IC TIP UPDATES:
Smith & Nephew (SN.) has trimmed its revenue guidance for the full year after a weaker than expected first quarter. Revenue was flat on a like-for-like basis as the group’s established markets impacted by poor trading conditions, especially in the advanced wound division. But even with today’s fall, shares are still up strongly since the start of the year, indicating that the market shares in our belief that this is an under-rated company. Buy.
ConvaTec’s (CTEC) former private equity owners, Nordic Capital have sold their final stake in the company to institutional investors. The group has not done well since its IPO thanks to a string of profit warnings. With the market dynamics weak (as shown by Smith & Nephew’s first quarter results this morning), we don’t think ConvaTec has much chance of an imminent recovery. Sell.
Centamin (CEY) has the gold price in its favour, but a 19 per cent year-on-year drop in first quarter production will have worried some investors today. Nonetheless, lower grades brought about by the change in Sukari’s mining plan are not expected to put a dent in full-year output guidance of 580,000 ounces of gold, at an all-in sustaining cost of $770 an ounce. And even after paying the Egyptian state $28.4m in the first three months of 2018, cash and liquid assets now stand at $427m. Buy.
Johnson Service Group (JSG) has made a strong start to the year, announcing this morning that full-year results for 2018 were likely to be slightly ahead of expectations. The outperformance has been driven by a combination of underlying trading and the group’s recent acquisitions. This is good news for those who followed our buy tip earlier this year, but the shares are only up a little over 1 per cent. Buy.
Client loyalty has remained high at Equiniti (EQN), judging by the administration software provider’s latest trading statement. Once again all client relationships that came up for review so far in 2018 have been retained, while the group also managed to add some high-profile names to its roster including Rentokil (RTO) and Surrey & Sussex Police. The UK business is continuing to perform well with 80 per cent of newly-listed companies awarding mandates. The group’s real opportunity, as we have previously discussed, is its entry to the US market. The acquisition of Wells Fargo Shareowner Services completed at the beginning of February and the integration programme is proceeding as expected. Buy.
KEY STORIES:
Understandably, sentiment towards Glencore (GLEN) is currently dominated by events in the Democratic Republic of Congo, but first-quarter numbers, out this morning, contain a couple of bright sparks. First, strong trading at the ever-elusive marketing division so far this year has put the group on course to hit the top half of 2018 guidance for earnings before interest and tax ($2.2bn to $3.2bn). Second, full-year production guidance is unchanged. That’s despite a year-on-year drop in own-sourced zinc, lead, gold, silver and ferrochrome production. Copper output was up, but below consensus expectations.
Yesterday afternoon antibody specialist Abcam (ABC) announced that it had made an all cash bid for its smaller peer Horizon Discovery (HZD), which had been rejected by the target’s board. Abcam has built up an impressive catalogue of tools for biotech and pharma research, and said Horizon would be a good strategic fit and that it had an excellent track record for integrating acquisitions. Horizon, which has been without a permanent chief executive since February and has seen its share price fall sharply in the last year, said Abcam’s proposal was “highly opportunistic” and “fundamentally undervalued” the company.
Insurer Lancashire (LRE) reported a 10 per cent increase in gross written premiums during the first quarter. Recovery in demand from the energy sector also helped drive premiums up almost a fifth for that business. Relatively benign losses and an improved rating environment also contributed to a highly profitable combined ratio of 65.2 per cent, up on 85.6 per cent the same time the previous year.
Acquisition-hungry Charles Taylor (CTR) has this morning announced another deal, this one to buy the Inworx group of companies for an initial consideration of $22.5m (£16.6m) and a maximum consideration of $50.5m. Inworx is a consultant and software company focused on the insurance sector. The deal is expected to extend Charles Taylor’s Latin American client base and expand its software offerings. The deal is expected to enhance group EPS in 2019.
Trinity Mirror (TNI) reported a further decline in sales for the first four months of the year, declining 9 per cent – excluding the Express and Star – on a like-for-like basis. Publishing print advertising revenue declined 17 per cent, while circulation revenue was also down 7 per cent. At the Express and Star, a 40 per cent growth in digital revenue failed to offset an 8 per cent fall in print.
Amid the frustrations surrounding its Fortuna LNG project, Ophir Energy (OPHR) has turned its eyes eastward. This morning, it announced plans to buy a package of Southeast Asian assets from Australian-listed Santos, in a bid to rebalance its portfolio “towards a larger production and cash flow base”. The $205m deal, which includes pro-forma 2018 working interest production equivalent to 13,500 barrels of oil-equivalent per day, will be funded through existing cash and an increase in Ophir’s reserve based lending facility. A rough calculation suggests the acquired producing assets in Vietnam and Indonesia will be exhausted in four years, assuming no additions to the 2P reserves base and no exploration success. While the deal raises questions over Ophir’s ability to fund Fortuna, the shares have responded positively in early trading.
OTHER COMPANY NEWS:
Gross written premiums rose by 21.1 per cent for motor insurer esure (ESUR) in the three months to the end of March, although home insurance premiums written were down 6.2 per cent. The home insurance side was also hit by bad weather claims of £8m, around £6m more than expected.
Faced with a slight corporate governance deficit Bowleven (BLVN) has found a neat, albeit temporary solution: promote the board’s only non-executive director, Matt McDonald, to the role of interim non-executive chairman! The appointment of a permanent chair, presumably overseen by chief executive Eli Chahin, has been delayed until the oil and gas outfit learns of the outcome of a two well appraisal drilling campaign in Cameroon.
