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News & Tips: Pennon, SSE, Centamin & more

Equities have regained some composure
May 25, 2018

Shares in London are up a little after a short lived but sharp sell off. Click here for The Trader Nicole Elliott's latest thoughts. 

IC TIP UPDATES:

Pennon’s (PNN) shares were up 5 per cent this morning, after the water group reported a 3 per cent rise in revenues to £1.4bn, a 24.9 per cent rise in pre-tax profits to £263m and a 7.3 per cent full-year dividend hike to 38.59p. Revenue from South West Water was up 2.9 per cent to £571m, thanks to net tariffs increasing by 2.5 per cent, and a slight improvement in customer demand net of meter switches. Viridor, the waste management business, saw earnings growth from energy recovery facilities. Pennon says it’s on track to achieve £17m in cost savings per year from 2019, with around £13m achieved so far. Buy.

SSE (SSE) revealed a 39 per cent fall in 2018 profits as it faced operational challenges which are bound to intensify this year, as it merges its UK energy supply arm with npower. Pre-tax profits fell to £1.09bn for the March year-end, largely as a consequence of exceptional charges of £213m. Excluding items, adjusted pre-tax profit fell 6 per cent to £1.45bn, reflecting declines in the retail and energy networks divisions. However, the utility still felt able to raise the full-year dividend, despite a fall in profits and the number of customers. Recommendation under review.

Shares in Centamin (CEY) have been marked down heavily today, after the Egyptian gold miner said low grades from its open pit at Sukari were “persisting”, and that underground production is 10 per cent below forecast for the year. Though open pit grades are forecast to increase, causes of the underground output slump are concerning: a lack of available production equipment, and a lower-than-budgeted development grade. As a result, Sukari’s full-year production guidance has been downgraded by as much as 13 per cent, while investors have been warned that all-in sustaining costs could be 16 per cent higher. That’s a dramatic shift in the goalposts, in just three weeks. Our buy call is under review.

GVC (GVC) has increased the amount of synergies it expects from its acquisition of Ladbrokes Coral to at least £130m, from the previous £100m estimate, by 2021. The group reported 7 per cent growth in net gaming revenue during the period from 1st January to 20th May, with 18 per cent growth revenue growth in digital helping to offset a 5 per cent decline in retail. The performance in retail was hurt by poor weather during the period, and by the cancellation of 12 per cent of all horseracing fixtures. On recent regulatory changes in the UK and US, chief executive Kenneth Alexander said the company is “very well placed” to succeed. Shares were up 2 per cent in early trading. Buy.

KEY STORIES:

Retail sales bounced back in April thanks to the warmer weather. Sales in March had been hampered by the “Beast from the East” snowstorm, which prevented visitors to the high street as well as the distribution of online orders. But volumes in April rose 1.6 per cent on March, or 1.4 per cent higher year-on-year. The biggest increases were in, unsurprisingly, weather-sensitive categories like clothing. In other retail news, Homebase has been sold by Australian group Wesfarmers to Hilco Capital, a distressed corporate debt investor for £1, having originally purchased the brand and its assets from formerly London-listed Home Retail Group two years ago. Analysts say the Australian company seriously misjudged its ability to disrupt the UK DIY market, while Wesfarmers says uncertainty around the UK’s exit from the European Union has caused issues.

OTHER COMPANY NEWS:

At around midday yesterday, NCC (NCC) announced the sale of its software testing business to QualiTest Group for £3.6m in cash. This follows NCC’s strategic review, which completed last July, and which established that the company’s software testing and web performance segments “had little strategic overlap” with its broader cyber-security focus.The web performance business was sold on 28 March. Software testing was included as a discontinued activity in the half-year results to January, and has an immaterial effect on expected full-year adjusted operating profit.