Shares in London are down slightly. Click here for The Trader Nicole Elliott's latest views on the markets.
IC TIP UPDATES:
Shares are down slightly in Cineworld (CINE) this morning as the cinema operator revealed slightly softer trading in recent weeks. That’s largely to be expected - the film slate in the second half of the year was considerably weaker - but it’s clearly unnerved the group’s shareholders. Revenue growth of 6.5 per cent for the year to 19 November suggests a sharp decline since the first half (which was up 12.4 per cent). But with Star Wars VIII due to open in the middle of December, the group said its full year outlook remains unchanged. We spy an opportunity to top-up on today’s share price weakness. Buy.
John Menzies (MNZS) was trading in line with expectations at the half year, according to a trading update from the group. The impact of extreme weather events such as Hurricane Irma has impacted trading across the group’s aviation network, with the effects in the Carribean island of St Maarten expected to persist into next year. The integration of ASIG is going well, with management announcing they expect to beat the full year synergy target. Buy.
Ideagen (IDEA) has secured a contract from a global leader in the petrochemical industry, initially worth $1.6m. 90 per cent of revenue, including $1.1m of licence, is expected to be recognised this financial year. Under the terms of the contract, the respective customer’s North American business will use Ideagen’s flagship Quality Management System Q-Pulse product. Buy.
How do you get the market’s attention? Chrome-platinum producer Tharisa (THS) has offered one solution this morning, revising its dividend policy to pay out 15 per cent of net profits to shareholders, up from 10 per cent. That has resulted in a five-fold increase in the final dividend for the 2017 financial year, which in turn has pushed the shares up 6 per cent in early trading. We remain buyers.
Paragon (PAG) continued to profit from buy-to-let demand during the year to September, with lending up a fifth to £1.4bn. Commercial lending ratcheted-up even further, with loans up two-thirds to £389m. The challenger bank also announced a £50m share buyback and increased its overall dividend by 15 per cent. Buy.
Shares at Empiric Student Property (ESP) fell 5 per cent after the company revealed that margins and dividend cover have been adversely affected by a number of financial and operational inefficiencies within the company and its supply chain. A full operational and financial review has now been completed and improvements are currently being implemented that will restore margins and dividend cover in 2018. The dividend target is also being reduced from 6.1p to 5.5p a share. It’s hard to believe that a company can fail to make headway in such a growth sector of the market. But assuming that the problems have now been addressed, the shares could be attractive at such a large discount to net asset value. Buy
KEY STORIES:
Shares in Telit Communications (TCM) were down 13 per cent this morning, after the beleaguered Internet of Things specialist announced a number of board changes and a trading update. Richard Kilsby has been appointed as non-executive chairman, while Simon Duffy has been appointed as senior independent non-executive director and chairman of the audit committee. Yosi Fait - who became interim chief executive in August, after the resignation of former chief executive Oozi Cats - will now become chief executive. Yariv Davna moves to the role of finance director, having previously been chief operating officer. Enrico Testa will no longer be chairman, but will stay on the board in the role of executive director. Non-executive director Davidi Gilo will step down from the board at the end of December. Within its trading update, Telit said it expects adjusted cash profits for the year to be “materially below previous guidance”. Pressure on gross profit margins has been greater than anticipated, thanks to the switch from higher-margin 2G and CDMA products to lower-margin long-term evolution (LTE) products. Revenues and adjusted cash profits in the second half will exceed those of the first.
Shares in CMC Markets (CMCX) were up 3 per cent after the spread-betting specialist reported revenue for the first-half had increased by a fifth. A 2 per cent reduction in active customers was offset by revenue per client increasing almost a quarter. Pre-tax margins increased to 33 per cent from 25 per cent the same time the previous year.
It’s a painful days for Mothercare (MTC) shares but, frankly, chief executive Mark Newton-Jones says he’s just telling it like it is. In his view, the state of the UK consumer is worse than most retailers are letting on and the current spate of online shopping promotions to cater for Black Friday and the festive period is clouding forward projections. But the UK business isn’t actually Mothercare’s weak spot. International markets, specifically Russia and parts of the Middle East have been hit by unseasonal weather patterns and a slowdown in consumer spending, which caused constant currency sales to fall 7.7 per cent. None of this is permanent, according to Mr Newton-Jones, but he admits that ‘calling the bottom’ has been tricky. As the group waits for those markets to recover, the priority is the group’s digital sales, which now account for roughly 40 per cent of domestic sales and a third of overseas revenue.
Shares in Majestic Wine (WINE) have jumped 8 per cent on the back of interim results this morning, as the group revealed a much more buoyant state of affairs heading into 2018. Investment has started up again in the Naked Wines US business following last year’s profit warning, with mature and existing customers contributing a much higher quality of sales. Margins are on the up too, largely as Majestic works hard to convince customers that a 6 per cent price rise across the board (to offset higher, currency-driven input costs) is worth coughing up for. As investment ramps up, near term profit growth is likely to be hindered, but for a return on investment close to 100 per cent, the market isn’t complaining.
There was some seriously bad news from energy supplier Centrica (CNA) this morning after it warned on full year profits, announcing it had lost 823,000 customers from its consumer division since June this year. The home services division lost a further 39,000 customers in the period, though the drop is said to have stabilised in recent weeks. Shares were down 15 per cent in early trading.
Much of the coverage of Severn Trent’s (SVT) latest results has centred on the story that came out earlier this week revealing its engineers still use dowsing rods to find underground pipes. Amusing though this may be, the company’s adjusted profit figures for the half year to September 2017 were slightly ahead of analyst expectations. This was due to a six months contribution from the Dee Valley acquisition and strong cost control, including a lower spend on infrastructure.
Ever-acquisitive outsourcer Bunzl (BNZL) has announced completion of its deal to buy Hedis, Comptoir de Bretagne and Générale Collectivités, as well as the acquisition of Interpath in Australia. It has also reached an agreement to buy Brazilian company Talge. Shares were flat on the news. Hold.
OTHER COMPANY NEWS:
Though they are almost impossible to forecast, the large stones that occasionally pop out of Letšeng mine in Lesotho are a lifeline to Gem Diamonds’ (GEMD) earnings. Good news today, then, that the group has recovered a high quality 202 carat diamond, its seventh 100-plus carat diamond of 2017.
Shares in Netcall (NET) climbed 9 per cent this morning, after the company issued an AGM statement. Chairman Michael Jackson is due to tell the AGM today that the first few months of the financial year have seen “robust trading” buoyed by demand for the customer engagement software platform Liberty, and MatsSoft - a business recently purchased by Netcall. Mr Jackson will add that the company’s “sales pipeline is healthy” and bosses have “a high level of revenue visibility”.
