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News & Tips: Barclays, Hays, Centrica & more

London shares opened the day with a slide southwards
February 22, 2018

Equities in London began the day down in the dumps after weakness in the US overnight. Click here for the latest thoughts on the markets from The Trader Nicole Elliott. 

IC TIP UPDATES :

Shares in Barclays (BARC) were up 5 per cent in early morning trading after it guided for a 6.5p dividend for 2018 - beating consensus expectations - when unveiling its 2017 results However, the banking group swung to a full-year loss of £1.9bn, after taking into account conduct and litigation costs, plus other tax and goodwill charges. That included £0.7bn in provisions for payment protection insurance. Buy.  

Shares in Hays (HAS) fell in early trading on the back of interim results released by the recruitment company. Net fees, operating profit and conversion rates all improved, but the level of cash generated from operations fell by 12 per cent to £74.1m. Of course, those investors who got their timing right might just be banking some of the gain on the share price - the stock is up more than third over the last 12 months. True, there’s uncertainty around the UK market, and a slightly lower number of working days in the third quarter could add some pressure, but UBS expects further margin expansion in the second half. We remain buyers.

President Energy (PPC) is “in its strongest ever position” according to chairman and CEO Peter Levine, after a month in which the AIM-listed producer’s Argentine assets generated $1.3m after all administrative, finance and operating costs. Tax losses carried forward mean that positive cash generation was even higher, and will remain elevated for the duration of the year. Shares, flat on the year after coming off an oil-price linked mini-rally in January, remain a buy.

KEY STORIES :

Anglo American’s (AAL) full-year headline numbers speak for themselves: a near-doubling in free cash flow, on the back of strong commodities prices, allowed the group to shave 47 per cent from net debt, and double the dividend. But the story moves on. This year, stronger producer currencies are likely to attract more investor nerves; this was the main cause of the 7 per cent increase in group copper equivalent unit costs in 2017, and this year has started with further dollar weakness and rand strength. Aside from this, Anglo now looks in much better shape than it has done for years.

Rathbone Brothers (RAT) reported a 17 per cent increase in underlying pre-tax profits for 2017, with profit margins also remaining robust, up to 30.6 per cent from 29.8 per cent the previous year. Total funds under management were up 14.3 per cent to £39.1bn, with the wealth manager gaining £0.9bn in net inflows.  

2017 was the year when the KAZ Minerals (KAZ) investment case came good. Copper production jumped 80 per cent, gold output surged by 40 per cent and operating cash flow of $752m was sufficient to take an axe to the debt pile. But investors now have further reason to take profits, even with copper prices above $7,000 a tonne: this year, higher throughput is expected to be “offset by slightly lower average copper grades”. Shares are down in morning trading.

Ian Conn, chief executive of Centrica (CNA) sounded a somber note on release of the group’s full year results this morning. He expressed regret over the “very poor shareholder experience” - by which he presumably means the falling share price. Despite this, investors took the results well, sending the shares up more than 4 per cent in early trading. Total customer losses for the year were 1.4m for the UK Home division, while adjusted operating profit from the UK business division fell 92 per cent to £4m. Sell.

Analysts increased 2018 forecasts for outsourcer Serco (SRP) following the release of its full year results. The group reported adjusted profits of £69.8m, at the top of its £65-70m guidance. Order intake increased 36 per cent to £3.4bn, though this included the Grafton prison, which is the group’s largest contract win to date. Hold.

British American Tobacco (BATS) reported a 37.6 per cent increase in sales during 2017 to £23.3bn, mainly thanks to the acquisition of Reynolds America. Strip out this purchase and the effect of currency and revenue was up 2.9 per cent on the back of price increases and strong performance from next generation products. The Reynolds acquisition meant that the volume of cigarettes sold increased by 3.2 per cent, but fell by 2.6 per cent on an organic basis. Shares fell 4 per cent in early trading.

Shares in Go-Ahead Group (GOG) are up 13 per cent this morning after the transport group reported that operating profit was up by a fifth to £86.9m. The London Midlands franchise ended with a “better than expected performance”, and the sale of the franchise’s assets contributed to the increase in profit. The Thameslink service has achieved the highest customer satisfaction score in its history, while the Southern service cancelled fewer trains in the our weeks to January than the same time the year before.

It has been another bad morning for Moneysupermarket.com (MONY). Shares in the price comparison website fell almost a quarter in early trading after management revealed that revenue growth in 2018 would be behind that of the market, while adjusted cash profits are likely to be flat. Still, the share price weakness could offer a buying opportunity.

It was also the outlook which dampened sentiment at Playtech (PTEC). Revenues and profits are in-line with guidance (which was revised downwards in November) but there is still no sign of improvement in the unregulated Asian market.

OTHER COMPANY NEWS:

Budget accommodation chain easyHotel (EZH) has issued 45.5m new shares at 110p each, raising £50m. Proceeds from the placing will be used to open more hotels, with 1,112 rooms currently in the pipeline across the UK and Europe. The company currently has 2,343 rooms across 27 hotels. So far this financial year revenue per available room is up 10.9 per cent from last year. Shares were flat in early trading. 

After several months of delays, VI Mining has said it will join the NEX Exchange next week. The group, which we wrote about last September, is a prospective precious metals firm focused on developing gold tolling operations for small-scale Peruvian miners. Its application document gives it a market capitalisation of just over £500m, which would make it one of the largest companies on the exchange.

Information services provider Wilmington (WIL) reported a 6 per cent rise in first-half revenues to £58.2m, though this was down 3 per cent on an underlying basis excluding the impact of acquisitions. Operating profit fell from £5.9m to £3m, reflecting the group’s property portfolio review and its investment in digitisation and automated marketing. Segmentally, risk and compliance revenue rose slightly. Professional revenue fell by 5 per cent, due partly to discontinuing work in the legal practice support market. Healthcare revenues rose 27 per cent, buoyed by the acquisition of the Health Service Journal last January. Shares were down 3 per cent this morning.

A pre-emptive profit warning in January means McBride (MCB) shares held up this morning, despite news of a 30 per cent fall in interim profits. The personal care business is still struggling in the face of higher cost pressures, but management believe they have a strategy to return that division to growth within 18 months. Costs are also rising for the household segment following a recent German acquisition there. Higher wages are also bearing down on margins, and analysts at Peel Hunt are surprised to see net debt this high. Suffice to say, the market appears to have stopped giving management the benefit of the doubt for now.