IC TIP UPDATES:
Shortly after the markets closed yesterday, Bloomsbury Publishing (BMY) issued a trading statement that revealed revenues in the year to February are now due to come in slightly better than expected, as bestsellers including Tom Kerridge’s Lose weight for less have excelled. Both profits and the group’s year-end net cash position are therefore set to come in well ahead of expectations. Buy.
Mortgage Advice Bureau (MAB1) increased its number of gross mortgage completions by almost a fifth last year, boosting revenue 17 per cent to £109m. Pre-tax profit was down slightly but that was due to a one-off gain in 2016, following the sale of its 49 per cent stake in Capital Private Finance. Buy.
Results from the Gym Group (GYM) sent the shares down in early trading as cash profit margins fell slightly short of expectations. This results in cash profits of £28m – below broker Numis’ forecast of £28.6m. Elsewhere, return on capital employed across the group’s mature sites was flat at 32 per cent, while conversion of the Lifestyle Fitness sites continues. Despite strong top line growth of 24.3 per cent, Numis has chosen to leave forecasts unchanged for now. We remain sellers.
Rio Tinto (RIO) has agreed to sell to Glencore (GLEN) its interests in the Hail Creek coal mine and the Valeria coal development project in Queensland for $1.7bn. The transaction follows last year’s auction of the Coal & Allied business (part of which ended up in Glencore hands) and leaves Rio on the brink of an exit from coal. A separate process is underway to sell Rio’s remaining Australian assets. We are buyers of Rio.
Wood Group (WG.) chief executive Robin Waston prefaced full-year results for the oilfield services firm with a comment that the merger with Amec Foster Wheeler has created “a unique platform to unlock revenue synergies and generate good longer term growth”. Emphasis on longer term there. During a tricky 2017, revenues declined 12 per cent on a pro-forma basis, and are only mildly encouraging this year: expected growth in earnings before interest, tax and amortisation is in “early stage recovery in certain areas” of the core oil and gas market, though there has been some good momentum in contract awards of late. The shares are off in early trading, though our sell call is under review.
KEY STORIES:
Shares in online grocer Ocado (OCDO) fell this morning after the group revealed that first quarter revenue growth of 11.7 per cent was held back by recent poor weather. Also, average order size declined slightly as price inflation was offset by a reduced number of items per basket – despite an 11 per cent rise in order volumes. The group also confirmed it has completed its £143m placing to fund several new international partnerships.
Shares in De La Rue (DLAR) have plummeted 14 per cent this morning on the dual news that results for 2017 will be at the lower end of consensus and chief financial officer Jitesh Sodha is stepping down. Mr Sodha will remain in the business until September to ensure an orderly transition, but clearly investors are spooked by the update. The group’s results are due in mid-April, hold until we have a better idea of what is happening.
Shares in EnQuest (ENQ) are 5 per cent to the good this morning, despite the oil and gas group posting a 5.4¢ basic loss per share for 2017. Perhaps the market had been nervously anticipating another hick-up at Kraken, which averaged 38,000 barrels per day in the first two months of 2018. Net debt, though massive, remained below $2bn at the end of the year.
The Norwegian government is reportedly on the brink of collapse, but Faroe Petroleum (FPM) remains as stable as ever. Full-year results for the group show the gradual pivot to development and production is well underway, though Norway’s fiscal regime still provides a massive incentive for exploration. To wit, this year Faroe will spend £80m on exploration pre-tax (and £20m after tax).
The tragedy at Grenfell tower had knock on effects for housing services group Mears (MER). Revenues for the group were down 4 per cent in 2017, due to an increased focus on building safety in the wake of the fire. Housing was not the group’s only challenging area, however, with revenues in the care division down 12 per cent due to a comprehensive restructuring in which branches accounting for 27 per cent of revenues were shut down. The restructured division is in a much better position now, but it is unclear when growth will return to housing. Hold.
An investigation from the Serious Fraud Office isn’t enough to put investors of defence company Chemring (CHG). Shares in the group are up 3 per cent this morning following the release of a promising trading statement. The group is seeing recovery in all of its market segments, led by US military spending, though it warned the energetics division was likely to weaken following the completion of a major ammunition contract earlier this year. Hold.
