News & Tips: Royal Mail, bookies, Ocado & more

IC TIP UPDATES:

Shares in Royal Mail (RMG) fell more than 6 per cent in early trading after the company reported a 37 per cent fall in pre-tax profits to £212m, despite a 2 per cent increase in revenue £10.2bn. Revenue from the parcels business was flat on the previous year at £7.6bn, while the international GLS business improved sales by 10 per cent to £2.6bn. Analysts said a mixed outlook has “uncertain implications” for forward estimates. Sell.

Shares in Just Group (JUST) were up 12 per cent in early morning trading after the retirement specialist announced sales of defined benefit products had almost doubled during the first quarter. Individual annuity sales were also up 8 per cent, driving an overall 43 per cent increase in retirement income sales. Buy.  

The financial position of Genel Energy (GENL) continues to improve, judging by comments chairman Stephen Whyte is due to make at this morning’s AGM. Indeed, the receipt of over $100m this year so far has allowed the Kurdistan driller to shave $46m of net debt since December. But while drilling has started afresh at Peshkabir, gross output from Taq Taq has fallen below the 13,000 barrel-a-day mark. The shares are 6 per cent up today and already 27 per cent ahead of our fortnight-old tip. Buy.

Indeed, this month has been good for most producing oil and gas companies. But despite a very successful exploration programme, SDX Energy’s (SDX) output in the first quarter of 2018 fell to 3,036 barrels of oil-equivalent per day (boepd), down from 3,261boepd in the last three months of 2017. Still, Tuesday of this week saw production edge up to 3,474boepd. And despite an intensive period for drilling costs, the March-end cash position edged up to $29.3m thanks to a $6m receipt from the Egyptian state-oil company. Buy.

Shares in National Grid (NG.) are up more than 1 per cent this morning following release of its full year results. The headline earning per share were up 5 per cent, which more than covers the 3.75 per cent increase in the dividend to 45.93p per share. Management also reported good progress from National Grid Ventures, the group’s investment arm. It is making good progress on its Nemo interconnector project, with 80 per cent of the 140km cable laid. Buy.

Shares in Experian (EXPN) are up 3 per cent this morning following the release of its latest full year results. Revenues grew 7 per cent in constant currency, with growth in the B2B division offsetting a 5 per cent decline in consumer services. The group has continued to build on its data assets, acquiring credit data company Clarity Services. Buy.

Shares in Elecosoft (ELCO) are up 3 per cent this morning, after the construction software company said 2018 has started well, and sales for the four months ending April have improved by 7 per cent year-on-year. Pre-tax profit was “significantly higher” year-on-year, in line with market expectations. Net cash as at the end of April was £2.4m, up from £1m as at December 2017. Buy.

KEY STORIES:

The government has decided that the maximum stake allowed on fixed odds betting terminals (FOBTs)should be cut from £100 to £2 – the low end of the £50 to £2 range that had originally bet set for consideration. Paddy Power Betfair (PPB) stated that the company “do not envisage that this proposed change will have a material impact on our UK Retail strategy”, but would likely cause up to a 43 per cent fall in total machine gaming revenue, which in 2017 would have equated to around a £46m impact on revenue, or 2.6 per cent of group sales. William Hill (WMH) called the regulatory change “unprecedented”, and so the full effects of the decision may not be fully known for some time. The bookie estimated the decision would cause a reduction in net gaming revenue of up to 45 per cent, and around 900 shops could become loss-making. When GVC (GVC) acquired Ladbrokes Coral earlier this year, how much they would pay in total for the company depended on the outcome of the FOBT review. The “contingent value right” issued for each Ladborkes share will now be worth nothing as a results of the £2 decision. Paddy Power Betfair shares fell less than 1 per cent in early trading, William Hill’s fell 3 per cent, and GVC fell less than 1 per cent.

Shares in online grocer Ocado (OCDO) have shot up this morning following news of a partnership with US grocery chain Kroger. Analysts have dubbed the deal “a step change” for the London-listed company, as this agreement gives it significantly more power than previous ones. For instance, Kroger has agreed to take a 5 per cent stake in Ocado (equivalent to £183m) and enter into a monthly fee structure. Not unusually, capital requirements remain unclear at this stage, but the terms effectively ask for 20 distribution centres to be built over the first three years of the contract.

Shares in energy supplier Yu Group (YU.) were down more than 4 per cent this morning after the group announced Nick Parker, the Finance Director, would be stepping down to pursue other opportunities. Mr Parker will leave the group at the end of July and an executive search agency has been appointed to help find a replacement. The group also released a trading statement, which showed performance broadly in line with expectations. Bookings, revenues and free cash flow were all up. Hold.

