News & Tips: Close Brothers, TP Icap, Cairn Energy & more

IC TIP UPDATES:

Close Brothers (CBG) managed to post a stable net interest margin during the first half of the year, despite ongoing competition in the motor and asset finance markets. At the former business, the loan book reduced 3 per cent, as management pulled-back on new lending. Property and premium finance were the highest growing areas of lending, underlying operating profit up 5 per cent at the banking business. Buy.

Shares in TP Icap (TCAP) dropped 7 per cent in early trading after management reported the costs to achieve its planned synergies were higher than expected last year, at £79m against a target of £40m. It also outlined plans to cut everything except pay in an attempt to reduce costs further, in order to hit its previously-set synergy target of £100m by 2020. However, while underlying pre-tax profits were up marginally, it was behind consensus expectations. We place our buy recommendation under review.

Senegal is the key for Cairn Energy (CNE), as it has been for some time, and as full-year results, out today, remind us. The SNE field is now fully appraised, the government is expected to stamp the exploitation plan by the end of this year, though first oil isn’t expected until 2021-2023. The swing to reported profitability was largely due to a $403m net gain on the derecognition of certain financial assets. We are buyers of Cairn.

Mobile payments company Bango (BGO) saw end user spend more than double to £271m for the year to December 2017, up from £132m. Revenue rose 62 per cent to £4.2m, while operating costs were flat. The group’s adjusted cash losses narrowed to £1.6m from £2.8m and house broker Cenkos is forecasting positive cash profits for 2018. Encouragingly, momentum in end user spend has continued; the February 2018 exit run rate was £465m per year. That said, the shares were down 9 per cent at the time of writing. Recommendation under review.

Computacenter (CCC) saw record revenue growth of 16.5 per cent to £3.8bn for the year to December 2017, with a 28.2 per cent rise in pre-tax profits and 17.6 per cent dividend growth. The group returned £100m to shareholders via a tender offer in February year. Regionally, Germany’s revenues climbed a record 15.5 per cent, helped by supply chain sales. France performed ahead of bosses’ forecasts, though it is expected to face challenges in 2018. In an earlier trading update, management said some one-off investments in 2018 would engender “stable profitability”. Shares were down 7 per cent this morning. Recommendation under review.

Office services group Restore (RST) delivered results broadly in line with expectations for 2017. It benefitted from the acquisition of PHS Data Solutions, which helped push revenues up 36 per cent, compared with 7 per cent organically. The group expects organic growth to continue, with the introduction of General Data Protection Regulation in May this year driving projects for the document management division. Buy.

Burford Capital (BUR) has sold its entire entitlement in the Teinver matter for $107 million in cash. The Teinver matter represents an investment in an arbitration matter arising out of the expropriation of two Argentine airlines by Argentina’s government. The sum represents a 736 per cent return on its investment. Buy.

John Menzies (MNZS) beat profit expectations in 2017, with adjusted pre tax profits coming in at £67.1m, from £49.7m in 2016. The outperformance was down to the aviation business, which benefitted from the acquisition of ASIG. Management have upgraded expected synergies from the deal to £15m, from £10.5m previously. The group is still looking to get rid of Menzies Distribution and has begun the sale process. Buy.

Annual cash profits at petrol forecourt retailer Applegreen (APGN) reported ahead of expectations this morning as the group reported another year of solid trading. Three strategic acquisitions helped the company add a combined 99 sites during the year, taking the estate total to 342. It also helped propel pre-tax profits up by nearly a fifth and EPS by 10  per cent to 24.7¢. Net debt also reported below expectations, reflecting better use of working capital, as well as the £41m placing last September. We remain buyers.

Brooks Macdonald (BRK) reported a £5m decline in pre-tax profits to just £0.6m, after accounting for provisions for legacy matters. More clients choosing flat fees, plus lower transaction income meant the revenue yield also declined during the first-half. However, discretionary funds under management continued to rise, up a quarter on the previous year. Buy.

