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News & Tips: Centrica, Wizz Air, SSE & more

A gloomy start in early trading brightened later as the FTSE 100 turned positive
November 20, 2017

IC TIP UPDATES:

Wizz Air (WIZZ) is set to add four new planes to its fleet at London Luton from June next year, bringing the total number of aircraft it has based there to five. The additional planes will allow Wizz Air to offer more than 6.9m seats on its 46 routes to 20 countries out of Luton. Five new routes will be launched to Cyprus, Slovakia, Estonia, Albania, and Ukraine. Shares were flat in early trading. Buy.

In a trading update, TT Electronics (TTG) revealed that organic group revenue for the four months through October rose 6 per cent year-on-year. Order books across all three divisions continued to be substantially ahead of the prior year. During the period, the group completed the sale of the Transportation Sensing and Control (TS&C) division for a total cash consideration of £123.5m, moving TT into a net cash position. Buy.

The Financial Reporting Council has closed one investigation into outsourcer Mitie (MTO), at the same time as it has opened a second investigation. The FRC was looking at the group’s annual report and accounts for the year to October 2016. It closed the investigation with no intention of pursuing it further, but has opened another into the preparation and approval of the financial statements for the year to March 2016. This latest investigation is in relation to the council’s ongoing investigation of auditor Deloitte for its role in the preparation of the same reports. No update has been given on the Financial Conduct Authority’s ongoing investigation into the timeliness of the group’s September 2016 profit warning and financial results for the year to March 2016. Sell.

KEY STORIES:

Shares in Nex Group (NXG) were down 3 per cent in early morning trading on the back of its first-half results, despite the margin erosion suffered by the Nex Optimisation business already being flagged in October. Trading profit at that business was down more than a fifth during the period, due to increased investment in its sales and marketing and a restructure of its business units. That offset a 12 per cent increase in trading profit at its markets business.

William Hill (WMH) reported that group sales increased 4 per cent so far in the second half of the year, driven by net revenue growth up by a third in the US. UK retail sales improved by 3 per cent while online saw 6 per cent net revenue growth. Chief executive Philip Bowcock said that he looks forward to “much needed clarity” regarding the future of fixed-odds betting terminals and hopes for “evidence-based decision making”. Shares were flat in early trading.

Major energy supplier Centrica (CNA) has attempted to steal a march on the government this morning with the release of its own proposals to reform the UK energy market. The share prices of the listed members of the ‘Big 6’ energy suppliers have been suppressed in recent months by the prospect of a price cap for customers on the Standard Variable Tariff - a significant chunk of customers for Centrica and others. The group is proposing seven unilateral steps to improve the lot of their customers. These include withdrawing the SVT for new customers, providing new offers and more proactively engaging with those on legacy contracts who could be getting a better deal. It also recommended seven steps for the government and Ofgem such as phasing out the SVT and funding energy policy from general taxation - a sizeable proportion of energy bills goes into funding renewable energy, which the big 6 contend is driving the increases in energy bills. Analysts at RBC Capital Markets said the proposals may reduce the risk of a price cap, but will also harm CNA’s margins and “are not a one-stop panacea for a damaged industry”.

Bruce Thompson, chief executive of Diploma (DPLM), announced the group’s full year numbers for the last time as chief this morning. He is going out with a bang. The company beat earnings expectations thanks to stronger than expected trading over the period. EPS grew 19 per cent over the year, sending shares up more than 7 per cent in early trading. We are reviewing our hold recommendation.

OTHER COMPANY NEWS:

Today marks Boku’s (BOKU) admission to Aim and first day of dealings. The company is a specialist in direct carrier billing - meaning people can charge purchases made on their mobiles to their phone bills. Its customers include Apple, Google, Facebook, Microsoft, Spotify and Sony. Boku connects these customers with mobile network operators’ billing and sales systems. A significantly oversubscribed placing, led by Peel Hunt, saw strong demand from institutional investors and raised £45m in total. On admission, Boku’s market cap - based on the placing price of 59p per share - is around £125m. Among its key strengths, Boku lists its scale, experienced management team, strong investment in its systems and platform and its IP portfolio. Management believes they generate higher revenue than any other independent carrier billing business.

Shares in Xaar (XAAR) were down a fifth this morning, after a trading update from the provider of industrial inkjet technology. Bosses noted back in July that revenues from new products were forecast to be second-half weighted. However, they now expect second-half revenue to be “broadly in line” with the first half. This stems largely from “fewer than planned” installs of the 2001 Printhead as competition intensifies. Stronger performance was seen from the 1003 printhead. Meanwhile, supply constraints meant that Xaar could not fulfil all demand this year for their 1201 Printhead. They expect supply to improve and “significant growth” in 2018. Management is pleased with their reducing reliance on Xaar’s legacy ceramics business. In keeping with their 2020 vision, they expect 80 per cent of underlying revenues in 2017 to stem from the seven new products and new businesses they purchased over the last two years. Today’s announcement follows an update a couple of weeks ago, when the company announced two developments. Its Engineering Printing Solutions business signed Milan-based COMEC Italia as its European distributor. And, Xaar and BASF – a chemical company – are collaborating to improve the Photopolymer Jetting process, enabling  manufacturers to produce better, less expensive 3D parts.

Energy market regulator Ofgem has issued two statements on ‘Big 6’ energy supplier SSE (SSE), concurrently closing one investigation and launching another. The regulator found the supplier did not go through the appropriate processes when arranging prepayment meter installations with customers, some of whom were at risk of going into debt. SSE has offered to compensate 337 customers who ended up paying more. With that investigation closed, the regulator has opened an investigation into whether the group failed to give accurate information about the cheapest tariffs relating to its ‘cheapest tariff’ messaging in annual statements.

Loo-roll maker Accrol (ACRL) is hoping to raise £18m through a placing of 36m shares at 50p on 11 December. The company suspended trading on 5 October at 132p after an unexpected spike in input costs, and is now restructured its debt and is looking to cut operation costs. Management now expect the company to either break even or make a marginal loss in the year to April 2018.