Shares in London began the day with a bout of profit taking after their strong recent run. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Shares in Babcock (BAB) are up 3 per cent this morning following the release of its numbers for the year to March. The support services group has continued its longstanding habit of reliable growth, with revenues up 2.5 per cent while EPS grew 7.8 per cent. The group’s order book shrank 5 per cent, though its bid pipeline expanded 24 per cent to £13bn. Buy.
Rio Tinto (RIO) has confirmed reports that it is in discussions to sell its entire interest in the Grasberg mine to Indonesian miner Inalum. Grasberg, which is majority-owned by Freeport-McMoran, has been beset by licencing issues and civil unrest in recent years. A deal is yet to be reached, including as to a mooted $3.5bn price tag for the stake. But perhaps doubtful that Rio will get a good price for the stake, investors have taken 2.5 per cent off the shares in early trading. Income buy.
There were 19 resolutions on the agenda at Royal Dutch Shell’s (RDSB) AGM yesterday. The fanfare concerned just two: approval of the directors’ remuneration report, and a special resolution, spearheaded by campaign group Follow This, for Shell to set and publish targets aligned with the Paris Climate Agreement to limit global warming to well below two degrees centigrade. The former was waved through, despite opposition of more than a quarter of shareholders. As Shell hinted in a statement following the AGM, that revolt may have partly attracted some of the concern with the group’s strategy to “thrive through the energy transition” – though this was not broadly reflected in voting on the climate change resolution, which was roundly defeated. Shares, off 2.4 per cent this morning, are an income buy.
Like-for-like sales at Restaurant Group (RTN) fell 4.3 per cent during the 20 weeks to 20th May, while total sales fell 3.1 per cent. Management said the period was “heavily impacted” by bad weather. Since then, this decline has begun to slow as turnaround plans in the leisure business take hold. In the second quarter sales fell 1.8 per cent, and the company expects to see further benefits of these strategic plans later on in the year. Shares were up 5 per cent in early trading. Buy.
Trading year-to-date has been in line with management’s expectations at Hilton Food Group (HFG). Sales in the UK are up on last year thanks to a good performance in the red meat division. Trading in Sweden has begun to turn around after a slow start to the year. Hilton will assume full control of its joint venture in Australia from July, and construction has begun on the Queensland plant. Its Seachill seafood business had a good start to the year with some promotional activity. Shares were flat in early trading. Buy.
Revenue was slightly lower in the first four months of this year at piping and ventilation specialist Polypipe (PLP) mainly because poor weather prevented customers from working on site. However, underlying growth remains in line with expectations, and the full year performance is forecast to be in line with previous guidance. Buy
Bovis (BVS) continued with its recovery, with private sales per site up six per cent from a year earlier. A total of 12 new sites were opened in the year, and there are another 11 planned to be opened in the next few months. Buy
Dairy Crest (DCG) announced a nearly £70m share placing alongside its full-year results this morning. The dairy company is planning to use the funds raised to add capacity to its cheese business. In the year to March its main cheese brand Cathedral City increased sales by 6 per cent, contributing to a 10 per cent increase in revenue at group level. The company is looking to develop its GOS product, which is beneficial to gut health, beyond infant formula and into a wider consumer product as well as into animal feed. Shares fell more than 7 per cent in early trading. Our buy tip is under review.
Shares in Britvic (BVIC) are up more than 6 per cent this morning after the drinks maker reported a 4.5 per cent increase in revenue to £733m during the six months to April, but restructuring costs caused pre-tax profits to fall 13.7 per cent to £33.3m. Analysts said the numbers beat expectations, and cash flows should make a marked improvement in 2019 now that spending on transforming the business is out of the way. The interim results only include one week since the sugar tax became effective, so it’s too soon to tell the long-term impact. Buy.
KEY STORIES:
IG Group (IGG) expects net revenue for the year to May to be £565m, 15 per cent ahead of last year’s figure. However, it expects revenue in 2019 to be lower year on year, following the introduction of restrictions on the sale of contracts for difference. It had received 15,000 applications from clients to be classified as professional since November, and estimated these types of clients will account for half of revenue by the time the regulatory changes take effect.
Underlying sales may be down at Marks and Spencer (MKS), but full-year pre-tax profits of £581m actually beat analyst expectations - which helps explain the shares’ bounce in early trading. That’s behind last year’s figure, but it’s safe to say the market expected a lot worse. Reported profits fell by nearly two thirds to £66.8m, but store closures and restructuring costs were largely to blame, resulting in an exceptional charge of £514m. Solid cash generation and a subsequent reduction in net debt allowed for an 18.7p dividend - maintained at the same level year-on-year.
Shares in Severn Trent (SVT) are up 1 per cent this morning following release of the group’s full year results. Exceptional costs from restructuring the business to a drop in basic EPS, but on an underlying basis it rose 4.6 per cent to 121p. Management have been keen to trumpet their success under the current AMP cycle as they prepare to submit their business plan for the next cycle, which begins in 2020. The group has now delivered £870m in total efficiencies since the cycle began in 2015 and has improved on a range of customer service metrics. Hold.
OTHER COMPANY NEWS:
Shares in Softcat (SCT) were up 8 per cent this morning, after the IT infrastructure group said first-half momentum was maintained during the third quarter to April. Market conditions and demand from customers were strong, and management expects to see full-year results come in ahead of expectations. New chief executive Graeme Watt pointed to Softcat’s “considerable market share opportunity”.
easyHotel (EZH) enjoyed 51.7 per cent revenue growth to £4.76m for the half-year ending March, despite the closure of 70 rooms at Old Street, London, and the impact of refurbishment on trading for the Croydon and Glasgow hotels. The super-budget hotel group’s revenue per available room (‘Revpar’) was up 11.2 per cent, outperforming the market by 11.7 per cent. Meanwhile, franchised hotels saw like-for-like sales climb 13.5 per cent. Pre-tax profits were up 52.5 per cent to £0.09m, helped by lower hotel pre-opening and development costs. UK hotel trading conditions look challenging, but management expects its brand to outperform the market.
Like-for-like sales at prepared food business Bakkavor (BAKK) were up 1.5 per cent during the 19 weeks to 12th May, though UK growth has been impacted by ongoing retail price inflation. But management stated that strict control on costs and focus on efficiency has helped to mitigate this inflation. Projects in the UK, US, and China are progressing as planned. Shares were flat in early trading.
Hollywood Bowl (BOWL) saw 9.3 per cent revenue growth to £63.6m for the six months to March, with pre-tax profits up 17.4 per cent to £14.6m. The group’s total estate increased to 59 sites, with two new centres opened during the period. Game volumes rose by 3.6 per cent to 6.9m, while spend per game rose by 5.5 per cent to £9.20. Strong cash generation helped net debt to fall from £13.5m to £7.2m. Management is confident about meeting expectations for the full year.
