Shares in London started the day flat as traders digested news of a political setback for Donald Trump in the US. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Today is the day Bacanora Minerals (BCN) shareholders have been waiting for. As promised, the defined feasibility study for the Sonora lithium project has arrived within the calendar year, and at first blush the market is impressed. Shares are up 4 per cent at 96p this morning, after the company arrived at a net present value of $1.25bn and an internal rate of return of 26.1 per cent for the project. Stage one capital costs are estimated at $420m, meaning Bacanora will need a lot of new money after design work begins in early 2018. Ahead of a call with the company, we place our buy call under review.
Keywords Studios (KWS) has acquired Sperasoft for a total consideration of $27m (£20m) from its founders. Sperasoft provides game development, art creation and software engineering services to video game developers from its production studios in Russia and Poland. Its clients have included Electronic Arts, Ubisoft and Warner Bros among others. Keywords says that this acquisition is in line with its strategy to grow organically and by acquisition, as it “selective consolidates the highly fragmented market for video game services”. Chief executive Andrew Day notes that it provides an entry point into co-development, while adding considerably to the group’s engineering services division. Buy.
“Integration [of Amec Foster Wheeler] is progressing ahead of schedule with significant progress being made”, said Wood Group (WG.) in a pre-close trading statement today. Unfortunately, less progress has been made in the internal investigation into past work with scandal-hit Unaoil, though the oil services group remains in co-operation with the Serious Fraud Office. Our sell tip has had a rocky start, but we remain pessimistic for the months ahead. Sell.
Shares in OPG Power Ventures (OPG) were down 12 per cent this morning after the group announced it had swung into a loss in the six months to September this year. This was attributed to coal prices remaining stubbornly high during the period. We are reviewing our buy recommendation.
Shares in Plant Impact (PIM) fell more than 60 per cent this morning. This followed the announcement that Bayer CropScience (BCS), the exclusive Brazilian marketer of the group’s flagship soybean product, Veritas, will not be able to conclude a new contractual agreement until the first quarter of 2018 at the earliest. And, given the challenges seen within the Brazilian market, BCS will not be able to meet its commitments to the purchasing plan agreed earlier this year with Plant Impact. This is because it needs to “further accelerate its destocking activities”. BCS’s decision to defer purchasing further Veritas volumes will have a “material adverse effect” on Plant Impact’s financial performance for FY2018 and its cash resources. Management now expects FY2018 revenues of around £6m and the company is likely to need funding before April 2018. In order to “maximize the value of the Company’s technology assets”, and following BCS’s update, bosses are considering all potential strategic options. They have decided to conduct a formal sales process with an accelerated timetable, hoping to announce an outcome by early 2018. We downgrade to sell.
KEY STORIES:
A seemingly bad morning for Dixons Carphone (DC.) - but not in terms of share price performance. The stock rebounded more than 7 per cent following a suitably dismal set of interim numbers. Thing is, the market knew profits would look terrible, and don’t appear to be punishing the company for a 60 per cent reported fall at the bottom line as opposed to consensus expectations for a 56 per cent decline. The culprit is the mobile market - also pre-flagged to investors - where new launches have failed to inspire customers to upgrade their phones. Chief executive Seb James admits there’s work to do in terms of repositioning the mobile business, although quite what he’s planning to do remains unclear. Elsewhere, electrical goods sales did well despite the challenging consumer environment, and Black Friday is said to have been successful.
It’s also a bad morning for windows and doors specialist Safestyle (SFE). Shares crashed out another 20 per cent following a trading update, which referenced continued market deterioration, poor consumer confidence and squeezed sales at the company, both in price and volume terms. In the three months to 30 November 2017, group sales have been 0.3 per cent lower by value, and 6.8 per cent lower by volume compared to the same time last year. Although Safestyle continues to publicise its market share gains, as well as the fact it remains “highly cash generative”, bosses admit challenges will continue and, as such, earnings growth in 2018 will be modest at best.
British American Tobacco (BATS) stated in a trading update that the number of cigarettes sold during the second half of the year has so far has benefitted from the phasing o shipments into a number of key markets, like Pakistan, but this has been partly offset a significant increase in excise in the Gulf Corporation Council. Full year volumes are expected to fall by around 4 per cent. Organic revenue during the second half has benefitted from sales of next generation products. Shares fell nearly 1 per cent in early trading.
Shares in Serco (SRP) are up more than three per cent this morning after it announced it would end 2017 with profit at the top end of the expected range and net debt at the bottom of the range. It also provided an update on its plans to buy a portfolio of UK health facilities management contracts from Carillion (CLLN). Should the deal be approved, Serco will pay £47.7m for the contracts, with the full transition of operations expected by the end of 2018.
Ofwat has released its final methodology for the 2019 price review, pushing for companies to pass more savings onto their customers, while improving service levels. Analysts at RBC Capital Markets said the announcement reinforced their stance as bullish on the sector, but shares in Pennon (PNN) Severn Trent (SVT) and United Utilities (UU.) were all down modestly this morning.
Tui (TUI) reported a 11.7 per cent increase in revenue to €18.5bn during its full financial year, with pre-tax profits up by more than three-quarters to €1.08bn. Management said that the business has continued to transform, with more than half of the company’s earnings now coming from own hotel and cruise brands. Shares were up 1 per cent in early trading.
OTHER COMPANY NEWS:
Shares in Idox (IDOX) fell more than 25 per cent this morning, after the group said it had identified a “small number of revenue items” that it did not consider should be recognised in the FY2017 results. These are expected to reduce cash profits for FY2017 to around £20m, compared to around £23m stated in the announcement on 14 November, and the £21.5m seen in 2016. The company said clarification around these issued had been complicated by the absence of chief executive Andrew Riley, due to illness. Former chief executive Richard Kellett-Clarke has stepped in as interim chief executive. With all this in mind, Idox has delayed the release of its final results until February 2018.
Mercia Technologies (MERC) has completed a £3.5m direct investment into Intechnica, a fast-growing business based in Manchester which provides scalable software solutions to manage website traffic demand. This is part of a £5m funding round alongside existing private investors, and takes the group’s direct shareholding to 24.3 per cent. On top of this, the round includes a £1.3m convertible loan facility, provided by Mercia.
