London shares are generally flat in early trading as geopolitical concerns remain. Click here for The Trader Nicole Elliott's latest thoughts.
IC TIP UPDATES:
Shares in FirstGroup (FGP) are up nearly 9 per cent this morning after the transport group was approach by private equity firm Apollo. Management at FirstGroup rejected the all-cash offer as they think it “fundamentally undervalues” the company and is “opportunistic”. Analysts reckon that a takeover of the group would be “far from straightforward” as government approval would be required for change of ownership of rail franchises. We agree that the market has undervalued the company. Buy.
With its shares trading at 30p, Sirius Minerals (SXX) has issued an invitation to holders of its outstanding $400m of convertible bonds to offer up their conversion rights. As the company notes, the debt is trading well in the money, and conversion would allow the prospective potash miner to reduce its outstanding borrowings ahead of stage two financing, release some cash held in escrow to cover bond interest payments, and reduce bondholder shorting activity. Predictably, the shares are off 4 per cent today, and we would expect to see further selling pressure in the weeks ahead if the offer is accepted. Long-term buy.
Last year was a big one for Central Asia Metals (CAML). In buying Lynx Resources for $402.5m, the copper miner added zinc, lead to its asset base and debts to its liabilities. Full-year results for 2017 contain little in the way of contributions from Sasa, but copper production from Kounrad remains as reliable as ever, and meant the group adjusted cash profit margin was still a mighty 62 per cent. Buy.
The Constitutional Court of Colombia has handed down a decision “in relation to alleged health and environmental impacts on the community surrounding” South32’s (S32) Cerro Matoso nickel operation. The Australian-headquartered miner is appealing the decision, but has been given no clarity on “any potential financial or operational impacts”. Clearly, however, the possible impacts have been deemed significantly material to notify the market. Shares were up 2 per cent in early trading, and we will review our buy call if anything changes.
Storms in the US are expected to hit National Grid’s (NG.) headline EBIT for the year to March 2018. The cost to repair damages is expected to be around £140m. However, a combination of gains on investments and a drop in the US corporate tax rate are expected to offset the costs. Shares are flat on the news. Buy.
Hays (HAS) is the last of the big-three recruiters to report their performance over the last quarter, following PageGroup (PAGE) and Robert Walters (RWA) earlier in the week. As has been the story for some time now, the group performed well across all divisions with the exception of the UK, which shrank 2 per cent. Net cash was at £5m, though management expect around £80-100m by the year end, which may signal another special dividend. Buy.
The more than 8 per cent rise in share price this morning suggests that the market has faith in the turnaround plan at Greene King (GNK). The exit from Fayre & Square will be complete by the financial year end, and the pub group is on track to reach between £40m and £45m of cost savings. Overall, pre-tax profits are expected to fall in the range of £240m and £245m for the full-year. Sales over the 49 weeks to 8th April fell 1.8 per cent, but trading over Easter weekend was particularly strong with like-for-like sales 2.8 per cent ahead of last year. Buy.
City Pub Group (CPC) reported a 35 per cent increase in sales to £37.4m during 2017 with adjusted cash profits up 51 per cent to £6.1m. Add in IPO costs and exceptional items and the company fell into a pre-tax loss of 0.2m. The company opened eight new pubs over the year, with another seven planned to open during 2018. Executive chairman Clive Watson said the company is on course to meet our target of doubling the size of the estate to around 65 pubs by mid-2021. Shares were up 1 per cent in early trading. Buy.
KEY STORIES:
David Wood has only been chief executive at Mothercare (MTC) for a few weeks, but he’s already been tasked with presenting the group’s fourth quarter figures. Given the recent trouble at the children’s chain it’s not surprise to see these numbers are pretty grim. Like-for-like sales fell 2.8 per cent over the 12 week period, taking the yearly decline to 1.3 per cent. Internationally, things were even worse: underlying sales fell a further 3.7 per cent during the quarter, taking the yearly decline to 5.8 per cent. Online was marginally better, growing by 2.1 per cent during the final period and by 1.2 per cent overall. Financing needs remain under discussion, but Mr Wood insisted his priority remains getting the company back on sound footing.
Shares in Man Group (EMG) were up 7 per cent in early trading, after the hedge fund group gained $4.8bn in net inflows during the first three months of the year. Along with currency benefits, that pushed assets under management up 3 per cent to $112.7bn. However, management warned tougher conditions at the start of the year had hurt its absolute performance in some strategies.
