London equities have hit reverse this morning after reports of a potential divorce settlement agreement with the EU played havoc. Click here for The Trader Nicole Elliott's latest thoughts.
IC TIP UPDATES:
Shares in Cineworld (CINE) are down 15 per cent this morning after the company confirmed that it is in discussions with Regal Entertainment Group in the US for a reverse takeover. The possible $23 per share offer for Regal would be funded through a combination of incremental debt and raising equity through a rights issue. Cineworld’s largest shareholder Global City Holdings has already committed to a full subscription. Our buy tip is under review.
The Department for Transport announced a new strategic vision for UK rail networks, including reopening railway lines that had previously been closed to increase capacity and reduce congestion in British trains. Shares in Stagecoach (SCG) are up 7 per cent this morning after the transport group welcomed the changes and opening of rail routes. Changes to franchises made in the document that are operating by Stagecoach include the 2020 introduction of the East Coast Partnership, which Stagecoach and Virgin are in discussions with the government to operate. Shares in FirstGroup (FGP) are up more than 1 per cent this morning after the government confirmed it would extend the company’s contract for Great Western Rail for another year to April 2020, with the option to extend the franchise for another two years after that. We remain buyers of FirstGroup, and our sell tip on Stagecoach in under review.
Shares in Britvic (BVIC) are up nearly 7 per cent in early trading after the drinks company reported a 7.7 per cent increase in sales to £1.5bn over the year to October. Adjusted operating profits were up 5.1 per cent to £196m, pushing the margin up 30 basis points. Adjusted free cash flow improved by £43.6m to £54.5m, supporting an 8.2 per cent increase in the dividend. Profit after tax fell by 2.5 per cent to £111.6m, mainly due to £24.7m of planned costs related to the business capability programme. Buy.
Shares in Pennon (PNN) are up following strong performance from its water business. The group posted EPS of 25.3p, well ahead of the consensus expectations of 23.2p. It also announced a 7.9 per cent increase in the dividend. The group appears to be making progress in its troubled energy from waste business, too, with the Glasgow plant now in final commissioning. Buy.
In a trading update, SafeCharge (SCH) said its financial performance for the full year is expected to be in line with market expectations. They have made progress on winning Tier 1 customers in traditional verticals, with client wins including Plus 500, 888 and PaddyPower among others. Within new verticals, Softcat is processing transactions for various online retail and travel operators. It launched WeChat Pay in-store here in the UK. The group also announced the appointment of Nicolas Vedrenne as chief business development officer. Buy.
In a first-quarter trading update, IT group Softcat (SCT) said the board was pleased with performance in the period. They have strong customer demand across the business and the group has continued to deliver “profitable growth”. A seventh branch has opened on the South Coast. Buy.
Brewin Dolphin (BRW) grew its funds under management by 13 per cent to £40.1bn during the year to September. Discretionary funds under management continued to climb as a proportion of overall funds, up 17 per cent to £33.8bn. Discretionary net inflows were £2.3bn. Core fee income increased by 16 per cent to £208m. Buy.
Impax Asset Management (IPX) grew its assets under management by an impressive 61 per cent during the year to September. Net inflows were a record £2.1bn, while market gains contributed £655m. This helped lift pre-tax profits by 13 per cent to £5.9m. The shares may be up 242 per cent during the past 12 months, but we reckon they have further to run, buy.
The collapse of wholesaler Palmer & Harvey is bad news for a couple of London-listed groups. Around half of convenience chain McColl’s (MCLS) stores are supplied by P&H and it accounts for around a quarter of sales. That said, analysts at Peel Hunt are urging calm: it says McColl’s stores are well-stocked at present, and it expects wholesale group Nisa (which supplies the other half of the estate) will come to the rescue. It’s also possible that Morrisons (MRW) could step up to the plate and kicks off its impending supply agreement (which was originally designed to replace Nisa) a few months early. We remain buyers of McColl’s. Imperial Brands (IMB), whose cigarettes are distributed to retailers by P&H, said they were “disappointed” at the collapse after they’d worked to save the company for several months. The tobacco company estimates it will make a one-off £160m dent in group operating profits during the current financial year, the majority of which would be non-recoverable excise duty. We remain buyers of Imperial.
KEY STORIES:
Companies like AO World (AO.) are spending a lot on advertising their products to ensure strong sales growth. But market newcomer eve Sleep (EVE) is conscious of falling into that trap. It said whilst sales in the UK have more than doubled year-on-year, the amount it spends on marketing - expressed as a proportion of revenue - is falling sharply. During the first half this amounted to roughly 64 per cent, but by the end of November this number will have halved. Brand awareness is another metric used to measure the effectiveness of marketing campaigns. This has similarly improved to 6.6 per cent as at 7 November, compared to 4.1 per cent in June. Unlike AO, where profits remain elusive, eve remains on track for its UK business to turn profitable in the fourth quarter of 2018, and at the group level in 2019.
