Competing influences have dampened sentiment among traders in London this morning, leaving the main equity indices flat. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
As was rumoured, Ocado (OCDO) has announced a new partnership to get the ball rolling in the new year. Some of the details don’t match the original whispers: analysts suspected the chain was in talks with Swedish chain ICA, but this deal is with Canada’s second largest food retailer Sobey’s. The idea is to help Sobey’s develop an online grocery business in Canada using Ocado’s technology to better complement it’s 1,500-strong store estate. A fulfilment centre in Toronto is also part of the deal, which it’s thought will take two years to build. Although good news for longer-term earnings, as is common with Ocado, the group says any initial fees received will be totally offset by the cost of setting up the infrastructure. The group will have to add an additional £15m to its capex schedule too. Our recommendation is under review.
Helical (HLCL) plans to redeem its £80m 6 per cent bonds - which were due to mature in June 2020 - early, for an aggregate £89m. It has also repaid its fully drawn £102m facility with Deutsche Pfandbriefbank AG, previously due to be repaid in August 2020 and transferred its £60m facility (£45m drawn) with HSBC to the purchaser of its retirement village portfolio, previously due to be repaid in August 2020. Buy.
In a full-year trading update, Computacenter (CCC) said that adjusted pre-tax results are expected to be ahead of the board’s expectations as at their last trading update on 14 November 2017. Group revenue for the year increased by £408m or 12 per cent at constant currencies, or by £548m (17 per cent) on a reported basis. Group net funds as at 31 December were £191m, up £44.6m year-on-year at constant currencies. Looking forwards, bosses believe “positive momentum in the market is set to continue”; but, during 2018, the group will endure some one-off costs and investments that won’t repeat in 2019. This will “hold back the enhancement of profitability in 2018”. They expect 2018 to be “one of stable profitability”. As planned, tomorrow, Computacenter will launch a tender offer to return around £100m to shareholders. Shares were up by 2 per cent at the time of writing. Buy.
Shares in Learning Technologies (LTG) were up 7 per cent in early trading, after a pre-close update revealed that revenues would be at least £51.8m for the year to 31 December 2017, up from £28.3m in 2016. This was buoyed by “exceptional underlying organic revenue growth” of over 20 per cent, which excludes a civil service learning contract in partnership with KPMG UK. Recurring revenues increased to 39 per cent from 27 per cent in 2016. This was helped by growth in the software segment and a contribution from NetDimensions, which the company bought in March last year. Adjusted operating profit is “materially ahead of market expectations”, doubling from £7m to £14m. Cash is also “significantly ahead of market expectations” with net cash reaching £1m from net debt of £8.5m in 2016. Buy.
Mortgage Advice Bureau (MAB1) reported a 17 per cent rise in sales during 2017, helped by a 14 per cent increase in its number of advisers. Productivity was also up, with 3 per cent growth in average revenue per adviser. Pre-tax profits are in line with expectations and the mortgage broker had net cash of £22m at the end of the year. The shares are up 63 per cent on our buy tip, but we think there is still further for the shares to go. Buy.
Strix Group (KETL), an AIM traded manufacturer of kettle safety controls, confirmed that it expects to report results in line with market expectations for the financial year. However, due to continued positive cash generation, it also expects to report a significantly improved net debt position. Trading remains solid and the group has maintained its leading position in the market with a global volume share of approximately 39 per cent. Buy.
Press reports over the weekend that Culture Minister Matt Hancock is set to lower the maximum stake on fixed-odds betting terminals to £2 sent shares in the UK-listed bookies down this morning. William Hill (WMH) was the worst off with shares down 13 per cent. GVC (GVC) shares fell 4 per cent while its acquisition target Ladbrokes Coral (LCL) saw its shares slide 10 per cent. GVC’s proposal for Ladbrokes already includes conditions that the amount GVC will pay depends on the outcome of the FOBT review. Shares in Paddy power Betfair (PPB) fell 1.4 per cent, as it’s the least exposed to the machines. The formal review is due to end this week, and so a formal announcement is expected within the next few weeks. We’re sticking with a buy on GVC.
EI Group (EIG) is off to the High Court to challenge a decision made against it by the Pubs Code Adjudicator. The regulator had ruled that a deal EI had with one of its tenants did not comply with rules for “market rent only” contracts, and ordered the company to amend the terms so that it was more favourable for the tenant. Shares were flat in early trading. Buy.
