Shares in London began the day positively despite a wobble in the US overnight. Click here for The Trader Nicole Elliott's latest views on the markets.
IC TIP UPDATES:
Prudential (PRU) has confirmed plans to de-merge its UK and Europe business M&G Prudential business from the rest of the group, resulting in two London-listed entities. As part of the plan, M&G Prudential will exit the annuity business, with a sale of its £12bn to Rothesay Life. At the same time the life assurer reported a 10 per cent increase in operating profits for 2017 and an 8 per cent rise in the annual dividend. Buy.
Burford Capital (BUR) more than doubled it operating profit last year to $289m. Realised gains from its investments also more than doubled as it recovered a record amount of investments, with cash generation of $362m. Buy.
After a profit warning added fuel to our sell rating in January, shares in funeral provider Dignity (DTY) have bounced back this morning after the group marginally beat expectations at the bottom line. Brokerage Panmure Gordon said pre-tax profits of £77.8m represented a 1 per cent out-performance against its forecasts. Even better, trading into the current financial year has been better than expected - helped by a 7 per cent increase in the number of deaths to date. As for how the business will manage costs this year, analysts suspect more will come to light at the trading update in May, before the interims in August. Our recommendation is under review.
Shares in Charles Taylor (CTR) were down 3 per cent following the release of the group’s full year results. The statutory pre tax profit and earnings per share were down due to amortisation of intangibles related to acquisitions. Net debt was also up due to investment and acquisitions. The share price reaction is understandable, but we aren’t sure if it is warranted. We are reviewing our buy recommendation.
Shares in Safecharge (SCH) fell 4 per cent this morning following the release of the group’s full year results. The group reduced its final dividend to 9.2p from 9.47p following an 11 per cent drop in statutory pre tax profit, though the total dividend is still up 3 per cent on 2016. We are reviewing our recommendation.
SDX Energy (SDX) has made its second discovery in a week, this time at its Rabul 5 Well in the west Gharib Concession in Egypt, where it has a 50 per cent working interest. The well was drilled to 5,280 feet, encountering 151 feet of net heavy oil pay across two formations. We remain buyers.
Everything is moving in the right direction for Kenmare Resources (KMR), apart from the company’s shares. In 2017, the mineral sands group hit record production and shipment volumes, posted a post-tax profit of $19.4m and reduced costs by 3 per cent. Despite sporadic disruption from Chinese environmental inspections, demand in the ilmenite and zircon markets remains favourable, and is expected to lead to a swing to net cash by the end of the year, say analysts. Our buy call is under review.
Shares in Alumasc (ALU) plunged a quarter during early trading after the building products manufacturer said it had experienced a slower than expected third quarter performance, both in terms of revenue and order intake. That means the latest forecasts for group revenues for 2018 will be 4-5 per cent below previous expectations, with a consequential reduction in previously expected underlying profit before tax of around 15 per cent. We place our buy recommendation under review.
Somero Enterprises (SOM) reported 8 per cent full-year revenue growth to $85.6m, with adjusted cash profits up 14 per cent and a 2 percentage point increase in the adjusted cash profit margin. While Europe lifted sales by a whopping 53 per cent to $12.2m, China saw a 14 per cent decline; bosses say the country represents a serious opportunity given their minimal current market penetration. Net cash remained strong at $19m, and the group upped its full-year dividend by 40 per cent to 15.5¢. It also proposed a special dividend of 3.6¢. Shares were up 4 per cent this morning. Buy.
Shares in recruiter Empresaria (EMR) were down 8 per cent this morning, after the group posted a record year for pre tax profits and earnings per share. The easiest explanation for the drop comes from weakness in two of the group’s main markets, Germany and the UK, which suffered from difficult conditions arising from changes in legislation related to temp workers and weakness in technical and industrial businesses following the collapse of Carillion, respectively. We are reviewing our buy recommendation.
KEY STORIES:
Supermarket chain Morrisons (MRW) has announced a 4p special dividend following a strong year of sales and profit growth in 2017. Group like-for-like sales rose 2.8 per cent last year (excluding fuel), which compared to a growth rate of 1.9 per cent the year before. That translated into an 11 per cent rise in underlying pre-tax profits as tight cost control and an extra trading week helped offset slightly lower margins. Free cash flow of £350m included £108m in disposal proceeds and a £35m improvement in working capital.
Hikma’s (HIK) full year results are truly dreadful: revenues and core profits down and a reported operating loss, compared to a profit in 2016. But this didn’t stop investors sending the share price up 14 per cent in early trading. The reason for the renewed optimism is that the underperforming generics business didn’t do quite as badly as management had previously predicted and the outlook is slightly better. We are cautiously optimistic that Hikma has turned a corner.
Having immediately moved our buy tip on drinks wholesaler Conviviality (CVR) to sell in light of last week’s shock profit warning, we feel vindicated by a late morning update from the group today, which resulted in the shares being suspended. Further to last week’s warning, which revealed margin pressure would continue for the foreseeable future, the group has unearthed a whopping £30m tax bill which must be paid by the end of this month. This has created a short-term funding issue, and could further damage the now-guided range for adjusted cash profits this year (£55.3m-£56.4m).
OTHER COMPANY NEWS:
For the first time in almost a year, a share in Gem Diamonds (GEMD) is worth £1. The Lesotho-focused miner of precious stones is up more than 6 per cent today after simultaneously announcing a an encouraging set of full-year results and the recovery of a 169 carat diamond, its seventh 100-plus carat diamond of the year.
Intercontinental Hotels Group (IHG) has bought a majority stake in Regent Hotels and resorts. For now it will spend $39m (£28m) for a 51 per cent stake in the hotel group with the right to buy the remaining 49 per cent in phases from 2026. IHG is aiming to expand Regent from its current six hotels today to more than 40 over the long term. Shares were flat in early trading.
EKF Diagnostics (EKF) saw 8 per cent revenue growth to £41.6m for the year to December 2017, 6.6 per cent of which stemmed from favourable currency movements. Successful cost control helped the group to lift gross profit by 25 per cent to £22.9m, while adjusted cash profits climbed by a whopping 52 per cent to £9.3m. Net cash was strong at £7m versus £2.2m year-on-year. That said, the shares were down 5 per cent this morning.
Emis (EMIS) reported a small 1 per cent uptick in revenues to £160m for the full year, though recurring revenues rose by 4 per cent to constitute 83 per cent of the top line. The group announced in January this year that it had identified a failure to meet certain service levels and reporting obligations with NHS Digital. To cover any resultant financial settlements, Emis has made an £11.2m provision - thus more than halving operating profits to £10.6m. That said, net cash was strong at £14m versus £0.4m net debt in 2016, and the dividend has been lifted 10 per cent.
StatPro’s (SOG) revenues grew more than a quarter during 2017 to £49.3m, while group annualised recurring revenue rose by 35 per cent to £53m. Pre-tax losses also narrowed from £10.1m to £3.4m. Net debt climbed from £10m to £20.2m, largely due to the acquisition of the Delta business, while net cash from operations rose 64 per cent. The dividend stayed flat at 2.9p. Shares were down 4 per cent in morning trading.
Versarien (VRS), the materials engineering group, has entered into a collaboration agreement with Team Sky - the professional cycling team. Together, they will explore the use of graphene in high-performance cycling equipment used by Team Sky.
