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News & Tips: JD Sports, Royal Dutch Shell, Tate & Lyle & more

Equities are up marginally
January 16, 2018

Shares in London started the day with modest gains. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES:

Shares in JD Sports (JD.) - a recent IC tip of the year - spiked 7 per cent in early trading as the company, and City analysts, pushed forecasts higher for the year ending January 2018. This follows solid Christmas trading, which helped pushed like-for-like sales across the second half of the year up to 3 per cent. But that doesn’t even include online sales which, were they part of the numbers, would have pushed the growth rate closer to 5 per cent. Pre-tax profits are now expected to report in the region of £300m, compared to previous estimates of £285m. Buy.

Post-recovery, where do the oil and gas majors go from here? Royal Dutch Shell (RDSB) provided one answer last night, after reaching a final investment decision with joint venture partner Exxon Mobil (US:XOM) to develop and expand the Penguin fields in the UK North Sea. The project, which will have a break-even price below $40 a barrel and peak production of 45,000 barrels of oil equivalent per day (boepd), will be the UK company’s first new manned installation in the North Sea in almost 30 years. Income buy.

Tate & Lyle’s (TATE) current chief financial officer Nick Hampton will take over as chief executive from April. The ingredients company’s current boss Javed Ahmed is set to retire from that date. Shares were flat in early trading. Buy.

Live data company WANdisco (WAND) gave a trading update this morning for the year to December 2017. The group secured record bookings of $22.5m, up 45 per cent year-on-year from $15.5m. Bookings in the second half alone were up 28 per cent to $12.3m. Meanwhile, big data bookings for WANdisco’s Fusion product were up 121 per cent to $15.7m. Cash was also stronger than the previous year. During the course of the year, WANdisco Fusion won two new contracts with major financial institutions - valued at $4.32m and $4.1m respectively - both secured through WANdisco’s IBM original equipment manufacturer partnership. Shares were down 6 per cent at the time of writing. This may be partly due to the lack of detail given on revenues or any contraction in losses. Buy.

Shares in Communisis (CMS) were up 6 per cent this morning after a positive trading update. The group expects results for 2017 to be in line with expectations, but saw a significant drop in its pension deficit, to £38m from £55.5m in 2016. Net debt also fell, reaching £24.3m compared with £30.4m in 2016. It has expanded its operations in the North of England and renewed a transactional communications contract with a “major UK bank” for the next 5 years. Buy.

After market close yesterday, mobile advertising group Taptica (TAP) announced a proposed placing to raise approximately $55m (£40m) to reduce its debt. Management says this will “better position the company to capitalise on near-term M&A opportunities”. This morning, Taptica announced the closing of this conditional placing, which raised £38.2m. Taptica placed 4.85m ordinary shares at 450p per share, raising £21.8m. In addition, chief executive Hagai Tal sold 1.65m shares at 450p each to satisfy a near-term capital gains tax liability, via MTD PTE Ltd - a company controlled by him. Smart and Simple, another investor, also sold 2m shares at 450p each. Following this news, shares in Taptica were down 5 per cent. But, we learnt earlier this month that Taptica would beat market expectations for full-year adjusted cash profits, after Tremor Video DSP - acquired in August last year - became profitable ahead of schedule in 2017. Buy.

Cyber-security group NCC (NCC) reported 7.2 per cent revenue growth to £118m for the six months to 30 November, with gross profit up 14.8 per cent to £46.6m. The core Assurance business grew sales by 8.3 per cent to £99.2m, with all four main geographies achieving double-digit organic growth at constant currencies. The company’s smaller Escrow division grew revenues by 1.6 per cent to £19m. Overall operating profits fell by 10.8 per cent year-on-year to £6.6m, driven largely by planned overhead increases and adverse currency movements. Management notes the group’s performance was in line with their expectations and “represents a firm recovery from the weak second half of the prior year”. Our sell recommendation is under review.

Euromoney Institutional Investor (ERM) has this morning confirmed that its Brussels office has been subjected to an ‘unannounced inspection’ by the European Commission as part of its investigation into price fixing in the paper and packaging industry. Euromoney acquired the business under investigation - which specialises in publications on the paper and cardboard industry - last year for $125m. Sell    

Shares in Gym Group (GYM) were up 2 per cent in early trading after the company reported in a pre-close update that revenue was up by a quarter over the year with a 36 per cent increase in membership numbers. But debt expanded from £5.2m last year to £37.5m after the Lifestyle acquisition and opening new sites. We’re still nervous about this crowded market. Sell.

A dose of profit-taking greeted fourth quarter production results from Rio Tinto (RIO) this morning. While output across all major product groups increased quarter-on-quarter, and met guidance for the full year, the mining giant said 2018 will remain broadly in line, and announced a possible $195m tax hit from Mongolian authorities. Analysts at BMO also believe the results bode well for Anglo Pacific Group (APF), which owns a royalty on Rio’s Kestrel mine. After strong rallies, our views on both stocks are under review.

Premier Foods (PFD) reported a 4 per cent increase in sales during the third quarter, brings year-to-date sales to a 2.6 per cent increase. This was mainly thanks to non-branded and international sales, while revenue from branded items was largely flat. The Batchelors brand saw its fourth consecutive quarter of growth. Yesterday the company addressed rumours that it is looking to sell the soup brand to Nissin, with which it already has a strategic partnership. The cost cutting programme is hoping to cut its debt burden by the end of the financial year. We’re waiting to see more details before getting bullish on Premier. Sell.

