A small gain for London shares in morning trading this morning as the FTSE100 continues to hover around its record level. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
The value in Entertainment One’s (ETO) portfolio of family brands can be found in the fact that Peppa Pig and PJ Mask merchandise made $2.4bn of revenue last year - more than the sales from the group’s entire film and television portfolio. It’s that value which makes us think Entertainment One could be a takeover target. Buy
Celebrity chef Tom Kerridge is proving just as magical for Bloomsbury Publishing (BMY) as Harry Potter. Total revenues in the year to February rose 13 per cent thanks to strong demand in the cookery division and continued growth in illustrated version of the adventures of the most famous boy wizard. Buy
In less than half a year of trading, Warehouse REIT (WHR) has exceeded several of the goal it set at its IPO. With the £146m in net proceeds invested in 27 new lettings, the investment trust has met its net initial yield target of 7 per cent. For income seekers, there is good news: the target dividend for the current for the financial year ending March 2019 has been raised from 5.5p to 6p. Buy.
After two commercial discoveries under its belt in the South Disouq concession, investors in SDX Energy (SDX) had high hopes for the Aim driller’s most recent exploration well. Today, the Kelvin-1X well was revealed to have encountered a high-quality reservoir interval with an average porosity of 21 per cent, but at non-commercial levels. Shares, which don’t always rise when SDX announces success with the drill-bit, are off 7 per cent this morning. We remain buyers.
The limbo Serica Energy (SQZ) has suddenly found itself in shows no sign of abating. Two weeks since the US unilaterally pulled out of the Joint Comprehensive Plan of Action against Iran, there is no more clarity on the possible sanctions effect on the Iranian Oil Company, which owns 50 per cent of the Rhum field Serica is trying to acquire from BP. Both BP and Serica have applied for a renewed licence from the US Office of Foreign Assets Control, which would in theory permit the provision of goods, services and support, but there is now considerable doubt that any application will be granted. The shares, off 4 per cent this morning, and our buy call is under review.
Halfords’ (HFD) shares were down nearly 15 per cent this morning, after the group reported a 5 per cent dip in underlying pre-tax profits to £71.6m – driven by addition cost of sales because of the pound weakening against the dollar. Revenues were up 3.7 per cent on a reported basis to £1.14bn. The company expects the motoring market to remain “robust”, and while the cycling market was challenging last year, it sees “good growth prospects” here over time. Pre-tax profits should be in line with the 2018 financial year. We also learnt that Keith Williams will join as non-executive chairman in July. Sell.
Shares in Cranswick (CWK) are up nearly 9 per cent this morning after the meat producer reported a 17.6 per cent increase in sales to £1.5bn during the year to March, with adjusted pre-tax profits up by 22.4 per cent to £92.4m. A record £59m of capital expenditure was spent over the year to add capacity, mainly on a new Continental Foods facility in Lancashire. Planning approval has now been granted to build a poultry facility in Suffolk. Cranswick is also increasing its reach beyond the UK, with export sales ahead by 30.2 per cent. Buy.
First Derivatives (FDP) reported strong numbers for the year to February, with revenue up 23 per cent to £186m, adjusted cash profits up 19 per cent to £34.1m and a 20 per cent dividend hike to 24p per share. Group sales were buoyed by growth in the software business – up 27 per cent. This was in turn supported by a good performance from both the ‘FinTech’ and ‘MarTech’ segments, while the division also saw improvements in its more nascent markets. FDP’s managed services and consulting business performed well, with sales up 17 per cent to £74.1m. The shares were down 2 per cent this morning. Buy.
Rank Group (RNK) has acquired QSB Gaming Limited, owner of Spansih digital bingo business YoBingo.es. Rank will initially pay €21m (£18.4m) and up to a maximum consideration of €52m depending on future performance. The aim is to expand Rank’s presence in Spain, which management believes to be a “high growth” digital gaming market. Shares were up 2 per cent in early trading. Rank’s digital business has so far been resilient, but historically it hasn’t been enough to compensate for its casinos and other physical locations. Sell.
A 2 per cent decline in UK profitability has hit shares in Homeserve (HSV) this morning, sending them down around 2 per cent. Despite this, chief executive Richard Harpin described the year to March 2018 as the group’s “best ever year”, with strong double-digit growth in revenues and earnings. The group is continuing to build on its plan of building a “Home Experts” online platform, and in the year Checkatrade added 6,000 new tradespeople to its books. Buy.
Ofgem have announced an investigation into National Grid’s (NG.) electricity transmission business, examining the group’s compliance with its duty to operate the system economically and efficiently. The regulator noted the opening of the investigation does not imply any findings have been made. Shares fell back half a per cent on the news, but electricity transmission forms a small part of the overall group, so even if wrongdoing were to be uncovered the impact would likely be small. Buy.
