London shares struggled for upward momentum in morning trading as concerns over a bond market sell off worry investors. Click here for The Trader Nicole Elliott's latest thoughts.
IC TIP UPDATES:
The Christmas trading update from Marks and Spencer (MKS) is fairly brief, and to be blunt, pretty bad. Clothing and general merchandise sales fell by 2.8 per cent over the festive period, while food sales fell by 0.4 per cent - an exaggerated decline compared to the 0.1 per cent fall reported at the interim results in November. The performance from the food division flies in the face of another supermarket update this morning, this time from Tesco (TSCO), which reported record sales over Christmas and a 2.3 per cent improvement in sales over the third quarter. Our recommendation on Marks and Spencer is under review.
Shares in Ultra Electronics (ULE) rose by almost a fifth following a post-close trading update that revealed full year revenue is expected to be over £770m and underlying operating profit just over £120m. The defence contractor has started 2018 with an order book cover on expected 2018 revenues of around 62 per cent, compared with approximately 56 per cent in 2017. The medium term guidance for cash conversion remains in line with the 80 per cent to 85 per cent levels mentioned in the announcement of 10 November 2017. Buy.
Funds under management at Jupiter Fund Management (JUP) rose almost a quarter during 2017 to £50.2bn, £5.5bn of which were net inflows. However, shares fell 3 per cent in early morning trading, likely because the £0.6bn in net inflows gained in the fourth quarter were the weakest of the year and below the average quarterly rate for the year. This was driven by a spike in redemptions from its fund of fund strategies. We place our buy recommendation under review.
Shares in Hilton Food Group (HFG) are up 3 per cent this morning after the food producer announced in a pre-close trading update that its various acquisitions are performing well and the full year results would fall in line with expectations. The UK and Ireland performed “particularly well” in Western Europe, with sales “slightly up” in Sweden and Denmark. Lower consumer demand in Holland saw sales there fall, and Central Europe improved in the latter half of the year. Management said Hilton’s trading outlook “remains positive”. Buy.
Shares in AO World (AO.) staged a mini recovery this morning after a better-than-expected third quarter trading update. An 11.4 per cent rise in UK revenues and a 58.4 per cent rise in European revenues were both well-ahead of analysts’ expectations. Even AO.com revenues - which fell slightly short of market forecasts due to competitive pressures - remained in “double digit territory”, something brokerage Numis says it is “encouraged by”. But there’s not a huge amount of insight into how much the company has spent on achieving this growth, and therefore the impact on profits remains obscure. For now, we remain sellers.
GVC Holdings (GVC) announced record quarterly net gaming revenue (NGR) during the fourth quarter at €280m (£245m), meaning that NGR for the year to December 2017 is expected to be around €1,009m, up 13 per cent on a pro forma basis. Cash profits for the year are expected to come in at the top end of expectations. Chief executive Kenneth Alexander called the recommended offer for fellow bookie Ladbrokes Coral an “exciting opportunity for both sets of shareholders” that would create a “global gaming group”. Shares were up 1 per cent in early trading. Buy.
A pre-close statement from car retailer Marshall Motor Holdings (MMH) shows the group has successfully outperformed the wider UK market which, according to the latest SMMT data, is in decline. For the country as a whole, new car sales fell 5.7 per cent in 2017, with retail sales down 6.8 per cent. But during the first half of its financial year, MMH unit sales to customers only fell 0.4 per cent on a like-for-like basis. What’s more, the decision to sell its leasing segment has all but eliminated the group’s debt from the balance sheet, which previously stood at £101m. We remain buyers.
Recruiter Hays (HAS) impressed once again with the release of its trading statement for the three months to December 2017. Net fee income was up 13 per cent in the period, with the international business growing to account for 76 per cent of fees. 24 of the group’s 33 countries enjoyed double digit growth, and even the group’s UK business, which has been challenged in recent years, grew 1 per cent. Net cash was £35m following the payment of £94.3m in special and final dividends in November. Headcount was also up 3 per cent in the quarter and 13 per cent year on year. Buy.