KEY STORIES:

Shares in support services group Capita (CPI) were down 4 per cent this morning after the group announced it would no longer be administering Prudential’s (PRU) life and pensions business. The insurer will make the switch at the end of July this year. Capita’s operations with Prudential are expected to contribute close to £80m in revenue to Capita in the year to December 2017. The group willl continue to administer Prudential’s international business.

Shares in Dunelm (DNLM) fell relatively flat this morning, despite reports of a 3.4 per cent improvement in like-for-like sales during the second quarter. That’s because margins are still causing a headache for company bosses - down 180 basis points due to a higher proportion of Worldstore sales and end of season stock. As a result, first half profits are expected to be down year-on-year, leaving any potential profit growth entirely weighted to the second half.

Curtis Banks (CBP) gained 8,798 new self-invested personal pension plans (Sipp) during 2017, taking the total number it administers to 76,474. That amounted to assets under administration of £24.7bn, from £20.4bn the previous year. Net cash balances amounted to £17.7m.   

UK corporate foreign exchange provider Alpha FX (AFX) expects revenue for 2017 to be ahead of market expectations at around £13.5m. Headcount increased to 51 from 30 in 2016, with some recruits bilingual, which management says has helped it expand into several European territories. The shares have been on a tear since the group’s April IPO. However, it looks as though some investors took the opportunity to take profits, with the shares down 7 per cent in early morning trading.     

Ashmore (ASHM) continued its recovery during the three months to December, gaining $3.6bn (£2.6bn) in net inflows and a positive market performance of $0.9bn. Its local currency strategy made the largest gains, increasing assets under management by 17 per cent. Corporate debt and EM equities were also strong performers, growing assets by 13 per cent and 11 per cent respectively.  

BP’s (BP.) court-supervised claims facility for the Macondo disaster may be “winding down”, but the final economic loss claims have been higher than anticipated. In a trading update this morning, the oil major said it will book a $1.7bn provision in fourth quarter results, meaning Deepwater Horizon-linked cash payments are likely to be 50 per cent higher at $3bn in 2018.

Shares in Provident Financial (PFG) dipped 4 per cent in early morning trading after the troubled sun-prime lender announced its consumer credit division is expected to make a pre-exceptional loss of £120m for 2017, at the upper-end of guidance issued in August. Management blamed this on a lower than expected rate or “reconnection” with its home credit customers during the fourth quarter, following the poorly-executed transition to full-time employed collection agents. However, there was some improvement - home credit customers increased by 30,000 to 530,000 by the end of the year. At Vanquis Bank, new customer booking during 2017 were up to 437,000 from 406,000 in 2016. However, new bookings were down a fifth during the fourth quarter after underwriting standards tightened and bookings through its partnership with Argos were lower.    

Shares in Greggs (GRG) rose by around 3.5 per cent in early trading as the group revealed a 3.7 per cent increase in store like-for-like sales during the final quarter. This helped push total sales up by 7.4 per cent, reflecting new store openings and strong sales of “classic favourites”, as well as festive ranges and special diet products such as gluten free soups. The hot drinks range has also been expanded to include a caramel latte, while the New Year has seen the introduction of a new focaccia style pizza.

Shares in Premier Technical Services Group (PTSG) were up 4 per cent this morning after the group announced its results for the year to December 2018 were likely to be “materially ahead of current market forecasts”, as a result of the progress of its recently acquired businesses. The group does around £0.8m in work for Carillion (CLLN) annually, but expects the impact of its liquidation to be “minimal”, as much of the work will likely be picked up by existing clients. 

IG Design Group (IGR) reported that all regions are on track for year-on-year revenue and profit growth after a strong Christmas season. The stationery manufacturer is continuing its international expansion, aiming for 70 per cent of sales to come from overseas. Recent changes to US tax legislation are expected to benefit EPS in FY2019.Shares were up 4 per cent in early trading.

OTHER COMPANY NEWS:

Less than one year since IPO, Medica’s (MGP) management has encountered the difficulty in predicting financial results. Capacity constraints for two of its three teleradiology services in the final quarter of the year to December 2017 mean that full year results are going to come in slightly behind previous expectations. The group’s shares have fallen 16 per cent in early trading in response.

Nick Cooper, the chief executive of Ophir Energy (OPHR), today used a trading update to tell the market his company “has reached financial stability”. Granted, Mr Cooper can point to total liquidity of $427m at the end of 2017, and a mere $104m of capital and investment expenditure in 2017. But a large helping hand from the deferral of the investment in the Fortuna development, and below-guidance production of 11,700 boepd, sparked a 2 per cent drop in the shares this morning.

All it takes is one tiny movement in inflation data, and the City seems ready to call an end to the inflationary environment seen in the wake of the 2016 referendum. Data for December 2017 from the Office for National Statistics showed an CPI inflation rate of just 3 per cent compared to 3.1 per cent in November. That still remains one of the highest inflation measures in recent years, however, while food price inflation is still at a record high. But Richard Lim, chief executive at Retail Economics went as far to say that inflation “appears to have peaked” He added: “we expect inflation to fall fairly sharply, to around 2.5 per cent by Spring, which will ease the pressure on household budgets.” But Jacob Deppe, head of trading at online trading platform Infinox, countered that argument by saying that although inflation edging down in December “is welcome given the pressures on households and anaemic wage growth...it is only a small fall and we’re not out of the woods yet.”

Shares in Van Elle (VANL) fell 10 per cent after the ground engineering specialist warned that profits could be adversely affected as a result of Carillion going bust. Last December, Van Elle carried out some work for Carillion on rail improvement work for Network Rail. Payment for the work has been applied for but not received, and is worth £1.6m. A further £2.5m of work is scheduled for the second half of the year, but it is unclear whether or not this will proceed.