With the US Fed meeting expected to hike interest rates over the pond later on today and UK economic data making a May hike here look more and more likely, traders are in circumspect mode. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
After Rio Tinto (RIO) confirmed the sale of its Hail Creek coal mine and the Valeria coal development project to Glencore (GLEN) for $1.7bn, the group gave an indication as to what it wants to do with the money. No surprises here: the iron ore giant is going to further reduce gross debt, by launching a bond purchase and redemption plan for up to $2.25bn equivalent. Glencore, meanwhile, successfully tapped the market by selling $500m of non-dilutive guaranteed convertible bonds due 2025. Rio is a buy.
Softcat (SCT) reported revenue growth of 24.9 per cent to £472.8m for the half-year to 31 January, with pre-tax profits up 15 per cent at £24.1m. Gross profit per customer also climbed 15 per cent. The group saw ongoing demand for security products, while data storage solutions benefitted from customers preparing for the EU’s GDPR. Even so, Softcat’s share price was down over a tenth this morning. This may reflect profit-taking – the shares had enjoyed a very strong run over the year to yesterday’s close. Others may have sought signs of outperformance in 2018; management is confident of meeting expectations for the full year. Recommendation under review.
Investors in our tip of the year Ferrexpo (FXPO) will have been aware of the strong set of numbers promised by 2017 accounts. Across most measures – revenues, pre-tax profits, earnings per share and gross margins – the iron ore pellet group beat consensus expectations, and pledged a 150 per cent increase in the total dividend (including specials). The difficult question is what comes next, but shareholders have been offered two sources of encouragement: progress on the first phase of the concentrate expansion programme, and exploration work at the Belanovo mine. Buy.
Production from Eland Oil & Gas’ (ELA) Opuama fields remains strong, though mechanical issues with the OES teamwork rig has led to a pause in drilling of the OP-9 development until back-up engines arrive at the well. Drilling is now set to complete in mid-April, though analysts at Peel Hunt have downgraded their 2018 EPS forecast by 8 per cent to 46p. That’s still just over half Eland’s market value: buy.
Regular trading updates can provide assurance, or wash over you. The market was unperturbed by today’s weekly announcement from SDX Energy (SDX), which confirmed that LNB-1, the eighth well in the company’s nine-well drilling campaign in Morocco, has been spud. Investors can expect an update in 15-20 days’ time, by which point the well is anticipated to have completed; success would involve the opening of a large section of new acreage in the Gharb basin. We are buyers of SDX.
KEY STORIES:
Shares in Alpha FX (AFX) were up almost 6 per cent in early morning trading after the currency hedging provider announced a 60 per cent jump in sales, in its maiden full-year results. That fed through to underlying pre-tax profits of £6.8m, up more than half of the prior year. Management also announced that it would be expanding into the institutional and European markets.
Another day, another retail profit warning. This time it’s the turn of suiting business Moss Bros (MOSB) which, having reviewed its projections, says profits for the 2019 financial year will fall short of expectations. Current year forecasts still stand, but the news still sent the shares down nearly a quarter in early trading. The groups says hire sales have continued to be challenging, while a consolidation in the supplier base in light of sterling’s weakness has to led to poor availability of stock. Footfall on the high street has also been low since December.
Mothercare (MTC) shares have been bouncing around quite significantly since the start of the week, with rumours gathering pace that the group was in financial distress. Anyone who has followed the stock over recent years will already know this to be true, but managers have said this morning that discussions with its lenders are “progressing constructively”. Tests on the group’s banking covenants have also been deferred - they were originally due on 24 March - and further updates are to be expected as appropriate.
One of Carpetright’s (CPR) major shareholders has agreed to lend it £12.5m. That might give shareholders some temporary comfort, but it doesn’t mean all is well with the business. The company says it is considering a company voluntary arrangement (CVA) to address its legacy property issues. Often the first stage of the insolvency process, a CVA actually allows a company to keep trading - providing that cash flows remain sufficient. In order to ensure this, Carpetright intends to raise an additional £40m-£60m via an equity fundraising. Chief executive Wilf Walsh admits the “aggressive” expansion plan of the past has left the group with a number of poor performing stores which continue to run with long leases, making it difficult for the board to exit burdensome tenancies. By entering into a CVA it means the company can accelerate store closures and slash its rent bill.
Kingfisher (KGF) results have only added to the bloodbath on the high street this morning. The B&Q owner said ongoing pressures in France and a poor performance on the UK high street led to a 10 per cent decline in pre-tax profits last year. Like-for-like sales were also down 0.7 per cent at constant currencies, to £11.7bn. Issues around product availability and stock didn’t help, while a gloomy forward outlook weighed on the shares’ performance in early trading.
Annual results from Vectura (VEC) demonstrate the difficulties in launching a generic drug in the respiratory market. The group has reported a decline in pro forma revenues and a decline in adjusted operating profits due to higher research and development expenditure. But there is also a lot to like in these results, notably the strong cash flow and reinvigorated strategy.
OTHER COMPANY NEWS:
Accesso Technology (ACSO), the provider of smart ticketing and queuing software, saw full-year revenue rise 30.1 per cent to $133.4m, with adjusted operating profit up 21.7 per cent to $19.1m. Reported pre-tax profits were down by 29 per cent to $7.2m, a fall attributed to the acquisition expenses of two acquisitions made during the period – Ingresso and The Experience Engine (TE2). That said, EPS climbed 20 per cent to 40.8¢, thanks to a one-off tax credit. Shares in the group were up just over 1 per cent this morning.
