Read The Trader Nicole Elliott's take on the markets this morning and Japan PM Shinzo Abe of the ruling LDP's resounding victory in yesterday’s general election. Click here for the full story.
IC TIP UPDATES:
CRH (CRH) has gained the necessary shareholder approval from Ashgrove Cement for its proposed acquisition, worth $3.5bn. The deal is expected to complete at the end of this year or beginning of 2018. Our buy recommendation is under review.
Moody’s has upgraded Aviva’s (AV.) credit rating by one notch to Aa3. Buy.
Shares in Essentra (ESNT) were actually marked up on release of a Q317 trading update in which it confirmed that operating margins at its health and personal care packaging business would decline slightly in the second half of 2017 after two of its Puerto Rico sites were hit by hurricane Maria last month. The business unit has struggled with operational issues since it was acquired from Clondalkin Group in 2015, but there’s little management can do when faced with an Act of God. The impact from hurricane Maria is estimated at £1.2m to £1.5m before recovery from insurance, but the market looks to have priced in a bigger hit. Sell.
Petra Diamonds’ (PDL) first-quarter revenue fell by 17 per cent following the recent seizure of a consignment of diamonds by the government of Tanzania. The consignment came from the Williamson mine, majority-owned by Petra, but authorities alleged the miner had under-declared the value of the stones by about half. Petra maintained full-year production guidance of between 4.8m and 5.0m carats despite labour disruptions, while the expansion programmes remain on track. The Cullinan plant is expected to achieve nameplate capacity of 6m tonnes per annum during the six months through to the end of June 2018. Buy.
Clinigen (CLIN) has acquired International Medical Management Corporation (IMMC). This is Japan’s largest supplier of unlicensed medicines. The cost of the acquisition was undisclosed. The group notes that this purchase will expand Clinigen’s footprint in Japan, after launching its business there in October 2016. Japan is the second-largest pharmaceutical market globally. For the year ending 30 September, IMMC’s unaudited gross profit was ¥352m (£2.4m). Buy.
Shares in Pendragon (PDG) fell more than 16 per cent this morning after the online automotive retailer warned that underlying pre-tax profits for the full year will £60m. Gross profit from new cars fell by 21 per cent over the third quarter and by 20 per cent for used cars. Management blamed the decline in demand for new cars and the consequent used car price correction, but believe that the company will become profitable again next year. A strategic review into how Pendragon can provide more sustainable earnings has been launched. Our buy tip is under review.
KEY STORIES:
Shares in Renewi (RWI) - formerly Shanks - were up 6 per cent in morning trading after management upgraded its trading expectations for the year to March 2018. Its commercial division performed particularly well, with increased waste volumes driven by improving economic growth and construction market recovery. This, along with the outperformance of its monostreams business, more than offset previously reported problems at its municipal Canadian business and the ATM segment of its hazardous waste division.
The share price of Dialight (DIA) tanked following release of a third quarter update in which the LED lighting group said that because of short-term production challenges trading profit for the 2017 year-end would fall in the range of £13.5m to £15.5m. The group expects to end the current financial year with “a strong net cash position” and the board is considering reinstating dividend payments, though that didn’t stop this morning’s sell-off.
Shares in Spire Healthcare (SPI) rose by more than a tenth after the group announced that it had received a preliminary, conditional offer from Mediclinic International to acquire its entire share capital. The proposal, which Spire received after market close on 18 October, entailed 150p in cash and 0.232 new Mediclinic shares for every Spire share. The offer valued each Spire share at 298.6p per share. Spire’s board (except Danie Meintjes, chief executive of Mediclinic), and its financial and legal advisers, have unanimously rejected the proposal “on the basis that it significantly undervalues Spire and its prospects”. They have advised shareholders to take no action.
Arqiva – a national provider of television, radio broadcast and communications infrastructure in the UK – has announced its intention to undergo an IPO, in order to join the main market of the London Stock Exchange. The group notes it is also an “early participant” in developing machine-to-machine infrastructure in the UK, using its smart water and energy metering services and other Internet of Things products. As at 30 June, Arqiva had an orderbook of £5.7bn; its revenues are supported by long-term inflation-linked contracts. It should also be able to “pay a generous dividend” because of strong cash flows and a “stable, long term capital structure”. For the current financial year, management expects dividends to amount to £195m.
OTHER COMPANY NEWS:
GlaxoSmithKline (GSK) announced this morning that the US Food and Drug Administration (FDA) has approved Shingrix for the prevention of shingles in adults aged 50 and older. Shingrix is described as a “non-live, recombinant subunit vaccine given intramuscularly in two doses”. The US Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices (ACIP) should vote on a recommendation for Shingrix’s usage at a meeting on 25 October; subject to this, Shingrix will be available “shortly”.
Braemar Shipping (BMS) reported a 5 per cent fall in revenue amid “challenging market conditions” in the first half. The shipbroking division’s sales remained broadly flat, while the technical business underwent a restructuring programme - revenues were lower here, but the underlying operating losses improved. The smallest logistics division saw performance “slightly behind” the first six months of 2017. The group also acquired NAVES, a financial advisory business operating in the maritime industry.
