After another record high in the US overnight, London equities have only managed a marginal gain in morning trading. Click here for the Trader Nicole Elliott's latest thoughts.
IC TIP UPDATES:
Full-year results from Asos (ASC) might show a slight slowing in the UK sales growth rate, but given the group’s work on lowering prices and improving delivery options for customers, it’s encouraging to see retail gross margins actually growing. Internationally the group is also going great guns, which contributed to a 145 per cent surge in the bottom line - ahead of some analysts’ expectations. Chief executive Nick Beighton confirmed prices would now remain steady across the board this year, and remarked that the group has hit a record number of active customers. He described the group’s performance on home soil as “solid in a competitive and promotional market”. We remain buyers.
Hutchison China Meditech (HCM) has a strong track record for positive clinical trial results. AstraZeneca (AZN) has struggled on that front in recent months. Fortunately the drug the two groups are developing together - savolitinib - seems to be leaning towards the Chi-Med fortune in its final stage clinical trial. Preliminary results indicate that the drug works well in combination with Tagrisso (one of Astra’s cancer drugs) in patients with lung cancer. The drug is due to read out its final trial results in early 2018 and then is likely to be sped through the US Food and Drug Association’s approval process. Peak annual sales could reach $15m to $20m according to some analysts. We have a buy recommendation on both Astra and Chi-Med.
A surging copper price gave a big boost to Rio Tinto (RIO) shares on Monday, though third quarter production data out data may have cooled sentiment slightly. Slower than expected delays to the ramp up at Escondida, and mine sequencing changes at Kennecott, mean that full-year expected copper output has dropped to 460-480kt, from 500-550kt most recently. Fortunately, bauxite guidance has been revised up, while iron ore shipments are on course to meet full-year expectations of 330mt. Shares are flat today, though we remain income buyers.
News flow from President Energy (PPC) has been heavy of late, following last month’s acquisition of Puesto Flores and Estancia Vieja fields from Chevron. Today, shares are up another 6 per cent, after the Argentina-focused producer confirmed it had received $1.5m for its first shipment of oil under its operatorship of the field. The stock remains a buy, and readers can find our free podcast interview with executive chairman Peter Levine here.
Are Pearson’s (PSON) fortunes turning? Management seems to think so, having narrowed its full-year guidance to the upper half of its previous range in a third quarter trading statement. Shares rose over 5 per cent in early trading as a result. The group says the decline in sales in its US higher education business was better than it could have been, while the plans to accelerate digital transformation are on track. That said, the company continues to see threats to the potential growth in the US higher education business - the vast majority of group sales - and remains way behind many peers when it comes to digital output. We place our sell recommendation under review.
Administration software provider Equiniti (EQN) has completed a three for 14 rights issue, issuing 64,309,234 new shares for 190p each. Of these, 62,658,832 were taken up, leading to a rump placing of the remaining shares, which took place this morning. Equiniti issued the shares to raise money for the acquisition of Wells Fargo Share Registration & Services. Buy.
KEY STORIES:
Shares in resort park and attraction operator Merlin (MERL) plummeted by more than a fifth after it was revealed that “difficult” summer trading - the result of weaker tourist numbers following a spate of global terror attacks and and poor weather - has kept like-for-like revenue growth virtually flat for the year to date. This compares to market expectations of roughly 3 per cent growth by this stage, forcing analysts to re-evaluate full-year forecasts this morning. Management has said it expects cash profits to fall somewhere in the range of £470m to £480m (compared to Numis’ previous estimated for £486m).
In better news for Merlin, the theme park operator has gained a license to create Peppa Pig themed attractions from the lovable character’s owners Entertainment One (ETO). The partnership will give Merlin exclusive rights to roll out entertainment attractions, rides, and accommodation in all territories excluding the UK and China. Merlin expects to open in-park areas in two resorts in 2018 and the first standalone ‘Peppa Pig land’ the year after that.
This third quarter trading update from Moneysupermarket.com (MONY) is something of a relief after the poor interim results which released over the summer. Revenues in the three months to September 2017 rose 6 per cent - slightly ahead of broker expectations - as the home services division (which includes energy) came back to life after a dreadful first half of the year. That said, the usually strong insurance and money divisions continue to slow and there seems to be a lot more work for new chief executive Mark Lewis to do to get the business back on track.
When BP (BP.) publishes its third quarter results next month, investors will no doubt hope for some sign that the oil major is starting to balance its books. One step towards reducing its debt pile was formalised yesterday, when the company commenced an initial public offering of BP Midstream Partners (NYSE:BPMP). Up to 46.7 per cent of the subsidiary will be sold to investors, which at an anticipated price of $19-$21 a shares should net BP more than $800m, and as much as $1bn.
Prices are rising in the UK, but it hasn’t deterred consumers from getting a jump on Christmas shopping - at least when it comes to food. According to the latest data from Kantar Worldpanel, sales across all four of Britain’s largest supermarkets - Tesco, Sainsbury’s, Morrisons and ASDA - grew during the 12 weeks ended 8 October, with around £4m was spent on mince pies during that time frame. Of course, inflation itself is more than likely a key driver of those gains. UK consumer price inflation figures due from the Office for National Statistics (ONS) today are expected to show prices rising at the highest level since 2012.
Holiday timings seem to impact hospital companies as well as tour operators. That’s according to private hospital group Mediclinic (MDC), which blamed the lower patient numbers in its core Swiss and South African operations on the timing of Easter. The good news is the troubled Middle East division performed no worse than expected in the first half.
OTHER COMPANY NEWS:
Shares in dotDigital (DOTD) rose 4 per cent in early trading, after the digital and email marketing company reported 19 per cent revenue growth to £32m, pre-tax profit growth of 30 per cent to £8.1m and an 18 per cent improvement to the net cash position in the year to 30 June. The group also lifted the dividend to 0.55p, from 0.43p a year earlier.
Diamond giant De Beers’ eighth sales cycle of 2017 came in at $370m, down 27 per cent on the last auction and a quarter off the revenue achieved in the sale cycle in 2016. However, investors in parent Anglo American (AAL) appear to have accepted the suggestion from De Beers chief executive Bruce Cleaver that “sales were in line with expectations” tempered by the closure of polishing factories in India and Israel and a lower offering overall. Shares are unmoved.
Model maker Hornby (HRN) has been in a bad way for some time, so another profit warning this morning clearly hasn’t caught the market off-guard. New chief executive Lyndon Davies - who has only been in the post for two weeks after Phoenix Asset Management took control of the company - said the group would stop selling large quantities of stock at discount, a tactic which has been blamed for the earnings shortfall this year. Separately, interim chairman David Adams has announced his intention to step down from the board to take up another appointment. The search for his replacement is ongoing.
Benchmark’s (BMK) new vaccine manufacturing facility is in operation. The Braintree site, which cost £17m, has processed its first commercial batch of antigen, which will be used in a number of new vaccines for fish farming. It’s nice to see a bit of good news from the aquaculture experts in a year which has seen shares drop by over a third.
Shares in WANdisco (WAND) rose 3 per cent this morning, after the software group announced the integration of its patented WANdisco fusion technology with Microsoft Azure Data Box. This means Microsoft customers can transfer information from big data applications to the Azure platform, skipping any downtime or extra costs that such data transfers would typically entail over the network. The company is also holding its capital markets day today.
The Competition and Markets Authority (CMA) announced a clearance decision regarding IP Group’s (IPO) intended acquisition of Touchstone Innovations (IVO). It will not refer the takeover to a Phase 2 investigation under the provisions of the Enterprise Act 2002. This means the offer timetable has now been unfrozen.