IQE’s (IQE) annual results reveal the extent to which the group has benefitted from the use of photonics (laser enabled communications hardware) in the mass market. The group reported double digit revenue growth thanks to demand for its specialist photonics components. But questions remain regarding the diversification in IQE’s portfolio. Sure, it makes money from several different technologies, but revenue growth hasn’t been particularly impressive in anything but the photonics division. Meanwhile, product investment stunted operating profits.
OTHER COMPANY NEWS:
Shares in Sophos (SOPH) were down over 7 per cent yesterday. As reported in the FT, Northern Trust Capital Markets placed a “trading sell” on Sophos ahead of its full-year results due in May, referencing heightened competition in the security software sector, slower growth, net debt from acquisitions, and a reliance on prepayments among other factors. The shares may also have suffered a knock-on effect from software peer Micro Focus’s plummeting share price yesterday.
Hikma (HIK) has finally got an unbranded drug out of its generics division. Being the first to market with its cheap version of HIV medicine ritonavir has given the group 180 days of exclusivity. It’s just a small step, but at least the division is moving in the right direction, after a terrible 2017.
Charter Court Financial Services (CCFS) has reported maiden full-year results, when its loan book grew 42 per cent to £5.4bn. Impressively, its net interest margin improved to 3.19 per cent, from 3.08 per cent in 2016. Buy-to-let mortgages were up by almost half, while residential lending grew 35 per cent.
Virgin Money (VM.) and Standard Life Aberdeen’s (SLA) investment arm Aberdeen Standard Investments (ASI) have announced a joint venture to provide asset management services to Virgin Money customers. ASI will acquire 50 per cent of Virgin Money Unit Trust Managers as part of the deal, expected to complete by the end of this year.
Motif Bio’s (MTFB) investors were unimpressed that the group has delayed its new drug application for its novel antibiotic iclaprim. The shares dropped nearly 10 per cent in early trading after the chief executive revealed that the group needed more data before registering its drug with regulators.
Results from DP Eurasia (DPEU) – the exclusive master franchisee of the Domino's Pizza brand in Turkey, Russia, Azerbaijan and Georgia – has released a maiden set of preliminary results this morning. Suffice to say, the numbers did not divert significantly from what the January trading statement had already revealed: system sales rose by a third, while strong like-for-like growth in Turkey and Russia drove a 40 per cent overall improvement in group revenues. Cash profits also rose by close to a third despite a higher marketing spend and capex-driven growth thanks to solid growth in margins across Turkey and Russia. Analysts reckon the strength of sterling against the lira, isn’t helping the shares find momentum, although the demanding valuation likely has something to do with it, too.
Happy (belated) Christmas, Hurricane Energy (HUR)! Today, the fractured basement reservoir driller has confirmed the delivery of two horizontal Xmas tree systems and a floating production storage and offloading system from TechnipFMC, both for its Lancaster development. Delivery of these long lead items were described by the company as “an important step” towards the planned well completions and installation programme, later this year.
Hansteen Holdings (HSTN) saw pre-tax profits rise 46 per cent to £70.3m for the year to December 2017. The group also “simplified” its balance sheet, settling €100m in convertible bonds. Having sold its German and Dutch portfolio for €1.28bn last June, Hansteen completed a £578m return to shareholders via a tender offer in November. Investors can now expect another substantial proposed return, this time of £145m, thanks to the group’s sale of its Industrial Multi Property Trust portfolio for £116m to Warehouse REIT.
Blancco Technology (BLTG) saw continuing revenues of £12.6m for the half-year to December 2017, down on the restated comparative a year earlier of £12.8m. Pre-tax losses narrowed to £1.1m from £2.1m. After a difficult few months, management is refocusing the business – entailing substantial cost cutting. The adjusted operating margin before corporate costs fell to 13.9 per cent from 25.8 per cent, due to rising costs in the previous year. Blancco says the benefits of restructuring will be “fully realised” in the second half. The company also reported net debt of £3.4m from net cash of £1.7m a year earlier. Shares were down 3 per cent this morning.
Earthport (EPO) has expanded its relationship with existent client Japan Post Bank, delivering outbound cross-border payments across new regions including North America and Europe.