Shares in Renew Holdings (RNWH) have dropped a little under 2 per cent this morning following a dip in revenues in the year to March 2018. An improvement in margins kept adjusted operating profit in line and overall the group traded in line with expectations, with the main engineering services division seeing a drop in revenues thanks to increased contract selectivity. We are reviewing our buy recommendation.
KEY STORIES:
As expected, UDG Healthcare (UDG) had a difficult first six months of the 2018 financial year due to weakness in the sharp packaging division. On a reported basis, numbers looked decent but they have been boosted enormously by currency movements and recent bolt-on acquisitions.
Intermediate Capital (ICP) continued to benefit from institutional investors search for yield last year, raising €7.8bn in third party funds. Third party assets under management increased more than a fifth to €26.5bn. However, a lower level of realisations from its balance sheet investments took a chunk out of statutory pre-tax profits at the group level.
Yesterday, the government department for culture, media and sport announced that it was likely to approve Comcast’s bid for Sky (SKY). That’s good news for the US group, but bad news for its peer, 21st Century Fox which was also hoping to pull Sky tighter into its portfolio before its merger with Disney. With Sky’ share price still sitting above the offer from Comcast, investors are clearly hopeful of another rival bid.
Chief executive at DFS (DFS) Ian Filby has announced his intention to retire this autumn. Mr Filby has spent eight years with the group, and will be succeeded by current chief operating officer Tim Stacey, who has been at the company since 2011.
Shares in Pets at Home (PETS) fell on the release of annual numbers this morning, as reported profits took a tumble despite solid sales improvement. Although like-for-like sales rose by 5.5 per cent, underlying pre-tax profits fell 12.3 per cent following a substantial merchandise gross margin squeeze. Pets has suffered at the hand of adverse foreign exchange rates, which has forced a certain amount of price “repositioning” in its business. New chief executive Peter Pritchard is, however, determined to strike an upbeat tone, stating he is committed to returning the business to growth.
Topps Tiles (TPT) rose in early trading following news that, despite a contracted decline in first-half profits, management is determined to stand by full-year guidance. A combination of poor weather, an early Easter and low consumer confidence led to a 33 per cent profit decline to £6.4m during the six months ended 31 March, but bosses still believe annual numbers will meet market expectations. For the year ending September, analysts at Liberum still expect adjusted profits of £15.5m, giving EPS of 6.3p.
Sales at Big Yellow (BYG) increased by 7 per cent to £117m during the year to March, with adjusted pre-tax profit up 12 per cent to £61.4m. Occupancy increased by 67,000 square feet to 179,000 square feet over the period, while closing net rent per square foot was up 2.7 per cent to £26.74. A 13 per cent increase in cash flow to £63m helped support a 12 per cent increase in dividend to 30.8p. Executive chairman Nicholas Vetch said the company continues to focus on its goal of achieving 90 per cent occupancy. Shares were flat in early trading.
OTHER COMPANY NEWS:
Gem Diamonds’ (GEMD) Letšeng mine in Lesotho has once again proved its worth, spewing out a 115 carat, top white colour Type IIa diamond. That’s the ninth diamond of over 100 carats recovered so far this year, a figure which already exceeds last year’s haul. Shares in the miner, are 3 per cent to the good this morning and up more than 60 per cent since their January low.
In other news from the world of precious gems, De Beers’ fourth sales cycle of the year fetched $550m, which was an improvement on both the third cycle and last year’s taking. Anglo American (AAL), the majority owner of the world’s largest diamond miner, said sales were boosted by strong demand for American consumers, ahead of a Las Vegas trade show next month.
In an AGM statement this morning, accesso Technology (ACSO) reported a “strong start to the 2018 financial year”. The smart ticketing and queuing solutions company has continued to diversify its business areas, reflected by its contract with Henry Ford Health System in March. It has expanded its Ingresso business into the US, while its ShoWare division entered an agreement with the 2018 Special Olympics USA Games for ticketing at the opening ceremony. Paul Noland joined as chief executive in April this year. The company notes that around 80 per cent of its financial year is still to come. The shares were up 2 per cent this morning.
Global Ports Holding (GPH) has signed a 15-year agreement with Cuban company Aries S.A. to operate a cruise port in Havana from 21 June. The management fee that will be paid to Global Ports will depend on a number of factors, namely passenger numbers passing through the port. The company will also work with its partners in Cuba to help develop its investment in cruise ports, such as building new terminals. Shares were flat in early trading.
