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News & Tips: SDL, Headlam, Smurfit Kappa & more

Equities have bounced out of the blocks this morning
March 6, 2018

After erring on the side of caution yesterday, London shares have begun today in a positive mood. Click here for The Trader Nicole Elliott's latest thoughts. 

IC TIP UPDATES:

SDL (SDL) said 2017 was “a year of root and branch transformation”. The language translation technology specialist is part-way through a multi-year strategic programme, and the results revealed some positive progress: continuing revenues were up 7.9 per cent to £286m, while net cash rose slightly from £21.3m to £22.7m. But, performance was below bosses’ expectations. As noted in January, some software deals were not closed by the year-end. There was also a faster-than-expected move towards software-as-a-service deals, away from perpetual licences – though this should be beneficial in the long-term. Shares were flat in morning trading. Recommendation under review.

News of tough trading in the UK has wiped the sheen off what was otherwise a good set of numbers from flooring distributor Headlam (HEAD). The group reported a steady climb in sales and profits, although analysts at Investec suggest much of the EPS improvement came from a well-timed acquisition in Holland and lower forecast tax rate. That hasn’t stopped the brokerage from tweaking down its profit projections for the current year as UK trading remains tough: like-for-like sales in the domestic market fell nearly 6 per cent in January, while lower orders from a larger customer has exacerbated these conditions. Our recommendation is under review.

Shares in LoopUp (LOOP) were up 10 per cent in early trading, after the remote meetings software specialist reported a 36 per cent rise in continuing revenue to £17.5m for the year to December 2017, with a 40 per cent rise in gross profit. More than half of group revenue now derives from the US, which saw particularly strong sales growth. The company was debt-free at the year end with net cash of £2.9m. It also announced this morning that Numis has been appointed as joint corporate broker with Panmure Gordon. Buy.

PureCircle (PURE) reported a 13.3 per cent increase in sales during the first half of its financial year to $53.5m (£38.6m), though the group recorded a £4m loss for the period due to a change of taxes in the US and adverse currency movements. But operating cash flow increased by $3m to $7.7m, and a new stevia product was launched. Shares fell more than 1 per cent in early trading. Buy.

KEY STORIES:

An unsolicited takeover offer from International Paper Company sent shares in Smurfit Kappa (SKG) up almost a fifth in early morning trading. Under the terms of the offer shareholders would receive a combination of cash and a minority holding in the business, although specific details were undisclosed. Chairman Liam O’ Mahony said the the offer did “not reflect the group’s true intrinsic business worth or its prospects”.   

Shares in quality assurance specialist Intertek (ITRK) have risen more than 6 per cent this morning following the release of the group’s full year results. This is largely due to an expansion of the adjusted operating margin, which grew 110 basis points in constant rates to 16.9 per cent. However, analysts at J.P. Morgan Cazenove reduced their adjusted EPS forecasts for both 2018 and 2019 because of an expected headwind from foreign exchange. 

Shares in Ashtead (AHT) may have fallen foul of high expectations. The group announced its results for the three and nine months to January 2018, with growth across the board in rental revenue, free cash flow and earnings per share. The largely US-centric group has benefited from the series of hurricanes suffered last year, with its US-based Sunbelt business growing revenues 18 per cent for the year so far. Despite the market reaction, analysts have upgraded their EPS forecasts for the group. 

Shares in Yu Group (YU) are up more than 13 per cent this morning following the release of the group’s full year results. The group has grown rapidly since its 2016 initial public offering, achieving revenues in 2017 of $47m - 50 per cent higher than its previous target of £30m. This looks set to grow further, with contracted revenue for 2018 already in excess of £50m. 

Shares in IWG (IWG) have fallen more than 3 per cent following the release of the group’s full year results. Operating profit fell 15 per cent, although overheads were also down by 12 per cent. Investors were clearly expecting a fairly poor set of results following the group’s shock profit warning in October last year. However, chief executive Mark Dixon reported improvements in revenue performance in the final quarter of 2017. Hold.

William Hill (WMH) is selling its Australian business to Crownbet Holdings for a A$313.7m (£176m) equity value. Proceeds from the sale will be used to pay down the group’s debt and invest in the remaining businesses. The bookie had begun a strategic review of this business in January ahead of the credit betting ban set to be introduced in Australia and a potential point of consumption tax. Management had been concerned about the effect these regulatory changes would have on the profitability of the business. At the half year results in February the strategic review led to a £238m exceptional charge, contributing to the pre-tax loss. Shares were up more than 1 per cent in early trading.

Shares in Just Eat (JE.) after the company announced a loss before tax of £76m, compared to a £91.3m profit last year. This was primarily due to a £191m of exceptional charges mainly from the impairment of goodwill in the Australian and New Zealand businesses. Strip out the impairment charges and the group would have had a £104m pre-tax profit. Sales were up by 45 per cent over the year to £546m with the number of orders up by a quarter to 172m.

OTHER COMPANY NEWS:

The drive to improve efficiencies and extract costs in the US healthcare market has boosted Craneware (CRW) again. The specialist tech group reported a 16 per cent increase in revenues and 18 per cent leap in adjusted cash profits in the first six months of its 2018 financial year. More importantly, the four major new contracts have created an attractive outlook for the remainder of the financial year, with $63m of sales already booked.   

Huntsworth (HNT) managed to improve its margins and cash flows in 2017, meaning highlights from the group’s full year results were a 47 per cent increase in operating profit and free cash flow of £21m, compared to £3m in 2016. Management have hinted at acquisitions to boost its healthcare division further and have a strong balance sheet to do so.

Cambria Automobiles (CAMB) shares fell in early trading after the group revealed the trading performance over the first five months of the current financial year - albeit in line with the board's expectations - is behind the corresponding period in 2016/17. A weak new car market has out pressure on volumes, although bonus earnings have helped maintain margins. New vehicle unit sales were down 16.5 per cent (like-for-like down 14.6 per cent), but with gross profit per retail unit managing to partly offset these reduced volumes.

Passenger numbers at easyJet (EZJ) were up 4 per cent to 5.6m during February compared to the same month the year before, pushing load factor up 1 percentage point to 93 per cent. Over the rolling 12 month period the budget airline has carried 9.2 per cent more passengers at 82.3m with a 93.2 per cent load factor. Shares fell 1 per cent in early trading.