3i’s (III) adjusted net asset value rose almost a fifth to 724p a share last year. The investment specialist’s private equity portfolio generated a 30 per cent gross return, driven by Action, Scandlines, ATESTEO and Basic-Fit. That business realised more than a £1bn and announced a further £350m to be realised by the summer. Its infrastructure business advised 3i Infrastructure on six investments and commitments, totalling £525 million and the disposals of Elenia and AWG, which helped to generate a total return of 29 per cent for 3iNas well as a special dividend of £143 million for 3i.

Investec (INVP) grew operating profits for its ongoing business 6 per cent to £701m last year. Third-party assets under management were up 6 per cent to £161bn, while loans from its specialist banking business rose 9 per cent to R256.7bn. However, operating profits in the UK banking business were down 9 per cent, due to a decrease in non-interest revenue.

The group formerly known as Xafinity has changes its name to XPS Pensions (XPS) following its acquisition of Punter Southall’s actuarial, consulting, pensions administration and investment consulting businesses in January.

OTHER COMPANY NEWS:

After the previous sanctions regime on Iran ended in 2015, Total (TTA) was the super major with big plans for the country. Together with Petrochina, it invested in the South Pars 11 domestic gas project, and remained compliant with UN sanctions on the Iran’s revolutionary guard. Now, following Donald Trump and the US’ withdrawal from the Iran nuclear deal, the French energy major has said it must pull out of the development unless it is granted waivers from US, French and European authorities. The risks of secondary sanctions were outlined in an announcement this morning; with US banks involved in more than 90 per cent of Total’s financing operations, US investors taking up more than 30 per cent of Total’s shareholder register, and with more than $10bn of US assets employed, Total looks like it will pull out of Pars. That’s unless it can obtain a project waiver.

Shares in Sophos (SOPH) were up 3 per cent this morning, after the cyber-security expert reported billings growth of 22 per cent to $769m for the year to March 2018, and revenue growth of 21 per cent to $641m. This reflected 18 per cent growth at constant currencies and was buoyed by a 26 per cent rise in subscription sales. Pre-tax losses worsened to $52m from $49m - attributed to foreign exchange losses of $16.5m. The group reiterated its goal of achieving annual billings of around $1bn and adjusted operating profit over $100m for the 2020 financial year.

Mobile advertising group Taptica (TAP) has published a Q&A with chief executive Hagai Tal on its website, addressing shareholders’ questions. Mr Tal provides an update on the company’s financial position - noting “we are confident of delivering solid year-on-year growth for 2018 in line with market expectations”. He also refers to Taptica’s dramatic share price decline, noting “we are not aware of any internal problems” that would cause this. He says “the issues concerning Facebook do not directly affect our business model” and that a small part of Taptica’s business stems from social media. Mr Tal goes on to give information on the type of data collected by Taptica, its uses, and GDPR. The shares are up 4 per cent this morning.

The well broadcast challenges in the publishing market seem to have passed Future (FUTR) by. In the first six months of the 2018 financial year to September, the group managed to report further impressive organic growth, while acquisitions boosted revenues up by a quarter. The big question is whether this growth - which has sent the share price up 170 per cent in the last year - can be sustained.

Fevertree Drinks (FEVR) stated in an AGM update that the group has made good progress during the first four months of the year, especially in the UK where the company is market leader for mixers. The US team is now in place to look after the wholly-owned operations there, and will have direct management of the distribution and marketing from next month. Management said the company is trading in line with expectations but shares fell more than 6 per cent in early trading.

As expected, children’s chain Mothercare (MTC) has announced plans to close 50 stores, raise £28m via a share placing and enter into a company voluntary agreement (CVA) to preserve the life of the company. More of a surprise, Mark Newton-Jones is returning to the company as chief executive - the role he left only weeks ago to make room for David Wood. Mr Wood is remaining with the company, assuming the role of group managing director. Shareholders have yet to vote on the CVA proposals, on which the equity fundraising is conditional. While the company has also revised its debt facilities, and funds are immediately available, this would cease to be the case should shareholders vote down the new strategy.

Thomas Cook (TCG) reported a 5 per cent increase in revenue to £3.2bn during the six months to March, driven mainly by growth in holidays to Egypt and long-haul destinations. A strong performance from the group’s airline was able to offset pressure in the UK, leaving gross margin broadly flat on the previous year. The second half is off to a good start with booking for summer holidays up 13 per cent. Shares fell 3 per cent in early trading.

Sales at Wincanton (WIN) were up 4.8 per cent to £1.2bn during the year to March, with underlying operating profit up 1.5 per cent to £52.9m. But on a statutory basis, operating profit fell by a fifth to £44.4m. The retail and consumer business continued to do well with new contract wins and contract extensions. The industrial and transport division still encountered challenges, including settlement credits from end of contracts. Shares were up 2 per cent in early trading.