London shares started the week with a sharp sell off as the US Dollar strengthened. Click here for The Trader Nicole Elliott's latest views on the markets.
IC TIP UPDATES:
Shares in Barclays (BARC) were up 4 per cent in early trading after the banking group revealed Edward Bramson’s activist investment fund Sherborne has acquired voting rights over 5.16 per cent of its issued share capital. Sherborne said it had invested £580m in Barclays shares and derivatives. Buy.
Shares in Ladbrokes Coral (LCL) and William Hill (WMH) were buoyed by the Gambling Commission’s recommendation that the maximum stake for fixed odds betting terminals should be £30 or less - a better outcome than bookies had feared. The government now has to decide whether to accept the commission’s recommendation. The options proposed are to either cut the maximum stake to £50, £30, or £2. We stick with our buy recommendation on Ladbrokes.
Learning Technologies (LTG) reported an 84 per cent rise in revenues to £52.1m for the year to December 2017, with recurring revenue up from 27 per cent to 39 per cent. The top line was buoyed by LTG’s acquisition of NetDimensions, a learning management system, last March, while the group’s other portfolio businesses also saw good organic sales growth and better adjusted operating margins. The full-year dividend has been lifted by 43 per cent to 0.3p, and management says trading for the start of 2018 is ahead of expectations. The company’s shares were up 4 per cent in early trading. Buy.
The decision to close its pastry factory Grain D’Or last year means interim results from Finsbury Food (FIF) require a degree of decoding. For instance, group revenues rose by 0.7 per cent to £158m, but adjusting for the closure, underlying revenues actually improved by 2.5 per cent. Adjusted operating profit also moved higher - by 4.7 per cent to £8.7m - but this didn’t include roughly £3.3m worth of losses incurred by Grain D’Or. But overall, analysts are praising Finsbury’s resilience amidst a difficult trading environment: a 21 basis point improvement in operating margins, a £5.4m reduction in net debt and a 10 per cent rise in the dividend are all good news. We remain buyers.
In a solid first set of full-year figures since its 2017 listing, ADES International (ADES) posted a 31 per cent uptick in reported net profit, and a slight dip in average fleet utilisation and earnings per share. Growth remains the focus, and the Egypt-focused oilfield services outfit is currently “putting in place the necessary debt arrangements” for expansion – read M&A activity. Buy.
KEY STORIES:
Shares in Micro Focus (MCRO) plummeted over 50 per cent this morning, on a warning that revenues have fallen faster than anticipated since the half-year results on 8 January. Management now expects constant currency revenue for the year to October 2018 to decline by 6–9 per cent, as opposed to earlier guidance of 2–4 per cent. This has largely been attributed to “one-off transitional effects of the combination with HPE software”, rather than underlying end-market or product issues. The effect on the adjusted cash profit margin is expected to be mitigated by cost savings. Chief executive Chris Hsu has resigned, to spend more time with his family and pursue another opportunity, replaced by chief operating officer Stephen Murdoch.
Another previously unexplained share price stutter at TalkTalk (TALK) seems to have been explained by the departure of the group’s head of ultrafast broadband. Richard Sinclair, who joined TalkTalk from Ofcom is set to make the move to Virgin Media, a rival in the full fibre broadband market.
Hammerson’s (HMSO) plans for a merger with Intu (INTU) took a further twist after Hammerson received a bid approach from French shopping centre owner Klepierre, valuing Hammerson shares at 615p a share, a 41 per cent premium to last Friday’s closing price. Tellingly, Intu shares were unchanged on the news, and Hammerson’s rejection of the bid highlights all the qualities of Hammerson that are most likely to be diluted by merging with Intu.
Recruiter Staffline (STAF) has acquired Endeavour Group and its subsidiary Vital Recruitment. The cost of the acquisition was not revealed, but it will be funded out of the group’s existing resources. The acquisition will strengthen the group’ operations in the East of England. Hold.
OTHER COMPANY NEWS:
Telit Communications (TCM) has provided an update on historical VAT assessments in Italy. First, as Telit noted in January this year, a dispute over VAT assessments for its 2005, 2006 and 2007 tax years isn’t expected to be heard by the Italian Supreme Court before 2022. Two levels of tax court have previously found in favour of Telit. Separately, the Italian tax authorities issued penalty deeds against Telit in August 2015, and the first-level Italian tax court has now rejected Telit’s appeals against these deeds, which are valued at around €5m in total. Telit will continue to appeal. Shares were down 2 per cent this morning.
The fact that Tissue Regenix (TRX) has failed to have its audit signed off in time to report annual results as planned, has spooked investors. Shares were down nearly 8 per cent in early trading on the news that the results will now be released on Monday 26th March.