C&C (CCR) announced that full-year results should be in line with management’s expectations, with operating profit of around €86m (£76.4m) and cash conversion of about 60 per cent of cash profits. Magners cider returned to volume growth during the second half after a weak start to the year thanks in part to a new product launch. But one-off charges around new distribution arrangements with AB InBev and a €3m currency translation headwind are expected to affect profitability at the full-year. Shares were up nearly 1 per cent in early trading. Buy.

KEY STORIES:

H&T (HAT) may have benefited from the higher gold price last year, but it continued to try to reduce its reliance on the fortunes of the commodity. It personal loan book almost doubled to £18.3m, while it also grew the proportion of loans offering lower interest rates. However, the average net pledge book at its pawnbroking business was still up 11 per cent.

Shares in Greencore (GNC) fell 22 per cent in early trading after the convenience food maker announced a restructuring programme for its US business. The acquisition of Peacock Foods in the US in 2016 added more capacity to the company’s manufacturing than it could properly utilise. The restructuring is expected to cost around £3m, which will likely appear as an asset impairment charge in the Full-year results for 2018. Profit growth in the US is expected to slow and EPS forecasts have been cut.

The publication of full-year numbers, sent shares in Antofagasta (ANTO) up 3 per cent this morning, though they arrive amid a tricky time for the group. Though the Chilean copper giant told investors this morning that labour negotiations at Los Pelambres, Centinela and Zaldívar were all “successfully completed”, the latest offer to workers at Los Pelambres – Antofagasta’s biggest mine – has been rejected and union members have voted to strike. Government mediation is imminent, but the calendar for negotiations this year is busy.

Fevertree (FEVR) reported a 66 per cent increase in sales to £170m during 2017, with adjusted cash profits up by half to £58.7m. The drinks company ended 2017 as the number one mixer brand in the UK, and is pressing on with global expansion plans. A wholly owned North American operation has been established with its own chief executive. Shares fell 5 per cent in early trading.

OTHER COMPANY NEWS:

Telit Communications (TCM) has agreed new financial covenants with its lead bank, following the rationalisation of product lines and costs. The group will report a significant increase in research and development expenditure for 2017. Taken together with provisions, other adjustments and component shortage issues dampening sales at the end of 2017, bosses expect revenue to sit between $374-376m with adjusted cash profits of $20-23m; much lower than the expectations set out last September of $390-$400m and $44-$48m. Net debt climbed from $17.7m to $30.2m. That said, trading in January and February 2018 was “considerably stronger” year-on-year. Shares were down 4 per cent this morning.

In 2018, Gem Diamonds (GEMD) is finally starting to prove why there is some rationale in owning a miner of precious stones. Today, the group announced that the 910 carat D colour Type IIa diamond recovered in January from the Letšeng mine has been sold for $40m in a tender in Antwerp. The ‘Lesotho Legend’ is believed to be the fifth largest gem quality diamond ever recovered.

Full-year results for Seplat Petroleum (SEPL), as we recently reported, were very strong. But for a demonstration of the risk premium the market is applying to the Nigeria-based group, look no further than the terms of a refinancing, announced today: $350m of senior notes due 2023 and carrying a 9.25 per cent coupon, and a revolving credit facility with an initial interest rate of a Libor plus 6 per cent, payable semi-annually.

Smart Metering Systems (SMS) is continuing to expand its network, but the growth comes at a cost. The group’s recurring revenues from gas and electricity meters was up 15 per cent and 283 per cent respectively. Gross profit margins, however, declined 4 per cent while pre tax profits fell 2 per cent. Analysts are reviewing their forecasts, we will have more later. 

Shares in OPG Power Ventures (OPG) are up 5 per cent this morning after an upbeat trading statement from the group. The group has been plagued in recent times by adverse movements in the cost of coal, used to fuel some of its plants. However, in its latest update management have said it expects to benefit from better spreads starting from FY19. Meanwhile both the quarterly generation and combined average load factor for the Chennai and Gujarat plants were at the highest ever. 

Proactis (PRO) has announced the result of its tender offer for the remaining share capital of Hubwoo, a spend procurement software company based in Paris, which it announced on 18 January. Proactis now owns 88.5 per cent of the total issued share capital.