Geopolitical concerns and mixed economic data are not putting off traders bidding up London shares in morning trading. Click here for The Trader Nicole Elliott's latest thoughts.
IC TIP UPDATES:
BT (BT.A) is to merge its Public Sector and Wholesale divisions into a new branch which will be known as BT Enterprise. The decision has been taken to streamline the two businesses and strip out costs. Historically the two divisions have been BTs clunkiest, with low margins and corporate governance problems. Merging them seems sensible, but it’s only a tiny step towards resolving the plethora of problems at the telecoms group. Sell
Shire (SHP) has had more success with its angioedema treatment, Lanadelumab. Swiss regulators have now validated the application for approval, following the US, Canada, Australia and the wider European Medicines Agency. In the US and Europe the drug has been given priority status, meaning it should be approved and launched before the end of 2018. Buy
Meggitt (MGGT) has won a multi-million dollar contract with Korean Aerospace Industries to supply advanced nose/main wheels, high performance carbon brakes and a brake control system for the KF-X multirole fighter jet. The KF-X programme, a partnership between South Korea and Indonesia, is in development and expected to enter production in the mid 2020s. Buy.
Shares in Jupiter Fund Management (JUP) were down 5 per cent in early morning trading after it reported weaker than expected first quarter trading figures. It suffered net outflows of £1.3bn, which together with £2.1bn of negative market movements, meant assets under management declined over the quarter to £46.9bn. Management said growth of assets sourced from international distribution partners had changed Jupiter's flow profile to being less predictable in the short term. We place our buy recommendation under review.
Shares in GB Group (GBG) were up 11 per cent this morning, on the news that the identity data intelligence company expects sales and adjusted operating profit for the year to March 2018 to come in ahead of market expectations. Sales should sit at around £120m, up 37 per cent year-on-year, while adjusted operating profit is expected to reach £26m, up 53 per cent. Meanwhile, net cash balances were £13.4m at the year-end, up from £5.2m. Buy.
East London focused housebuilder Telford Homes (TEF) expects to deliver record turnover and profits for the year to 31 March 2018, with pre-tax profits likely to be up by more than 30 per cent from the previous year. Buy
Segro (SGRO) has seen a strong start to the year, with a largely pre-leased development pipeline expected to generate £55m of new rental income when fully built and leased. As at March there was 1jm square metres of space approved or under development, over two thirds of which has already been pre-let. Buy
Countryside Properties (CSP) pushed completions ahead by 15 per cent in the six months to 31 March 2018, and while average selling prices on private homes were lower, this was more a reflection of higher completions in its West Midlands region where prices are lower. Around 22,000 partnership plots have been secured, equivalent to nine years of work. Buy.
Shares in Polymetal International (POLY) continue to recover after last week’s dramatic drop in the wake of US sanctions announcements. The Russian precious metals miner is up more than 7 per cent this morning, after first quarter production figures revealed a 5 per cent uptick in gold-equivalent output, and a 19 per cent rise in revenues, year-on-year. Concentrate production from Kyzyl is now expected on 1 August, after which point the group’s working capital and net debt positions are expected to unwind. Buy.
Another precious metals firm up 6 per cent today is Hochschild Mining (HOC), after the South American outfit recorded record first quarter attributable production of 4.7m ounces of silver and 69,030 ounces of gold. Following a bond refinancing, net debt now looks fully under control while all-in sustaining costs and production targets are all in line. We are buyers of the silver recovery story.
The bull market for Hunting (HTG) shares continues. The oilfield services group is 7 per cent to the good today, after management said the strong trends in evidence in the last quarter of 2017 have continued this year. Operational leverage, against an already reduced cost base, and another good performance from the onshore North American shale division, has led to underlying cash profits in the period of $32.7m. Contract wins in Europe, improving activity in the Middle East and Africa offer further signs of encouragement, though working capital outflows have held back the net cash position to $3.6m. Buy.
