News & Tips: National Express, Crest Nicholson, Burberry & more

IC TIP UPDATES:

Shares in National Express (NEX) were up 3 per cent in early trading after the transport company reported that group revenue was up 6.2 per cent, and the company is on track to meet full year profit and cash flow expectations. There was a slight dip in revenue in its German rail business during the first quarter, but the group is remain on track to begin a new contract in the division from June next year. Revenue in North America improved by 9 per cent despite poor weather and school cancellations during the period. In the UK, sales improved by 1.4 per cent overall, driven mainly by the coach business. Buy.

Margin growth is at an end for now, according to housebuilder Crest Nicholson (CRST), and the shares slid by over 12 per cent to 434p. With a high exposure to expensive houses where selling price inflation has disappeared, Crest still has to contend with build cost inflation of 3-4 per cent. Sales are still expected to grow however, helped by a six per cent increase in the number of sales outlets. With margin pressures yet to be addressed, there is little forward momentum for shares in Crest, although there is an attractive dividend. The shares are up from our buy tip (334p, 25 Sep 2014), but given the low growth profile, we downgrade to hold.

Luxury fashion group Burberry (BRBY) has committed to a £150m share buyback after full-year operating profits came in ahead of analysts’ expectations for the year ended 31 March. That was on top of a 6 per cent rise in the ordinary dividend to 41.3p, and the £524m returned to shareholders over the past year (via a combination of dividends and buybacks). Even so, the group still finished up with £892m in net cash, having clawed back another £64m in cost savings last year and following a 4 per cent rise in free cash flow to £484m. The group remains on track to deliver cumulative savings of £100m in total. We remain buyers.

Shares in pubs and restaurants group Mitchells & Butlers (MAB) fell another 7 per cent this morning following a disappointing set of interim results. The root of the problem is twofold: recent adverse weather - read, snow - holding back top-line growth and the ongoing margin squeeze and cost pressures. This led to an 8 per cent crunch at the bottom line, although analysts at Peel Hunt are minded to hold onto full-year forecasts for now. We’re not so convinced - sell.

LoopUp (LOOP), the remote meetings software group, has announced its proposed acquisition of Warwick Holdco - the holding company for MeetingZone Group, a conferencing services provider. This will cost LoopUp £61.4m in cash, and will be funded via the placing of 12.5m shares at 400p each to raise £50m, along with a new £17m term loan from Bank of Ireland. Among other benefits, the company believes the acquisition will bring cost synergies and will materially enhance earnings. The shares were up 3 per cent this morning. Buy.

Brewin Dolphin (BRW) gained net inflows of £0.9bn during the first half of the year, which was offset by £1.3bn in market losses. That meant total funds under management declined 1 per cent to £39.7bn. However, on an annualised basis funds under management were up 5 per cent. However, management said at the end of April funds under management had risen to £41bn. Buy.

Speedy Hire (SDY) has released its results for the year to March. Adjusted pre tax profits were up 59.9 per cent to £25.9m, ahead of previous expectations as was flagged in the recent trading update, improved profitability helped push return on capital employed up to 11.5 per cent, while net debt was £69.4m, well below expectations. Buy.

Dalata Hotel Group (DAL) has signed agreements to lease two new UK hotels in Bristol and Birmingham, which will add around 580 new rooms to the group’s portfolio. Dalata now has just over 1,700 rooms in its UK development pipeline on top of the 1,968 rooms that it already owns or leases. Shares were flat in early trading. Buy.

Eland Oil & Gas’ (ELA) stake in the Opuama field has proved itself once again. After hitting its reservoir targets, the latest infill well, Opuama-9, is now expected to produce at the upper end of previous guidance range of 4,000 – 6,000 barrels of oil per day (or 1,800 to 2,700bopd net to Eland’s joint venture consortium, Elcrest). Buy.

