London shares continue to struggle for direction. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Both GVC (GVC) and Ladbrokes Coral (LCL) have confirmed that merger talks are firmly back on the table. Although the government’s review of fixed odds betting terminals has yet to reach any firm conclusions, this morning’s announcement has given Ladbrokes an equity value of “between £3.1bn and £3.9bn" - suggesting the regulatory impact may not be as bad as feared. Current terms dictate that GVC would acquire Ladbrokes Coral for 160.9p per share, plus an extra element of up to 42.8p per share depending on the FOBT decision. This is calculated thus: zero if the government cuts the FOBT stake from £100 to £2, and up to 42.8p if the cut is only from £100 to £50. The two sides have agreed that Kenneth Alexander of GVC would head up the combined company, which would be one of the world’s largest betting groups, worth up to £5.7bn. Both our recommendations on GVC and Ladbrokes Coral are under review - although readers who followed us into Ladbrokes Coral are surely pleased with this morning’s share price gain.
Legal & General (LGEN) is on track for a record year in 2017, achieving total sales of £6.2bn to date. Annuity sales generated £4.5bn of annuity premium, consisting of: £3.3bn of UK institutional pension risk transfer business, $0.7bn of US institutional pension risk transfer business and £0.6bn of UK retail annuities. Institutional pension risk transfer business in the US was double that of 2016. Legal & General Investment Management achieved total external net inflows of £38.1bn to the end of October. Buy.
Those who doubted RM (RM.) and sent the share price ticking steadily downwards in the last year have been proved wrong by this morning’s trading update. Management expect results for the year to November to now be ahead of previous forecasts thanks to strong organic growth in the Resources division and the positive contribution of Consortium in the Education business. Shares rose 9 per cent in early trading, but still look good value with a forward PE ratio of 11 times and dividend yield of nearly 4 per cent. Buy
IMImobile (IMO) has agreed to acquire Healthcare Communications, which provides appointment management and patient experience communications to the UK healthcare market. This will entail an initial consideration of £9m payable in cash upon completion, with a deferred consideration of up to £6m payable in cash or shares, based on performance over the next two years. The acquisition is being funded with existing cash and with a new £12m debt facility provided by Silicon Valley Bank. IMImobile says Healthcare Communications has an “established track record of profitable growth”, with three-year revenue and gross profit compound annual growth rates of 50 per cent and 54 per cent respectively. The acquisition is expected to be immediately earnings enhancing. The group’s shares were up about 2 per cent in morning trading. Buy.
Shares in S&U (SUS) were down 3 per cent in early morning trading, despite the motor finance specialist reporting a rise in customer numbers to 53,000 during the four months to the beginning of December, from 49,000 at the half-year. However, rolling 12-month impairments increased slightly to 23.4 per cent. We place our buy recommendation under review.
KEY STORIES:
Shares in sell tip HSS Hire (HSS) were up 8 per cent this morning after management outlined its three new strategic priorities. Following a review, the group is now focusing on reducing leverage through efficiency savings, repairing the tool hire business and strengthening the commercial proposition through customer segmentation and improving digital capabilities. It also laid out a number of specific targets to achieve by 2020 such as an EBITDA margin above 20 per cent, less than 3x leverage and return on assets above 20 per cent. It’s an impressive plan, but we’re going to wait and see how it’s delivered.
If you know a good chairman looking for a new job, do give Hurricane Energy (HUR) a shout. Ahead of a proposed premium listing, the North Sea explorer has appointed an executive search firm to look for someone to head its board. After that point, the group will seek to bring its corporate governance policies in line with main market standards.
Shares in Xafinity (XAF) jumped 7 per cent in early morning trading after the pension scheme administrator and actuarial group announced plans to acquire the actuarial consulting, pensions administration and investment consulting businesses of Punter Southall up to £153m. The group will undertake a share placing, with an open offer. The group also reported a 2 per cent increase in revenue, with adjusted cash profits up the by the same amount.
If further proof was needed, the mega profits generated by Ferrexpo (FXPO) this year were today underlined by the announcement of a 3.3c per share special pay-out, equal to the interim dividend paid in September. The iron ore pellet miner also said trading has remained strong since half-year results on 3 August, and that cash flows have “further reduced net debt and funded capital expenditure”.
High street bookie William Hill (WMH) has settled a dispute over Canadian gambling firm NYX, clearing the way for American company Scientific Games to buy it. William Hill had previously objected to the buyout and threatened to block it with its 32 per cent stake. But now that Scientific Games has agreed to buy William Hill's ordinary and convertible shares in NYX, netting the bookie an estimated £96.5m, the London-listed group has changed it’s mind, and will now support the bid.
OTHER COMPANY NEWS:
TMT Investments (TMT.L) announced this morning that together with various “blockchain industry participants”, it plans to launch a new fund investing in blockchain-related opportunities. TMT is a venture capital company investing in high-growth technology businesses.
Datatec (DTC) announced this morning that its shares will cease trading on Aim at the end of today, in keeping with its announcement in October. The company maintains its primary Johannesburg listing.