Full-year results for Eland Oil & Gas (ELA), out today, reveal the full extent of the ramp up in production at the Opuama field, from nothing in January to net 8,325 barrels of oil per day by the end of 2017. In a separate update, the company said its net reserves and resources had both increased since the last competent persons report in 2015. The shares, up 3 per cent this morning, are a buy.
Production figures for Rio Tinto (RIO) were largely in line with analyst forecasts, in a quarter which was largely characterised by a $5bn divestment programme. Copper output was flattered against last year’s comparable figure, bauxite was 12 per cent higher thanks to operational improvements, and the crucial Pilbara iron ore division benefitted from productivity gains and fewer weather disruptions. Buy.
KEY STORIES:
Shares in funeral provider Dignity (DTY) jumped by nearly a fifth this morning following a better than expected first quarter update. Not only has the death rate accelerated by 8 per cent ahead of this time last year, the anticipated mix of simple funerals as a percentage of total funerals has been lower than the board's initially thought. As such, first quarter revenues reached roughly £95m, compared to £93m in the prior year, while operating profit came in at approximately £37.5m - in line with last year, but significantly ahead of expectations.
Moneysupermarket.com (MONY) has provided a reassuring first quarter trading update. Revenues are up 4 per cent in the first three months of 2018, a solid improvement on the flat fourth quarter of 2017. Particularly pleasing is the return to growth in the home services division, driven by higher rates of energy switching.
CYBG (CYBG) expects to increase its provisions for legacy payment protection insurance costs by £350m at March 2018. The challenger bank has been forced to draw the remaining £148m of the contract indemnity deed provided by Bank of Australia. As a result, it expects to take a £202m pre-tax charge in its income statement for the first-half of the year. This will reduce its common equity tier one ratio by 100 basis points to below its 12-13 per cent guidance range, although it will be above the regulatory minimum.
A recovery in Mediclinic’s (MDC) Middle Eastern business means the group is likely to beat financial expectations for the year to March 2018. The domestic South Africa division has also outperformed, but the dominant Swiss business never fully recovered from a poor summer in 2017 and is therefore likely to report disappointing numbers.
IG Design Group (IGR) expect full-year figures to be in line with expectations after strong trading in the second half. At the half year results in November management had said that cost headwinds had been “stronger than ever”, but these have now been “effectively mitigated” and so gross and net margins are expected to improve.
Fidessa (FDSA) is posting a supplementary circular today to shareholders regarding its potential acquisition by Swiss company Temenos (SW: TEMN). Fidessa and Temenos reached agreement on the terms of an all-cash acquisition on 21 February. But, the shareholder meeting to approve this offer - first scheduled for 5 April - was postponed to 27 April after two other potential bidders, ION and SS&C, came forward. Neither has made a formal offer yet - their deadline to announced a firm intention to make an offer is 20 April.
De La Rue (DLAR) has abandoned its plans to take the government to court over its loss of the contract to make UK passports after Brexit. The company had planned to mount a legal challenge to give the contract to Paris-based Gemalto after the news sparked criticism from MPs and some newspapers. This morning, however, management said after considering all options it would not challenge the decision. Management also noted it is cautious about the outturn for the full year.
Shares in Bunzl (BNZL) are up this morning following the release of a trading statement from the group. Revenues in the first three months of the year were up 14 per cent in constant currency, though growth in the rest of the year is expected to be more muted for the rest of the year. The group has made two new acquisitions; it bought Monte Package Company, which supplies packaging to fresh food companies, for $58m (£41m) and hygiene group QS Nederland for an undisclosed amount.
OTHER COMPANY NEWS:
Animalcare (ANCR) hasn’t even reported its 2017 numbers yet, but already it has had to warn that 2018 results will be below market expectations. The company is in the process of a major integration after it reversed into a large European peer last year and while it confirms the integration is progressing smoothly, a tough trading environment is weighing on the outlook. Shares fell 16 per cent in early trading following the news.