Shares in HSS Hire (HSS) are up this morning after the group put out a positive trading statement. The group’s cost savings are now fully implemented, which has led to improving profitability. Net debt is also down £8m to £232m, reducing it further is a key priority of the group. Management is expected to update on the progress of their strategic review on the 7th of December, so we’re staying on the sidelines until then. Sell.
London Stock Exchange (LSE) chief executive Xavier Rolet has quit the board earlier than most people were expecting. Following a wave of bad publicity, Mr Rolet has stepped-down from his position with immediate effect at the request of the board. Chairman Donald Brydon will also resign and is not seeking re-election in 2019.
Might SolGold (SOLG) have rolled its unending slew of resource and discovery updates into one announcement? For the fourth trading day in a row, the Ecuador-focused copper-gold explorer has unveiled big news. First an exploration update at Cascabel, then a maiden mineral resource estimate, followed by yesterday’s news that mineralised outcrops had been discovered at La Hueca. Today, the group said it had made a series of “promising new copper prospects” at its Porvenir and Timbara projects. Has this flurry of information been issued in order to finalise a £45m private placing? We’ll find out tomorrow, when the deal is set to close.
Good news for long-suffering investors in Tullow Oil (TLW) today, your company has completed the restructuring of its $2.5bn reserves-based lending facility. The deal – ‘materially over-subscribed’ in the debt markets – has given the company $0.9bn of total headroom, following the reduction of the revolving corporate credit facility.
OTHER COMPANIES NEWS:
ZPG (ZPG), owner of the Zoopla website, reported a 24 per cent increase in revenue to £244.5m for the year to 30 September. The group saw record traffic of 648m visits to its platform, generating more than 56m partner leads. Net debt rose considerably to £191.5m from £146.5m a year earlier, thanks to acquisitions. Acquisitions also contributed to operating expenses, meaning pre-tax profits rose by just 4 per cent. ZPG also announced the €30m (£26.5m) acquisition of Calcasa this morning - the leading provider of residential property market analysis in the Netherlands.
Cyber-security company NCC (NCC) has appointed Adam Palser as chief executive. Mr Palser will join on 1st December, and was previously chief executive of NSL - a public services provider with more than 3,000 employees. Executive chairman Chris Stone will become non-executive chairman, and interim chief executive Brian Tenner will return to being chief financial officer.
Cyber-security business ECSC (ECSC) said in a trading update this morning that trading performance is in line with market expectations. This follows the group’s successful completion of its cost reduction programme, and the securing of two “significant” managed service contracts. The market appeared to react with relief: the shares were up by nearly a fifth in morning trading.
Tech-enabled concierge services company Ten Lifestyle Group (TENG) joined Aim today. Ten raised approximately £32.2m in gross proceeds via a placing prior to admission, with selling shareholders allocated £14.2m. Based on the placing price of 134p, the group had a market cap of £104.8m on admission. Chief executive Alex Cheatle said the money raised in the placing would be used to “progress our ambition to become the world's most trusted service platform”.
Game Digital (GAME) announced that - in keeping with the terms of the relationship entered into in June 2014 between it, Duodi Investments and Baker Partners, James Shinehouse has been appointed as Duodi’s representative director as of 28 November 2017. Duodi is Game Digital’s major shareholder (and is itself an investment vehicle owned by Elliott International LP and Elliott Associates LP). James Shinehouse will become a non-executive director of Game Digital, subject to agreement at the next AGM.
It’s been a better than expected week for motor businesses. Today was Motorpoint’s (MTR) turn when it released an encouraging set of interim results, pushing its shares 3.5 per cent higher during early trading. Revenues during the first half rose by nearly a fifth thanks to a similar rise in repeat business, while a 64 per cent rise in adjusted pre-tax profits was consistent with analysts’ expectations. In the words of brokerage Numis, the numbers reflect “a convincing return to form” after the group reported a disappointing first half performance this time last year. Managers have also confirmed a £10m share buyback programme, which is expected to end no later than next June.
Shares in retailer Findel (FDL) recovered by a fifth this morning as first half pre-tax profits of £10m came in well ahead of analysts’ expectations. Part of that growth was down to the sale of delinquent debt, according to analysts at N+1 Singer, but it credits strong underlying growth for the remainder. Gross margin gains in both the EGL and Education segments also helped deliver this performance, while Black Friday and surrounding promotions are said to have traded well. At this point, analysts are calling Findel a double-digit online retailer.
