Shares in London started the day with a sell off after a sharp reversal in the US last yesterday. Click here for The Trader Nicole Elliott's latest take on the markets.
IC TIP UPDATES:
Everyone knew WPP (WPP) had a rough 2017. Changes in the advertising industry are causing big challenges for the companies which write the ad campaigns, buy space on marketing platforms and create branding. Evidently few thought that things were as bad as they have been. WPP’s shares tanked 12 per cent on the morning of results after management reported a 5 per cent decline in like-for-like billings, a slow start to the 2018 financial year and no sign of improvement in the outlook. Sell
The mystery of Burberry’s (BRBY) new chief creative has been revealed. It’s not chief executive Marco Gobbetti’s most recent protégé Phoebe Philo, as many had suspected, but Riccardo Tisci - a former design boss at Parisian couture house and LVMH-owned brand Givenchy. However, it won’t be lost on some people that Mr Gobbetti also once served as chief executive at Givenchy. We expect this news to be welcomed by investors. Mr Tisci’s 12-year stint at Givenchy was “electrifying” according to fashion bible WWD, and the New York Times praised him for “redefining the brand Audrey Hepburn built for the Kardashian era”. In fact, Mr Tisci is arguably a social media celebrity in his own right: he has 2.2m followers on Instagram. Hopefully, this modern injection is just what Burberry needs. Buy.
Schroders (SDR) generated net inflows of £9.6bn last year, which along with market returns took assets under management up to £447bn - a 13 per cent increase on the previous year. That led to pre-tax profits that were ahead of consensus expectations - up a quarter to £800m. Buy.
Arrow Global (ARW) boosted its core collections by around a fifth last year to £342m. Assets under management increased from €41.3 billion to €53.4 billion, partly due to acquisitions. Following its purchase of Italian debt servicer Zenith earlier in the year, it made two further bolt-on acquisitions in the country. A solid performance meant it boosted the dividend by a quarter too. Buy.
International Personal Finance (IPF) published a stronger set of results for 2017 than expected, despite taking £30m one-off deferred tax charge in respect of its Polish business. Ongoing home credit business grew pre-tax profits 1 per cent to £129m, primarily thanks to a stronger performance from its Southern European business. Profits from its Northern Europe business reduced by £25m on a like for like basis to £60m. We place our sell recommendation under review.
Morses Club (MCL) increased the amount of credit issued by a fifth last year to £174m. Total customer numbers were up 6 per cent to around 229,000. Balances at its cashless lending card, Morses Club Card, also more than doubled. Buy.
The current investment case for Hunting (HTG) is straightforward. So long as oil prices stay at $60 or above, the services group’s US shale clients will drill and increase their capital budgets. That trend steadily grew throughout 2017, and even allowed the FTSE 350 outfit to post an underlying cash profit of $55m, after a painful couple of years. The group is now also in a net cash position, and the shares are nicely up on our December tip. Our buy call is under review.
National Express (NEX) reported a 6.1 per cent increase in revenue to £2.32bn with pre-tax profit up 11.7 per cent to £200m. This was driven by growth in North America, along with cost savings and recent acquisitions in the region. German Rail also did well with sales at constant currency up by a fifth, partially due to revenue that couldn’t be included in the 2016 results. The UK bus and coach division returned to sales growth in the second half after price increases were put through. Shares were up 1 per cent in early trading. Buy.
Shares in Costain (COST) were up more than 4 per cent this morning after the engineering group announced plans to increase its dividend by 10 per cent to 14p. The group had a strong performance in 2017, with adjusted pre-tax profit increasing 16 per cent to £43.4m and net cash balances increasing 27 per cent to £178m. Buy
Robert Walters (RWA) shares rose in early trading following a good set of annual results, and a whopping 50 per cent rise in the final dividend per share. The group finished up the period with more than £30m in net cash, helped in part by a substantial rise in pre-tax profits. Bosses there reported a good performance across the UK, with net fee income up 16 per cent to £101m, although it should be said that fees and operating profits rose across all regions, including Europe, Asia Pacific and North America. Buy.
Shares in building materials group CRH (CRH) were up close to 2 per cent this morning following the release of the group’s 2017 results. Margins and returns were ahead in all of the group’s American and European divisions, with cash profits up 3 per cent on a like for like basis to €3.3bn. Buy.
KEY STORIES:
The sun has shone on Sky (SKY) this week. Two days after receiving a generous takeover offer from US cable giant, Comcast, the pay-TV group has announced a partnership with Netflix which allows it to bundle the hugely popular digital TV platform into a new Sky subscription. As customers will have access to both company’s original content and terrestrial channels under one subscription, this could well be a popular offering.
Trinity Mirror (TNI) has completed the acquisition of Northern & Shell’s publishing assets. The group has listed 25.8m new shares to fund the acquisition and paid £43m in cash.
Anyone watching Aveva’s (AVV) share price today might be a little alarmed; but, the huge fall can be attributed to the fact that the group announced the completion of its combination with Schneider Electric Software this morning. As per the terms of the deal, shareholders each receive £10.15 per share today as the company goes ex-dividend. The group’s market capitalisation has also become significantly larger - 97m shares issued to Schneider Electric have now been admitted to the London Stock Exchange, on top of the re-admission of Aveva’s own 64m existing shares. This makes 161m in total.
