sales growth up 9.3 per cent. Around 16 per cent of all sales are now made online following the acquisition of Worldstores, and the group is confident it can maintain this current momentum into the festive period.

Countryside Properties (CSP) reported an increase in completions of more than a quarter during the 12 months to the end of September. The private average selling price reduced by 8 per cent to £430,000, in line with management expectations. The partnership division, which works with local authorities and housing associations increased completions by 17 per cent to 2,192 homes.  

Investors inferring from recruiter Robert Walters’ (RWA) update yesterday that the UK economy isn’t doing so bad after all will have had a nasty shock this morning. Pagegroup (PAGE) reported net fee income down 7.6 per cent in the UK, while all of its other regions enjoyed healthy double-digit growth. Shares were down more than 5 per cent on the announcement. 

OTHER COMPANY NEWS:

Shares in Proactis (PHD) were down 4 per cent at the time of writing, after the specialist in spend control solutions reported results for the year ending 31 July. Revenue rose by 31 per cent to £25.4m, with underlying organic growth of 9 per cent. The company saw an operating loss of £2.6m, swinging from a profit of £1.9m a year earlier. Management notes that this is due to non-recurring administrative expenses, largely resulting from the acquisitions of Millstream in the reporting period, and Perfect Commerce after the year end. The Perfect purchase has since rendered Proactis “the sixth largest global ePurchasing pure-player” in terms of revenues.

Aim-quoted Corero Network Security (CNS) announced a resell partnership with a leading US based global cloud DDoS (distributed denial of service) service provider. This will entail Corero using its SmartWall Threat Defense System technology.

We just conducted a recent podcast with market newcomer and online fashion retailer Quiz (QUIZ), and the group has followed up today with an update ahead of interim results due in late November. Group revenues rose 35 per cent over the first half to £56m, and gross margins remain “in line with expectations”. The company operates both on and offline, but it’s the former where growth is accelerating. Web-based sales more than trebled to £13.8m in the same period, reflecting the opening of a new 180,000 sq ft distribution centre last summer, increased marketing spend, and broader product ranges.