KEY STORIES:
Thank goodness for Sibanye. That’s the big conclusion Lonmin (LMI) investors can draw from the platinum miner’s long-delayed results for the year to September, published today alongside first quarter 2018 numbers. Although bankers have agreed to waive certain covenants amid Lonmin’s takeover, other liquidity issues remain: $66m of credit facilities have been cancelled, and a further $150m of debt facilities have been draw-stopped, leaving the miner heavily reliant on a thin wedge of cash.
It’s all change at Dixons Carphone (DC.). Chief executive Sebastian James is stepping down at the end of the current year after six years in the role, making way for Alex Baldock (currently the top boss at Shop Direct) to succeed him. Mr James is planning to join Walgreens Boots Alliance later this year. This news was accompanied by Christmas trading figures from the small electricals retailer. Group sales grew by 6 per cent on a like-for-like basis over the 10 weeks ended 6 January 2018, with strong progess in the Nordics and Greece. Sales in the UK and Ireland still rose 3 per cent on an underlying basis, although management described the consumer environment as “cautious”. This showed up in the margins -specifically mobile - which prompted the group to further re-evaluate its profit expectations. As of now, pre-tax profits should fall somewhere in the range of £365m-£385m.
Shares in Connect Group (CNCT) fell more than 28 per cent this morning after the distribution company warned that profit in the full year is expected to fall to somewhere around £42m-45m. Growth in the mixed freight and parcel delivery services has not been enough to offset the decline in newspaper and magazine sales, and so group revenue is down 3.5 per cent year-to-date compared to last year. Another disappointment - Aurelius Equity Opportunities has backed out of the deal to buy Connect’s books business after it was unable to secure sufficient financing to fund the deal.
OTHER COMPANY NEWS:
Despite higher prices, investors in Atalaya Mining (ATYM) may be disappointed with this morning’s fourth quarter trading update. Copper production from the Riotinto mine dropped 19 per cent compared to the three months to September, and 3.5 per cent year-on-year, even if 2017 output sits within the 37,164 tonnes guidance for 2018. Costs, largely denominated in euros, could increase marginally against the currency’s strong performance against the dollar. Shares are down 4 per cent this morning.
In a trading update this morning, Aveva (AVV) said it performed strongly during the nine months to December 2017. There was constant currency revenue growth across all reporting regions, with a particularly strong contribution from the Asia Pacific area. Trading was helped by a focus on sales execution, and stabilised conditions in the group’s oil and gas and marine end markets. And, this month, Aveva signed a significant three-year renewal contract with one of its global account engineering procurement and construction customers, which is expected to make a “material revenue contribution” to the current financial year. Aveva is currently ahead of bosses’ previous revenue expectations, though the fourth and “most significant quarter” of the financial year is not over yet. Aveva’s merger with Schneider Electric’s software business is still expected to complete at the end of February, with the group expecting to receive clearance from The Committee on Foreign Investments in the United States (CFIUS) around 9 February. Shares in Aveva were up 5 per cent at the time of writing.
In a full-year trading update, Goals Soccer Centres (GOAL) said it is continuing to show progress on its recovery plan. 2017 was “a period of significant investment in the UK and strategic progress in the US”. Revenues rose by 0.5 per cent to £33.7m, with like-for-like revenues falling by 0.5 per cent. Specific trading patterns in the UK continued into the second half. Major arena investment is helping sales growth across various sites, while some minor refurbishment has helped reduce the rate of sales decline. Just over half of the group’s estate has seen some investment. Those sites that haven’t yet received investment have carried on performing poorly. A further £3m will be invested in modernising the estate in 2018. The North American joint venture with City Football Group – launched in July last year – “is performing and progressing well”. Bosses expect 2017 profits to be “broadly in line with the lower end of market expectations”. For now, Bill Gow is taking on the role of interim chief executive, following the announcement in October that current chief executive Mark Jones will leave on 26 January.
IntegraFin Holdings, a platform provider to UK financial advisors, has announced plans to float its shares on the premium listing service of the London Stock Exchange in March. The group was the first to launch an adviser platform in the UK, called Transact, in 2000. That platform had £29.7bn in funds under direction at the end of December. The offer size is expected to be greater than a quarter of the issued share capital, and the initial offer will only be open to institutional investors.