KEY STORIES:
Shares in fast-fashion online retailer and Asos competitor boohoo.com (BOO) rose in early trading after the group revealed that revenues doubled during the four months ended 31 December 2017. Revenues doubled in the UK, Europe and the USA and rose by 59 per cent across the rest of the world. Retail gross margins were stable at 54.2 per cent at the group level, but are under pressure at the namesake brand as the company tries to keep prices competitive.
Shares in Bunzl (BNZL) were up more than 2 per cent this morning after the group announced the acquisition of Revco, a personal protection equipment company based in California, and Aggora Group, which provides commercial catering equipment in the UK. The consumables providers also received a binding offer to sell its non-core business OPM, which distributes and sells Sodastream products to retailers in France. Topping all this off, the group said its underlying tax rate was due to be 24 per cent for 2018, prompting analysts at Shore Capital to increase their EPS forecasts for the group by 3.3 per cent. Hold.
Polar Capital (POLR) reported a £1.1bn increase in assets under management during the final quarter of the year, £597m of which were net inflows. That meant assets under management stood at £11.7bn at the end of December, up from £9.3bn at the end of March. That pushed net performance fees up to £15m at the end of December, up from £1.2m the same time the previous year.
Rathbone Brothers (RAT) generated a 14 per cent increase in funds under management during 2017, which consisted of £2.1bn in net inflows. That represented a 6 per cent increase on opening funds, compared with a 7.2 per cent rise in the MSCI WMA Private Investor Balanced Index.
On that note, market newcomer Footasylum (FOOT) released debut numbers to investors this morning. The sportswear retailer reported revenues rose by a third over the 18 weeks ended 30 December 2017, with online sales contributing an increasingly higher proportion of total revenues. This brings the top-line growth rate up to 34.7 per cent for the 44 weeks to 30 December 2017, while current trading is said to be in line with expectations.
A disappointing Christmas update from Card Factory (CARD) has spooked investors this morning, sending the shares down 16 per cent in early trading. Brokerage Peel Hunt says poor card sales over the festive industry prompts “serious concerns about the state of the industry” as well as the “earnings potential” for the business. Bosses said ongoing margin pressure was the result of the “outperformance” of lower-margin non-card products, which has only added to cost pressures inflicted by exchange rates, wages and rate rises.
Completions in the six months to December 2017 were marginally ahead at Barratt Developments (BDEV), with sales rates steady at 0.68 net private reservations per active outlet per week. Trading in the second half is expected to see continued demand, with forward plots sold up 3.8 per cent at 10,921, with a value of £2.38bn. The group has also been more active on the land purchase front, buying 13,263 plots compared with 5,262 a year earlier. Consequently, net cash at the half year was down from £196.7m a year earlier to around £165m. Buy
OTHER COMPANY NEWS:
Booker (BOK) - which is gearing up to join forces with Tesco - also reported third quarter figures this morning, with like-for-like sales up 3.8 per cent (6.2 per cent non-tobacco). The impending merger makes it difficult for management to make any forward looking statements, but suffice to say chief executive Charles Wilson said the business - which owns convenience chains Premier, Budgens and Londis - was progressing on all fronts.
A trading update from GAME Digital (GAME) has pleasantly surprised City analysts this morning. The computer games retailer reported a 2.9 per cent rise in UK retail sales over what it calls its “peak trading period” (1 Nov 2017 - 6 Jan 2018). This is down to a strong console market, and word is that costs in the UK business are clearly under control. The group also reported a strong net cash position of £67m.
Fevertree (FEVR) announced that Kevin Havelock and Jeff Popkin would join the drinks company as non-executive directors. Mr Havelock is currently global president for refreshment at Unilever, while Mr Popkin was chief executive of Red Bull Distribution in North America.
