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News & Tips: HSBC, Vodafone, BHP Billiton & more

London shares are in negative territory
February 20, 2018

Shares in London slipped back in morning trading as negative reaction to results from index heavyweights acted as a drag. Click here for The Trader Nicole Elliott's latest thoughts. 

IC TIP UPDATES :

Shares in HSBC (HSBA) fell 4 per cent in early morning trading after the banking group missed analyst consensus expectations for 2017, posting a return on equity of 5.9 per cent - missing its 10 per cent target. However, it did manage to increase adjusted pre-tax profits by 11 per cent to almost $21bn. It also grew revenue for the first time in six years, although this also came in below expectations. We place our buy recommendation under review.  

Vodafone (VOD) plans to invest in an air traffic control system for drones. The need to monitor drone travel has been demonstrated by a number of high profile incidents: close calls with planes; prison smuggling and security concerns to name a few. Vodafone says its 4G network has the capacity to control drones up to 2kg and its technology will be tested in Germany and Spain in the coming year. Buy

‘Negative productivity movement’ sounds like a euphemism, and indeed investors in BHP Billiton (BLT) did not fail to interpret the corporate jargon for what it was: half a billion dollars of higher costs in the six months to December. Consequently, shares in the commodities giant are off this morning, despite an outsize interim dividend of 55 cents a share, and a strong performance from the copper and US onshore divisions. Our buy call is under review.

Following a $189m share placing and double acquisition, Diversified Gas & Oil (DGOC) has turned its attention to that other source of funding: debt. The Appalachia-based group, now the largest producer of oil-equivalent barrels on Aim, has signed a new $500m, five-year credit facility with KeyBank, which has allowed it to reduce interest payments from LIBOR plus 8.25 per cent to LIBOR plus 2.5 per cent. The shares, up 2 per cent today, remain a buy.

Shares in First Derivatives (FDP) were up 3 per cent in early trading, on the news that the software group has signed a contract with a FTSE 100 gaming company for the use of its Kx technology for data analytics services. The group notes that the customer in question is “one of the world's leading sports betting and gaming operators”, has four million customers and processes billions of transactions every day. Buy.

It has been business as usual at Tristel (TSTL) in the first half of the 2018 financial year. Revenue has ticked up 10 per cent (once again driven by international development), gross margins have widened slightly and pre-tax profits increased 9 per cent. This remains an impressive business with plenty more opportunities for expansion and a number of share price catalysts on the horizon. Buy

KEY STORIES :

Swiss company Temenos is in advanced discussions with Fidessa (FDSA) regarding a possible all-cash offer for the entire share capital of the trading software group. Under the proposed terms of this possible offer, each Fidessa shareholder would receive £35.67 in cash per share, together with the final and special dividends announced yesterday when the group reported its full-year results. This takes the total per share to £36.467, valuing the entire deal at around £1.4bn. Shares in Fidessa were up nearly a quarter this morning.

Investors have responded to a shake-up in Hikma’s (HIK) senior management with glee. Shares rose 10 per cent after the Jordan-based generic drugs maker announced the appointment of ex-Teva boss Sigurdur Olaffson as chief executive meaning Said Darwazah has been shifted into the executive chairman role. Hikma – like its peers in the generic drugs business – has struggled with rising competition and a clamp down on prices and investors are clearly hopeful that a fresh pair of hands on the reins might reignite growth.

Darren Disley’s decision to step down as chief executive at Horizon Discovery (HZD) - a company he has led for 11 years - is rather surprising. Even the remaining management seem to be a bit wrong-footed: the company has had to delay its capital markets day (which was mean to to take place today) until 5 March. Dr Disley says he has made the decision to focus on other business ventures but David Cox at Panmure Gordon thinks there might be more to the story. Dr Disley has impressed at Horizon so it may be that he has been poached by a peer. Unnerved investors sent the shares down 4 per cent in early trading.

Suffice to say this morning’s interim results from Dunelm (DNLM) have been a disappointment. The group reported an 8 per cent fall in profits - below analysts’ expectations - amid news that the Worldstores acquisition is taking longer to integrate than first thought. It’s also been announced that chief financial officer Keith Down is planning to leave the business for “personal reasons”. His original predecessor David Stead will assume the role on an interim basis.

Shares in Melrose (MRO) have remained more or less where they were following release of the group’s full year results this morning. Chairman Christopher Miller said in a statement accompanying the results he was “convinced that GKN (GKN) would gain significantly from becoming part of an enlarged £1bn UK industrial powerhouse”, but it appears not everybody agrees. Labour leader Jeremy Corbyn is due to hit out at the company’s bid for GKN, citing its “history of opportunistic asset-stripping”, according to the FT. Hold.

OTHER COMPANY NEWS:

Tel Aviv-listed Energean Oil & Gas plans to raise up to $500m in a main market IPO in London next month, in a key test of market appetite for growth-oriented hydrocarbon stocks. Funds raised will be used to develop the Karish and Tanin gas fields offshore Israel, exploration capital expenditure and allow Energean’s founders to liquidate some of their holdings.

Shares in Tracsis (TRCS) were up 10 per cent this morning, after the software group for the traffic and transportation industry said first-half trading was strong across all business segments, and in line with management expectations. All financial metrics were “comfortably ahead” of the previous year. Revenues were over £18m, against £15.6m year-on-year; cash profits were over £4.3m, up from £3.5m. The company also had a cash balance of around £18.5m as at 31 January, against £12.7m a year earlier. Tracsis has no debt and is “highly cash generative”.

Augmentum Fintech, a new closed-ended investment company, has announced its plan to launch an IPO on London’s main market - noting the financial services sector is being “revolutionised by technology” and disrupted by FinTech businesses. The company intends to issue 100m shares at £1 each, with a maximum issue size of 125m shares. Management will invest £2.7m, while RIT Capital Partners - backed by Lord Rothschild - will invest £10m. As part of the IPO, the group will acquire a seed portfolio of ‘high-growth assets’ valued at £33.3m. These include Zopa, Seedrs, Interactive Investor, BullionVault and SRL Global.

InterContinental Hotels (IHG) reported a 4 per cent rise in revenues to $1.8bn, and a 7 per cent rise in operating profit to $759m for the year to December 2017. The group also saw 83,000 room signings - the highest for nine years - taking its pipeline to 0.24m rooms with around 45 per cent under construction. Within its strategic update, however, InterContinental noted that its drive for long-term superior returns for shareholders and owners would mean no additional capital return will be paid in the calendar year 2018. This may go some way to explain the shares’ 5 per cent dip this morning.