South African platinum and chrome concentrate producer Tharisa (THS) already foreshadowed the fall in earnings contained in half-year numbers, out today. Aside from that, investors were given some reason for confidence: a maiden interim dividend, a step into Zimbabwe, production growth and a higher contribution from third party trading revenue. The shares, 4 per cent to the good in early trading, remain a buy.

KEY STORIES:

Shares in Micro Focus (MCRO) were up 5 per cent this morning, after the company said revenues for the six months to April 2018 should be better than management’s guidance of minus 9 to 12 per cent at constant currencies. In fairness, this does include an “unusually large” licence deal worth around $40m, which closed earlier than planned. Excluding this, underlying sales landed “towards the better end of the guidance range”. For the year ending October, the company has reiterated its guidance that sales will fall 6 to 9 per cent. Management still expects to see an adjusted cash profit margin of around 37 per cent for the 12 months, at the midpoint revenue guidance range.

Mortgage Advice Bureau (MAB1) reported further growth in its adviser numbers since the end of December. It added a further 38 advisors taking the total to 1,116, but management expects recruitment to be weighted to the second half of the year.  

Paddy Power Betfair (PPB) confirmed that it is in talks considering a potential combination of the group's US business and FanDuel to create a combined business to target the prospective US sports betting market. On Monday the US Supreme Court ruled the Professional and Amateur Sports Protection Act (PASPA) was “unconstitutional”, giving individual states the opportunity to set their own laws around sports betting. Shares were up nearly 6 per cent in early trading.

A first quarter trading update from Premier Oil (PMO) revealed a string of positives, and one potential area for concern. To the latter point, average daily production was perhaps light at 74,000 barrels of oil equivalent (boepd) – strained by a slow ramp-up at Catcher and a shutdown at Huntingdon. But Premier is confident of hitting its full-year guidance of 80-85kboepd, thanks in part to output from Catcher, which has exceeded 60koebpd in recent days, bringing Premier’s share to over 90koebpd. Should that persist alongside an elevated oil price, Premier’s covenant leverage ratio should fall below three times cash profits by the end of 2018.

OTHER COMPANY NEWS:

Blue Prism (PRSM), the robotic process automation (RPA) specialist, said it continued to enjoy strong sales momentum during the first half to April - buoyed by customer wins and upsells with existing customers. It secured 559 software deals, including 223 new customers, 298 upsells and 38 renewals. Management now expects revenues for the year to October 2018 to beat current consensus expectations (cited as £47.5m), while it expects an adjusted cash loss “broadly in line” with consensus expectations (cited as £18.9m).

Cineworld (CINE) reported a 10.1 per cent increase in sales year-to-date to 13 May, or 6.7 per cent at constant currency. The acquisition of Regal Entertainment completed at the end of February, which added 558 new sites to the portfolio. Including sites recently opened in the UK and Romania, it brings the total number of Cineworld locations to 793. The acquisition of Regal has also prompted the company to change its reporting currency to US dollars.

In an AGM trading update online gaming software company Playtech (PTEC) stated that new sports and casino deals have been agreed, including with SAS in Portugal and Totalizator Sportowy in Poland. Management believe the agreements will deliver £significant long-term growth opportunities”. Playtech acquired Snaitech in April, which will create the first vertically integrated gambling operator in Italy and should provide material earnings accretion.

Accused with ‘overboarding’ (corporatese for sitting on the boards of too many companies), Standard Life Aberdeen (SLA) co-chief executive Martin Gilbert has taken a leave of absence as a non-executive director of commodities giant Glencore (GLEN). The reason? Mr Gilbert’s “current commitment as deputy chairman of Sky (SKY) in respect of its protracted competitive bid situation”. What a work diary!

Revenue at SSP (SSP) improved by 11.9 per cent at constant currency to £1.2bn during the six months to March, with underlying operating profit up by a third to £55.2m. The operator of food and beverage concessions has continues to expand around the world with a focus on Asia and North America, while the recently acquired business in India is progressing well. Shares were up nearly 2 per cent in early trading.