Shares in London gave up some of their recent gains in morning trading ahead of the midday decision of 'no change' in interest rates by the Bank of England. Click here for the latest thoughts of The Trader Nicole Elliott.
IC TIP UPDATES:
We weren’t convinced when Ocado (OCDO) announced its new international partnership with French chain Casino a couple of weeks ago, and we’re even less inspired by this morning’s fourth quarter trading update. Retail revenues grew by 11.6 per cent in the final period, falling slightly short of consensus expectations for growth of 12 per cent and practically trailing the third quarter’s 13.1 per cent growth rate. Bosses say this was the result of a driver shortage, as customer demand started to outstrip supply. That might sound like a nice problem to have, but in our view, it speaks to our concerns that Ocado is going to have to keep investing heavily to keep up with its own business model. It’s also worth remembering that while the stock is up by a third year-to-date, without the deal-driven surge the shares would actually be tracking down 10 per cent. Sell.
Shares in Amino Technologies (AMO) were down 1 per cent in morning trading, after an announcement that the company will delay its general meeting (scheduled for 15 December) until 18 January 2018. This postponement is due to the insufficient notice period given to shareholders ahead of the general meeting scheduled for December. The meeting has been convened to consider a resolution to grant Amino the authority to purchase its own ordinary shares of 1p each. Buy.
KEY STORIES:
Has the market over-reacted to the 67 per cent crash in statutory pre-tax profits at Sports Direct (SPD) this morning? Far be it for us to jump to the defence of the controversial retail outfit, but really, it seems a whopping £146m profit on disposal of JD Sports (JD.) shares in the comparative period is largely to blame. That compares to investment income of just £200,000 this time around, and if the playing field is levelled, then profits actually rose by more than a fifth. But that doesn’t mean there isn’t any cause for concern. Investment costs are on the rise as the group tries to elevate its brand, and UK sales are suffering amidst a difficult consumer climate. Adding further fuel to this morning’s headlines is the fact that John Ashley lost in his pursuit of an extra £11m in owed salary - something Sports Direct investors categorically vetoed at a meeting yesterday.
Shares in PZ Cussons (PZC) are down 5 per cent this morning after the company warned that operating profits in the first half will be 10 per cent lower than the previous year. The company stated that strong trading in Asia had been offset by reduced margins in some of its European business units, especially Africa. New product launches and expanded distribution in the second half of the year are expected to improve conditions. Management added that consumers in the UK had been shopping “cautiously” as cost inflation has outstripped wage growth.
Figures from the Office for National Statistics (ONS) show it was a bumper Black Friday for online retailers. Web-based sales, yet again, far outstripped sales made in store. But this is not unexpected. Unlike the US where this promotional phenomenon originated, British shoppers don’t enjoy a national holiday on Black Friday. Therefore, many shoppers make purchases from the safety of their work computers or from home - hence this morning’s data. Reporting official retail sales figures for November, and in spite of rising inflation, higher interest rates and slow wage growth, retail sales volumes were 1.6 per cent higher than a year earlier. That compared to a flat performance in October, and largely beat many market forecasts.
Shares in Capita (CPI) suffered another drop this morning, plunging 14 per cent after the group announced it would have net debt “around the middle” of the 2-2.5 times annualised EBITDA range. In addition, the IFRS 15 accounting rules mean that if even current bids are successful, they are unlikely to lead to increased profits until 2019.
Interserve (IRV) has managed to stay its own execution, for now. The group announced yesterday afternoon that it had agreed additional short term committed funding of £180m until 30 March 2018. It has also postponed its loan compliance tests until the same date, after warning in October of a “realistic prospect” it would breach its financial covenants on the test date of 31 December 2017. Shares shot up following the announcement, and have since fallen back 3 per cent this morning.
OTHER COMPANY NEWS:
Corero Network Security (CNS) announced that it has won a new contract worth $0.3m. Its SmartWall Threat Defense System technology was selected to enable the launch of a new distributed denial of service (DDoS) mitigation service by a North American regional Internet service provider. Shares in the small cap were up 5 per cent in morning trading.
Domino’s Pizza Group (DOM) has bought a further 44 per cent stake in Domino’s Iceland for €30.2m (£26.6m), bringing its total ownership to 95.3 per cent. The Icelandic division has the highest average weekly unit sales of any country in the Domino’s worldwide system. The UK business has also adjusted its capital structure by announcing a £20m share buyback and refinancing of its debt. Shares were up more than 3 per cent in early trading.
The full year results for 888 Holdings (888) are expected to be “in line with expectations”. Management said this had been achieved despite the increased regulatory focus, primarily in the UK, and the exit from five markets in the first half of the year. Online play, casino, and its sports division were the bey drivers of profits for the year. Shares were down 2 per cent in early trading.
Pelatro has announced its intention to float on Aim. Admission is expected to take place on 19 December. The group specialises in marketing software, with a focus on providing campaign management software to telecommunications companies. A successful placing by finnCap saw demand from institutional investors, raising £4.6m. The company’s market cap on admission is expected to be £15.2m. The group will trade under the ticker ‘PTRO’.