Saga (SAGA) is focused on turning its fortunes around after December’s profit warning. The over 50s insurance and travel specialist reported an 8 per cent decline in pre-tax profits for last year, but it also made cost savings of £10m. Written profits in retail broking were up 4 per cent, while underlying pre-tax profits for the travel business increased more than a third.
The bleak news on the high street continued with another share price fall at Carpetright (CPR). Previously revealed to the market, the company has confirmed its arrangement to enter a company voluntary arrangement (CVA). Rather than file for full insolvency, however, this means Carpetright will have an easier time getting out of onerous property leases which are currently hampering wider progress. It plans to close 92 out of 205 underperforming stores, and renegotiate terms on the remainder. Furthermore, the group says it wants to raise an additional £60m via an equity placing in late May to help pay down debts and cover costs associated with the CVA. Bosses say that trading-wise, things remain challenging.
Results from WH Smith (SMWH) prove the pain on the high street is being felt all over. Over the six months ended 28 February, revenues on the high street fell 5 per cent in total (4 per cent on a like-for-like basis), while travel outlets by comparison mustered a 7 per cent improvement (3 per cent on an underlying basis). This was enough to keep overall revenues flat, and group trading profits down just 1 per cent to £91m. Thankfully existing shareholders will be pleased to see a 10 per cent rise in the interim dividend to 16p.
Finally, some goods news. Shares in Dunelm (DNLM) shot up by close to 12 per cent in early trading after a third quarter update revealed an improvement in trading. Dunelm has reported solid growth in like-for-like store-only sales, all the more impressive given the negative impact from the recent snow disruption. Management also says the market backdrop has been more positive, although analysts suspect that the board’s improved execution is also driving the recent performance. Losses at recently-acquired Worldstores are also improving, so brokers have decided to stick by their forecasts.
Shares in Playtech (PTEC) are up more than 8 per cent this morning after it acquired 70.6 per cent of shares in gaming business Snaitech, and so will now have to make an offer for the remaining shares. The first stage is expected to complete in the third quarter this year, with the full takeover expected by the fourth quarter. Playtech management stated that Snaitech has a market leading position in retail betting in the Italian market with technology that is complementary to its own.
The takeover panel has announced that US media giant Disney will have to make an offer for Sky, should its acquisition of 21st Century Fox complete. The company is hoping to buy all of Fox’s media assets, including its current 39 per cent stake in Sky (SKY), which would give it controlling interest in the British group. The takeover panel says the offer would have to be at £10.75 - the same as what Fox has offered for the 61 per cent of Sky it doesn’t already own. Disney has already said it is keen to own Sky to help it increase its European presence and would be happy to buy the News division if management is forced to spin it out in order to let to Fox/Sky takeover complete.
OTHER COMPANY NEWS:
Further to accesso Technology’s (ACSO) announcement on 16 February, Paul Noland became chief executive of the ticketing and queuing software company on 9 April. As planned, he has replaced Steve Brown in the role.
Have Quiz (QUIZ) shares hit an inflection point? After a year of steady of de-rating, the share price nudged up again this morning on the back of a year-end trading update. There have been doubts over the strength of the brand, particularly as it starts to compete with the likes of Asos (ASC) and boohoo.com (BOO), but analysts say this morning’s numbers suggest the group is in “rude health”. Sales rose by 30 per cent in total, or 36 per cent excluding £4.4m-worth of non-recurring wholesale revenue from Spain. Online remains especially impressive, soaring by a whopping 158 per cent to £30.6m over the year.
As shareholders in Falcon Oil & Gas (FOG) have come to expect, full year results offer no new information. In fact, other than confirmation that there is $9m in the bank, the only ‘update’ was the following: “Falcon awaits the Northern Territory government's decision on the current moratorium following the publication of the final report by the scientific inquiry into hydraulic fracturing on 27 March 2018.” In other words, everything remains in the hands of politicians.
Polar Capital (POLR) shares jumped 8 per cent after the asset manager continued its turnaround during the first three months of the year. It gained £0.5bn in net inflows, offsetting £0.3bn in adverse market movements. That meant overall assets over the 12 months to March 2018 were up more than a quarter to £12bn.
