Join our community of smart investors

News & Tips: JD Sports, Tate & Lyle, AA & more

Equities are up marginally
April 17, 2018

Shares in London have started the day in more positive mood after decent economic data from China. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES:

Preliminary results from JD Sports (JD.) came in ahead of some analysts’ expectations, prompting further upgrades to current-year numbers. Total sales rose by a third for the year ended 3 February, which helped lift annual profits by a quarter. But break that down further, and like-for-like sales across stores rose by a solid 3 per cent, marking a good performance in the UK and Europe. Online sales accelerated much faster, growing by 30 per cent over the same period. We remain buyers.

Tate & Lyle (TATE) have appointed Imran Nawaz as chief financial officer. Mr Nawaz previously worked at Mondelēz International where he has been senior vice president finance Europe since 2014. He succeeds Nick Hampton in that role, who took up the role of chief executive of Tate & Lyle from April this year. Shares were flat in early trading. Buy.

AA (AA.) enjoyed a relief rally in early trading after its shares were boosted 7 per cent higher on the release of its 2017 figures. As expected, trading cash profits were 3 per cent lower due to a reduction in roadside profits. Calling in third-party garaging, due to a higher number of breakdowns was the culprit. Paid membership also declined a further 1 per cent. However, it managed to reduce its cost of borrowing, plus extend the maturity of its debt via a July refinancing. Cash conversion was also strong at 94 per cent. However, net debt was largely flat on the prior year, which combined with a reduction cash profits, meant leverage increased to 6.9 times. Sell.   

Breedon (BREE), the UK’s largest independent aggregates business, has just grown even bigger with the £455m acquisition of Belfast based construction materials group Lagan. The deal will be funded through a £170m equity placing, a new £150m loan and an increase from £300m to £350m in a new revolving credit facility. Buy

In the grand scheme of things, saving $27m worth of interest payments isn’t a game-changer for Sirius Minerals (SXX), but every little helps. Results of the prospective potash miner’s decision to invite convertible bond holders to cash out in the money were published today, and the $27m relates to the conversion of $63.8m worth of bonds, for 218.1m of shares. That leaves $244m of the initial $400m convertible bonds yet to be retired. Despite the dilution, we remain long-term buyers.

Faced with some investor doubt over its grades, and questions surrounding the ease of constructing an underground mine in the Ecuadorian jungle, SolGold (SOLG) knows it has some convincing to do. This morning, the copper-gold explorer reported more high grade extensions to its Alpala deposit and early indications of a second large nearby porphyry deposit. Commenting on the findings, chief executive Nick Mather said that the additional resources would “have a significant and positive impact on value”, and, perhaps defensively, said Cascabel “had many logistical advantages compared to many ‘high and dry’ Chilean projects”. Buy.

KEY STORIES:

Majestic Wine (WINE) has issued a strategy update this morning, leading with the news that sales are on track to meet the £500m target in FY2019. As for the current 2018 financial year, bosses reckon operating profits and the dividend will be in line with expectations, while net debt will be lower than the target threshold. As for how the business is investing for the future, around £12m a year is being spent on new customer acquisition, but bosses believe this has an approximate payback of £48m - four times the original investment. Sales retention over at Naked Wines has also peaked at 85 per cent, and the board is considering implementing the same approach at Majestic Retail. As a result, investment in new customer acquisition will ramp up in FY2019, adding an additional £9m to the £12m budget, which will make a short-term dent in operating profits.

Ashmore (ASHM) gained its highest net inflows in almost five years during the first three months of 2018. The emerging markets specialist asset manager gained $6.4bn in net inflows, which coupled with investment returns of $0.6bn, meant assets under management increased by 10 per cent over the quarter to $76.5bn. The shares were up 6 per cent in early trading.

Shares in Associated British Foods (ABF) are up more than 2 per cent this morning after the company announced at 3 per cent increase in sales at constant currency to £7.4bn during the six months to March. Adjusted operating profit up 1 per cent to £648m, but on a statutory basis this fell 3 per cent to £618m since the year before had benefitted from a one-off sale of part of the business. Chief executive George Weston said sales and profit growth was reported across all areas of the business at constant currency apart from sugar, but this was “as expected”. Primark continued to be the biggest contributor to group revenue, where sales were up 7 per cent to £3.5bn, though fell on a like-for-like basis which management blamed on unfavourable weather patterns.

Big news for Falcon Oil & Gas (FOG) today. The Aim 100 group reports that politicians in the Northern Territories have lifted a moratorium on exploration in the Beetaloo Basin in Australia. That’s where Falcon and its venture partner Origin Energy believe there might be as much as 61 trillion cubic feet of gas in place, and where drilling work begins apace.

Highland Gold Mining (HGM) was not immune to last week’s sell-off in Russian stocks, though there are several reasons in today’s full-year results to believe that events may have presented a buying opportunity. In a year when the rouble appreciated against the dollar, Highland’s all-in sustaining costs held firm at $664 an ounce, which in turn allowed the company to increase net profit by 38 per cent, and shave $7m off net debt.

OTHER COMPANY NEWS:

Mercia Technologies’ (MERC) chief investment officer Matthew Mead is resigning in order to pursue a portfolio advisory career. He will continue working for Mercia part-time as a Venture Partner following his handover. Julian Viggars, currently head of Mercia’s technology investments, replaces Mr Mead in his role.

How’s the current strength of the diamond market? So-so, if we base our view on the latest sales for Anglo American (AAL) subsidiary De Beers, the largest player in the market. The group’s third cycle of 2018, arriving in a “traditionally and seasonally slower period” and fetched $520m; $33m short of the last auction, and 11 per cent down on the same cycle in 2017.

Shares in Gulf Keystone (GKP) have been flying in the last week, on the back of stronger oil prices, broker buy-ratings and optimism-inducing full-year results. Today, shareholders have another reason for confidence: a $17.8m net payment from the Kurdistan Regional Government for crude oil sales from the Shaikan field for January.  

In another blow for the car industry, Vauxhall has announced plans to terminate contracts across all of its 326 dealerships in Britain as the company tackles a significant squeeze in the UK car market. The decision has been made as part of a wider refranchising, which includes many more dealerships across Europe too, and will results in Vauxhall’s entire network reducing by a around a third. According to reports, Vauxhall’s market share contracted from 9.3 per cent to 7.7 per cent last year.