Shares in London are up in morning trading. Click here for The Trader Nicole Elliott's latest thoughts.
IC TIP UPDATES:
Shares in GKN (GKN) soared after management revealed fellow engineering group Melrose Industries (MRO) has made an unsolicited offer for the group equivalent to 405p a share. The offer comprised 80 per cent new Melrose shares and 20 per cent cash, giving GKN shareholders a 57 per cent stake in the enlarged group, plus 81p per GKN share. However, management said the offer was opportunistic and undervalued GKN and its prospects. Management also updated on the engineering group’s in line fourth quarter progress, expecting pre-tax profits for 2017 to be slightly ahead of 2016. Following its strategic review, the group will create different product segments that will be classified as either core or non-core. There will be three different strategies for the core product segments – improve (e.g Constant Velocity Joints), grow (e.g Aero Engines) and develop (e.g. eDrive and Additive Manufacturing). Each strategy will have different capital expenditure targets and different expectations for growth, margin improvement, cash generation and return on investment. A firm offer could yet be made. Buy GKN.
Shares in Conviviality (CVR) didn’t react too strongly to news of a company reorganisation. Having made a slew of acquisitions over the last couple of years, the group has changed its structure to better reflect the way it sells goods to customers, both through retail and wholesale channels, and franchise operation and a hospitality and food services division. Effective immediately, new management has been appointed to head up the group buying and insights team, a commercial team, and a customer and operations division. We remain buyers.
President Energy (PPC) announced the completion of its third and fourth wells at recently-acquired Puesto Flores Field in Argentina ahead of time and under budget. What’s more, gross field production is expected to reach approximately 1,700 bopd in February when the latest workovers stabilise, up significantly since the start of the workover campaign. It also plans to expand its plans for its Neuquén Basin assets, including initial testing of the shut-in Estancia Vieja Field to commence during February, further workovers at Puesto Flores scheduled for Q2 2018 and new drilling campaign planned to commence in the second half of 2018, to initially comprise development/appraisal wells Buy.
Shares in Bovis Homes (BVS) rose more than 3 per cent after the housebuilder delivered an upbeat trading statement for the year to December 2017. Recovering from a restructuring, Bovis is well on the way to achieving cost reductions and margin improvements. Completions were lower as expected, but average selling prices rose by 7 per cent to £272,000, while private selling prices were up 9 per cent at £334,000. Dividends for the year will total 47.5p a share, and are expected to rise by 20 per cent in 2018, with an additional special dividend towards the end of the year. Buy
A full-year trading update from Somero Enterprises (SOM) sent shares in the high-tech concrete levelling specialist up 7 per cent this morning. After strong second-half trading, management expects revenues to be “slightly ahead” of market expectations of $84.7m, with cash profits “comfortably ahead” of market expectations of $26m. This growth was attributed to volume increase and cost management. Net cash is also expected to be at least $18.5m, ahead of market expectations of $16.5m. Bosses are confident about the outlook for 2018, citing positive market conditions. Buy.
It was another positive movement for B&M European Value Retail (BME) shares this morning following news of strong Christmas trading. Group sales rose 22.7 per cent at constant currency in the third quarter, including a 3.9 per cent increase in UK like-for-like revenues, which reflected strong growth in grocery and fast moving consumer good product lines. That’s behind last year’s growth rate, which was an especially tough comparative of 7.2 per cent. However, year-to- date, sales are up 6 per cent on an underlying basis, and the group is confident it will meet full-year forecasts. Buy.
Mitchell & Butlers (MAB) reported 3.9 per cent like-for-like growth during its first quarter, while Christmas Day broke records with comparable sales growth of 5.4 per cent and 225,000 meals sold. While the snowy weather in the run-up to Christmas had an “adverse impact”, like-for-like sales growth, adjusted for a 53rd week last year, was up 1.6 per cent in the seven weeks to 6 January and 2.2 per cent year-to-date. Shares were up 3 per cent in early trading. While this looks encouraging, the fact that management scrapped the interim dividend at last update still has us nervous. Sell.
Back in December, shares in SDL (SDL) tumbled on the news that some of its software deals may not close by the end of the year, meaning like-for-like adjusted cash profits may not meet full-year market expectations. As of this morning, the group confirmed that “in a number of cases” these software deals did not close, but it is continuing to work with customers to sign these deals. Full-year adjusted earnings before interest, tax and amortisation are expected to be around £22m, after research and development capitalisation of around £2.5m. Group revenue is expected to be around £285m: an 8 per cent rise year-on-year. This marks a slight improvement on Investec’s sales forecasts as at December. Buy.
KEY STORIES:
Prospective potash miner Sirius Minerals (SXX) has announced that it remains on track to deliver first polyhalite and commercial production on time and budget. However, current diaphragm walling (D-walling) activities are running two months behind schedule following some delays in commissioning the D-walling equipment and some adverse weather conditions during the latter stages of the final quarter of 2017. However, management is confident the loss of time will be recovered over the remainder of the project. It has also signed a binding take-or-pay offtake agreement with Wilmar International for the use and resale of POLY4 exclusively in South East Asia.
Carillion (CLLN) has been in the news in recent days as the Financial Times reported senior government ministers meeting to discuss the possibility of the company’s collapse. Cabinet Office officials are meeting the company today alongside its pension scheme trustees, the Pensions Regulator and the Pension Protection Fund. Analysts at Peel Hunt have turned sour on the company, downgrading it to a sell and predicting it would be forced by lenders to accelerate its financial restructuring.
OTHER COMPANY NEWS:
Back in December 2014, Telit Communications’ (TCM) Italian operation (‘Telit Italy’) had three VAT assessments issued against it by the Italian tax authorities. Telit Italy filed appeals against these VAT assessments with the first level tax court, and the assessments were annulled. The Italian tax authorities’ appeal against this decision was rejected in June 2017. Following this series of events, Telit announced this morning that the Italian tax authorities have submitted appeals to the Italian Supreme Court regarding the past decisions by two tiers of lower level tax courts in favour of Telit Italy. Telit Italy plans to “continue to vigorously defend its position”. The matters won’t be heard by the Supreme Court until the year 2020.
Shares in Quartix (QTX) were up 3 per cent this morning, thanks to a full-year trading update from the vehicle tracking specialist. The subscription base for its core fleet operations in the main UK business rose by 16 per cent during the year to December 2017, to 83,100 vehicles. In the USA, this figure rose by 48 per cent to 9,100 vehicles, and in France by 31 per cent to 13,000. Meanwhile, new fleet installations rose by 23 per cent to 27,250 and Quartix’s client base expanded by 20 per cent to nearly 11,000. Investment in product development which was not completed in 2017 will be carried over into 2018, leading management to believe profit for 2017 will be “moderately ahead of market expectations”. The group achieved “strong levels” of free cash-flow and plans to pay a supplementary dividend together with the final dividend.
