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News & Tips: Clinigen, Jupiter, Sky & more

A positive start has fizzled out
February 27, 2018

A positive start to the day in London has fizzled out and share are flat. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES:

Clinigen’s (CLIN) chief executive Shaun Chilton is pleased with his company’s interim results which have benefited from the diversified nature of the portfolio. Adjusted gross profits rose by a tenth as a strong performance from the dominant commercial medicines business offset a slow six months for unlicensed medicines and a disappointing period for clinical trials services. The outlook has been enhanced by the recent acquisition of Quantum Pharma and so we retain our buy recommendation.

Jupiter Fund Management (JUP) generated net inflows of £5.5bn during 2017, up from just £1bn the previous year. That helped lift funds under management by almost a quarter to £50.2bn. Net fee income was up almost a fifth to £392m. Buy.

News of a more “challenging” 2018 has put a dampener on results from car retailer and distributor Inchcape (INCH), sending the shares down roughly 4 per cent in early trading. Retail markets are expected to be tougher given the ongoing imbalance between supply and demand, particularly during the first half. Unfortunately, that distracted from what was otherwise a decent set of numbers: revenues rose by more than 9 per cent to £8.9bn, while reported pre-tax profits rose by a third to £370m. Our recommendation is, however, under review.

Meggitt (MGGT) reported a 6 per cent organic rise in orders to £2.08bn for 2017, which the group says underpins expectations for revenue growth in 2018. The company also achieved 2 per cent revenue growth to £2.03bn. Meanwhile, free cash flow shot up 42 per cent to £186m, helped by initiatives including supply chain rationalisation, boosting productivity via the ‘Meggitt Production System’ and cutting down on inventory. Shares were down 2.8 per cent in early trading. Buy.

Full-year revenues for marine service outfit James Fisher & Sons (FSJ) passed the £500m mark for the first time. Underlying profits are also up 10 per cent at £55.8m, thanks to a decent performance from every division other than offshore oil, where trading remains soft. We are buyers.

Collagen product maker Devro (DVO) announced a 7 per cent increase in sales o £257m during 2017 while operating profit more than doubled to £33m. The company’s goal for the year had been to regain market share and cut costs, and chief executive Peter Page said they had made “strong progress on both objectives”. The return to volume growth over the year is expected to continue in 2018 as the company launches new products. Shares were up nearly 1 per cent in early trading. Buy.

Swallowfield (SWL) reported flat revenues at £40m for the half-year to 6 January, driven by 25 per cent growth in its owned brands segment and against a strong comparative period. The group’s manufacturing sales fell by 6 per cent as prior-year launch volumes normalised -  as signalled previously. Net debt rose slightly from £5.5m to £7m after the company paid a final £1.85m in deferred consideration for its Brand Architekts acquisition. This morning, the group also announced its purchase of men’s grooming brand Fish. Shares were up 5 per cent in early trading. Buy.

Shares in Dalata Hotel Group (DAL) are up more than 2 per cent in early trading after the company announced that revenue was up by a fifth to €349m during 2017 while pre-tax profits increased by three quarters to €77.3m. Revenue per available room improved by 10.4 per cent to €88.5m thanks to an €8.88 increase in average room rate to €106.48. The company will start paying dividends from 2018 onwards, aiming to pay out between 20 per cent and 30 per cent of after-tax profit. Buy.

KEY STORIES:

Another twist has been added to the Sky (SKY) takeover saga. US telecoms and media giant Comcast - owner of the NBC cable network and Universal film studios - has made an all cash bid which trumps that of 21st Century Fox. Comcast’s chief executive said he has had his eyes on Sky for a while and when it became clear the Murdoch family (who currently own 39 per cent of the shares) were thinking of selling, he thought the time was ripe to make a bid of his own. Sky’s shares have leapt 18 per cent in early trading, above Comcast’s £12.50 per share offer.

Virgin Money (VM.) may have increased its operating income by almost 14 per cent to £666m and improved its cost: income ratio to 52.3 per cent, but its net interest margin declined to 1.57 per cent. What’s more, it expects a a banking NIM in the range of 165-170 basis points for the year. As a result of lower front book spreads in the mortgage market our current expectation for banking NIM is at the lower end of that range.

Standard Chartered (STAN) has resumed its dividend, recommending a full-year dividend of 11¢. After four years of consecutive top line declines, it grew its operating income 2.6 per cent and posted a pre-tax profit of $3bn. Return on equity improved from 0.3 per cent to 3.5 per cent, against a target of 8 per cent.

Johnson Service Group (JSG) delivered on its promise of full year results ahead of expectations this morning, with revenues climbing 13.3 per cent to £291m, and adjusted pre tax profit up 17.5 per cent to £39.7m. Cash generation remained strong and net debt was also down slightly to 1.6 times adjusted cash profits, while EPS growth allowed the group to raise the dividend 14.5 per cent while maintaining its aim of around 3 times cover. 

Shares in Provident Financial (PFG) shot up almost 60 per cent in early morning trading after the troubled sub-prime lender announced details of a fully-underwritten £331m rights issue, in order to shore up its balance sheet. Part of the proceeds will also be used to fund its settlement with Financial Conduct Authority regarding Vanquis Bank’s repayment option plan products. Shareholders including Invesco and Neil Woodford have given their support to the rights issue. However, as expected, disruption at its home credit business meant at group level it swung to pre-tax loss of £123m.

Much of the top line acceleration reported at bakery chain Greggs (GRG) this morning hasn’t manifested in the same improvement in pre-tax profits. But that’s because the company is in an investment-heavy phase of its growth cycle, spending money to consolidate manufacturing operations and expand its logistics capacity. A new shop replenishment system has also been rolled out successfully, and a new supply chain solution piloted. Even on an adjusted basis, which excludes many of these one-off costs, pre-tax profits rose just 2 per cent to £81.8m.

OTHER COMPANY NEWS:

dotDigital (DOTD) reported 25 per cent revenue growth in the first half to £18.8m, buoyed by 17 per cent organic growth. The email marketing group acquired Comapi last year, taking it closer towards being a “fully-fledged omnichannel offering”. This meant a cash outflow of £10.7m, leaving net cash at £10.5m as at December. The group’s European and Middle East business grew at a double-digit rate, though some customers have extended their purchasing cycles ahead of the introduction of the EU’s new data privacy rules – GDPR – in May. Shares were down 7 per cent in early trading.