Shares in London have dipped again on more interest rate tightening in the US and concerns over a potential global trade war.
IC TIP UPDATES:
Rio Tinto’s (RIO) coal disposal programme continues apace. Today, the mining giant announced the sale of its 75 per cent stake in the Winchester South coal development project in Queensland for $200m. Whitehaven Coal, which is acquiring the Winchester, is also reported to be in the running for Kestrel, Rio’s last remaining coal mine. Earlier this week, Rio agreed to sell its Hail Creek mine to Glencore for $1.7bn, and last year fetched $2.7bn in its disposal of Coal & Allied. Buy.
Allied Minds (ALM) reported an 88 per cent increase in revenue last year, although high operating expenses of - including research and development - led to an operating loss of £$104m. Following its decision to cut funding to seven subsidiaries, its net cash and investments stood at $169m, down from $226m. Buy.
Excellent results from tech specialist Quixant (QXT) have banished previous investor concerns that the second half might not be as strong as the first. A number of big new customers and continued high demand from existing contracts led the group to double digit revenue, profit and earnings growth. Buy
Reckitt Benckiser (RB.) has stepped out of the battle to buy the consumer healthcare arm of US pharma giant Pfizer, leaving the way clear for GlaxoSmithKline (GSK). Contrary to traditional corporate M&A trends, that’s good news for Reckitt, whose investors were worried that the acquisition may be too much of a drain on the group’s cash. Shares rose 6 per cent in early trading. For GSK however, the threat of the acquisition is still looming. We are worried spending roughly $20bn on the business may mean it has to cut the dividend. We recommend buying Reckitt selling GSK.
Healthcare-focused marketing and advisory company Cello (CLL) saw a 2.4 per cent rise in full-year revenues with gross profit up 10.6 per cent. Gross profit for the larger Health division increased 26.4 per cent, buoyed by both organic growth and the benefit of two US acquisitions – Defined Health and Cello Health Advantage. Meanwhile, trading for the group’s ‘Signal’ business was weaker against tough prior year comparatives. Cello has decided to rebrand, and will now be called ‘Cello Health Group’. Shares were up 3 per cent in morning trading. Buy.
It wasn’t last year’s performance which has weighed on Ted Baker (TED) shares this morning, but rather what lies ahead. It’s been a dismal week for retailers - despite what the official ONS figures show today - and Ted faces an uphill climb in the coming weeks thanks to gloomy weather and an early Easter. This has forced analysts at Peel Hunt to trim FY2019 forecasts this morning, following management’s cue that profits are likely to grow at the lower end of the previously guided 10 to 12 per cent range. In our view, however, this offers a second bite at the cherry - there are few retailers able to deliver the same consistent profit growth as Ted. Buy.
Order book growth has continued at Inspired Energy (INSE), ballooning 39 per cent for £39m. This is generally a fairly stable predictor for growth at the energy consultancy. It has also announced this morning the acquisition of two companies, ECM and SystemsLink in the water and energy services and energy services sectors, respectively. The deals will expand the group’s geographic footprint and add and diversify technical capability. Buy.
M&C Saatchi’s (SAA) full-year revenues rose 12 per cent to £252m, with headline pre-tax profits up 16 per cent at £26.7m. European sales climbed 26 per cent with operating profit up 30 per cent. The Middle East and Africa saw similar success with revenues up 26 per cent and operating profit up 45 per cent. UK sales climbed 6 per cent, buoyed by sport and entertainment, PR and mobile. However, in the Americas, revenues dipped and operating profit declined by more than a half after a slowdown in New York advertising sales – inspiring a restructuring process. Shares were up 6 per cent this morning. Buy.
KEY STORIES:
Dampened sentiment for Lamprell (LAM) stock, set by an Arden Partners note in October, has been well founded. Today, shares in the oil and gas engineering group are off 5 per cent, after full-year results showed a surge in the cost of sales, proportional to revenue. Indeed, Lamprell has made a $50m loss at the gross profit level, down from an already thing gross profit of $57.2m in 2016.
Shares in Genel Energy (GENL) have been on a good run since the start of the year, and nudged up again this morning as the oil and gas producer swung to a net profit of $271m in 2017. That compares to an impairment-ravaged net loss of $1.25bn in 2016, reflecting a big turnaround in free cash flow.
There are clearly attractions to the Soco International (SIA) investment case. Were there not, it’s unlikely Kuwait Energy would have attempted to back into the company via a reverse takeover. As that was rebuffed, it’s important Soco management shows it has its own route ahead. Full-year results, which brought an increase in the dividend, incurred another reported loss due to impairments. Resources are up, reserves are down, and production could either fall or climb from last year’s 8.3kbpd.
Shares in De La Rue (DLAR) are down significantly for the second time this week. The designer and printer of passports will lose the contract to print the UK’s passports in July 2019. The loss will have no update on the group’s upcoming results, about which it warned earlier this week. The loss of the contract to a French company has prompted criticism from some MPs and celebrities such as Piers Morgan, but there’s little reason to think the Passport Office will go back on its decision. Hold.
A further update from Conviviality (CVR) has confirmed the group is in negotiations with its institutional backers to raise £125m through an equity placing. This cash injection will be split several ways if successful: to repay its £30m debt facility (which is being used to pay off HMRC), repay any outstanding amounts to HMRC, resolve overdue payments with creditors and provide sufficient working capital headroom. Assuming the placing is successful, adjusted cash profits for the year ending 29 April 2018 should be in the range of £45.5m to £46m and net debt below £100m. The shares remain suspended.
Shares in Sabre Insurance (SBRE) were down 13 per cent this morning, on the motor insurance underwriter’s maiden full-year results since its IPO in December 2017. Gross written premiums rose 7 per cent to £211m, while underwriting profit rose by 5.5 per cent to £59m. But, pre-tax profits were down from £63m to £55.6m. And, along with uncertainty around the impact of the Ogden rate, industry-wide reductions in personal injury frequency led to competitive pricing pressure at the end of 2017 and in the first two months of 2018. This caused a reduction in Sabre’s premium income against the same period in 2017. Management has since taken pricing action here.
OTHER COMPANY NEWS:
Energean (ENOG), the oil and gas explorer which completed its listing in London yesterday, has sanctioned the development of its $1.6bn Karish and Tanin gas project offshore Israel. The company will use $405m of the $460m raised at listing to fund its 70 per cent share in the project, and has received separate debt funding through a $1.28bn senior credit facility.
Earthport’s (EPO) North American business has now received written confirmation of its New York State money transmitter licence, backdated so that it is effective from 15 February this year. This means cross-border payment specialist Earthport can engage directly with people and companies within New York, either licensed or unlicensed. The licence covers wire transfers, FX dealing, bill payments and other types of money transmission.
