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News & Tips: Petra Diamonds, McColl's, N Brown & more

Equities are struggling for direction
February 19, 2018

With Chinese markets closed for the lunar new year and President's Day in the US meaning markets there are closed, London shares struggled for any firm direction in morning trading. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES :

The high-wire balancing act that has become our Petra Diamonds (PDL) buy call took another step forward this morning, after the group posted an in-line set of interim results. The strength of the rand – further strengthened by last week’s ousting of president Jacob Zuma – is currently the group’s biggest headache, though investors will have been encouraged to see that lenders have agreed to re-set covenant measures for June and December. Buy.

Full year results from convenience chain McColl’s (MCLS) have spooked the market this morning, enough to send the shares down 6 per cent in early trading. Pre-tax profit growth of 18 per cent fell slightly short of consensus expectations, but analysts have praised the company for “moving quickly” to minimise disruption from the collapse of wholesaler Palmer & Harvey. However, this has had a knock-on effect on underlying sales growth into FY2018. As such analysts at Numis have been forced to downgrade profit forecasts for the current financial year. More to follow - for now our recommendation is under review.

KEY STORIES :

There’s a new chairman at clothing chain N Brown (BWNG). The group has announced that Matt Davies will succeed Andrew Higginson on 1 May 2018, when Mr Higginson retires. Mr Davies’ retail experience includes positions such as chief executive of Tesco UK and Ireland and as chief executive of Halfords (HFD) and Pets at Home (PETS).

Late on Friday, Reuters reported that Acacia Mining (ACA) had been approached by two separate Chinese suitors – Shandong Gold Mining and Zijin Mining Group – regarding a possible takeover. Within minutes, the beleaguered Tanzania-based effectively confirmed the approaches, noting that the interest had prompted “a process to explore the value…of the sale of a stake in some or all of its Tanzanian operations”. Acacia cautioned that the process is at an early stage, and that any transaction would be “pursued only if it is determined….to be in the best interests of all shareholders”.

Old Mutual (OML) chairman Patrick O’ Sullivan will takeover the same position at Saga (SAGA) from May. Mr O’ Sullivan spent 12 years prior to his time at Old Mutual at Zurich Insurance, where his roles included chief financial officer and chief executive of UK general insurance.

EnQuest (ENQ) shares are up 9 per cent this morning, after the North Sea explorer said both per-barrel operating expenditure and absolute capital expenditure would come in below expectations. The outlook for 2018 also appears strong: EnQuest is guiding for group production to grow between 33 and 55 per cent to as much as 58,000 barrels of oil equivalent per day, with unit operating expenditure maintained at around $24 per-barrel, including work-over based costs.

Spectris (SXS) recorded underlying sales growth “across all four segments and key regions”, together with an improved showing from Omega Engineering, reflected in strengthening sales and higher gross margins in the industrial controls business unit. Adjusted operating profit was 8 per cent to the good at £224m on a significant uplift in margins. And the group announced that it is funding a £100m share buyback.

OTHER COMPANY NEWS:

Fidessa (FDSA) reported a 7 per cent rise in full-year revenues, with recurring revenue comprising 88 per cent of the top line. Management at the trading software group expects to see increased capacity moving into 2018/19, thanks to a reduction in MiFID-II related work, and thanks to a greater contribution from Fidessa’s derivatives business. This could mean investment in new opportunities in 2019, or potentially margin expansion. Shares were up 8 per cent in early trading.

Legal services business Gordon Dadds (GOR) has acquired Thomas Simon, a Cardiff solicitors firm, for £1.88m with an additional amount related to net tangible assets. Thomas Simon will trade under the Gordon Dadds name and will merge with the group’s existing Cardiff business. Management expects the purchase to be earnings-enhancing in its first year to March 2019. Shares were up just over 1 per cent in morning trading.