Carpetright (CPR) shares have lost a third of their value this morning after the group admitted to a deterioration in market conditions since the end of January. Managers blamed weak consumer confidence for negative like-for-like sales growth, meaning the company will now report a pre-tax loss for the year ending 28 April 2018. Even worse, the board admits it’s in talks with lenders to make sure the group “continues to comply with the terms of its prevailing bank facilities”. Finally, a “range of options” are under consideration to accelerate the turnaround of the business and strengthen the balance sheet, although bosses admit it’s too early to announce any concrete decisions.
Great news for Laird (LRD) shareholders - the stock has rocketed up more than 70 per cent this morning after news of a recommended cash offer from a subsidiary of funds managed by Advent International Corporation. The 200p offer represents a whopping 73 per cent premium to the undisturbed share price, although this has largely been wiped out thanks to the shares’ reaction this morning. It coincides with a full-year results statement from the company, which showed revenues up by 17 per cent cent, and underlying profits up by a third.
Shares in Merlin Entertainment (MERL) are up 9 per cent in early trading after the company announced that sales were up 11.6 per cent to £1.6bn during 2017 with operating profit improved by 6.8 per cent to £323m. This is likely a relief to shareholders after the had warned in October that fears of terrorism and bad weather had resulted in a disappointing summer season. The group had a record 66m visitors, up 3.5 per cent on the previous year, and opened 383 new accommodation rooms, six new Midway attractions, and a new Legoland park in Japan.
A headline pre-tax profit of $45m for Petrofac (PFC) obscures two big impairment charges, neither of which the market had anticipated. The first: a $176m post-tax charge to exit the deep-water market, and another $179m hit to the integrated energy services business, related to a revision to production profiles in the Greater Stella Area development.
Raw material cash costs may be considerably up at Russian steel giant Evraz (EVR), but that’s not a problem when output prices are so strong. As a result, free cash flow doubled from $659m to $1.32bn, even despite a lift in capital expenditure. Net debt, long one of our concerns with the group, fell 17 per cent.
Pest contol group Rentokil Initial (RTO) saw its shares lose more than 7 per cent of their value this morning after the group downgraded profit expectations for 2018. In its 2017 results announcement, Management said the impact of adverse foreign exchange movements would impact profit and free cash flow by £10-15m if recent gains continued for the rest of the year. Hold.
OTHER COMPANY NEWS:
Nichols’ (NICL) shares were flat on a solid set of results for 2017, including 13 per cent revenue growth to £132.8m and a 15 per cent dividend hike to 23.4p. The soft drinks group’s pre-tax and pre-exceptional profits were flat at £30.5m, in light of higher input costs and supply problems in Yemen. Taking exceptionals into account - comprising M&A expenses, restructuring costs and costs relating to the introduction of the Soft Drinks Industry Levy - pre-tax profits fell 8.8 per cent.
Redde (REDD) achieved 11.5 per cent revenue growth to £253m for the six months to December 2017, with pre-tax profits up 13.6 per cent to £19.9m. Cash balances were £24.4m against £33.6m a year earlier, due to share buybacks and a new contract. The dividend has been lifted 10 per cent to 5.5p. Management is confident about the full-year, taking into account trading so far in January and February.
Accesso Technology (ACSO), the ticketing and queuing software specialist, has announced a partnership with Henry Ford Health System, a US hospital group. This marks Accesso’s first healthcare partnership, and will entail the use of its digital experience and personalisation platform - TE2. Shares were up 1 per cent this morning.
Shares in Idox (IDOX) were up 4 per cent this morning - perhaps reflecting some relief among investors, given the December update warning of reduced full-year cash profits to £20m, against £23m forecast just a month earlier and down from £21.5m in 2016. Today’s delayed results revealed 16 per cent revenue growth to £88.9m for the year ending October 2017 comprising 84 per cent recurring revenues. That said, adjusted cash profits came in at £18.5m. Interim chief executive Richard Kellett-Clarke says “the failure to achieve the year end numbers has been disappointing”, attributing this to “a perfect storm of issues including a recent complex acquisition”.
For all of ExxonMobil’s recent drilling success in Guyana, little is reflected in the supermajor’s weak share price. One company that is basking in the reflected glow, however, is Eco Atlantic Oil & Gas (ECO), which today noted Exxon’s Pacora-1 discovery is the “closest discovery to date to the Orinduik Block, in which the Aim-listed firm currently holds a 40 per cent working interest. Exxon’s exploration work in the Stabroek block has so far made commercial discoveries in seven fields.
BBA Aviation (BBA) reported a 10 per cent increase in sales to $2.37bnduring 2017 with underlying pre-tax profits up by a quarter to $299m. Flight support, the company’s largest division, had 3.8 per cent growth in sales, which was slightly ahead of the 3.7 per cent across the market. Underlying operating profit at the aftermarket services division was up by a third.
Yesterday afternoon, Worldpay (WPY) announced its first set of fourth-quarter and full-year results for 2017 since the merger between the former Worldpay business and US payments company Vantiv. Alone, the former Worldpay group achieved 9 per cent net revenue growth to £1.2bn, while Vantiv achieved net revenue of $2.1bn (£1.5bn). The enlarged group forecasts net revenue in the range of $3.8bn to $3.89bn for 2018 with adjusted net income per share of $3.66 to $3.76. Chairman and co-chief executive Charles Drucker said “both of our heritage companies performed well during 2017's fourth quarter, creating momentum for Worldpay as the leader in the rapidly expanding global payments industry”.
