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News & Tips: Tesco, Sirius Minerals, RPS & more

Shares in London have started the week on the back foot
July 2, 2018

Ongoing concerns around global trade have sent traders running for the hills in London this morning with all the major indices off sharply. For the latest thoughts of The Trader Nicole Elliott, click here

IC TIP  UPDATES:

Tesco (TSCO) has announced a strategic alliance with French supermarket Carrefour. They deal is meant to improve the quality and selection of products available to both company’s customers, and at lower prices though better contracts with suppliers. The alliance is expected to be finalised within the next two months. Shares in Tesco are up nearly 1 per cent. Buy.

A second-quarter trading statement from Sirius Minerals (SXX) revealed a few important updates. On the financing side, some “positive” commitment letters and proposals have already been received, and more are due in the coming weeks. On the sales side, supply agreement discussions are focused on Brazil and Europe. And on the construction side, final contracts are yet to be signed, and as such, a definitive capital expenditure number has not yet been calculated. Buy.

Shares in RPS (RPS) are up slightly this morning following a change in segmentation. The group has reorganised its European businesses into consulting and services divisions and created a global energy business, transferring the Australian oil and gas business and the built and natural environment businesses from Norway and North America, into the existing energy division. All this is in service of the group’s strategic priority to revitalise its energy business and improve efficiency. Buy.

StatPro (SOG), which provides cloud-based portfolio analysis to the asset management industry, has acquired a regulatory risk services bureau from ODDHO BHF. The acquisition, for an undisclosed sum in cash, brings StatPro’s clients a regulatory risk reporting capability and also adds 10 new clients to the group’s client base in Germany and Luxembourg. StatPro will market it throughout the EU. ODDHO BHF’s risk services business has annualised recurring revenues of around €1.7m, and should add to StatPro’s EPS in 2019. Buy

First Derivatives (FDP) will buy out the minority shareholders of Kx Systems - its co-founders and current directors, and their associated persons - for a total consideration of $53.8m (£40.9m) in cash. Kx is First Derivatives’ flagship software platform, in which it bought a controlling interest in October 2014. The transaction should take place by 29 June 2019, at which point the group will hold 100 per cent of the business. The shares were up 1 per cent in morning trading. We maintain our buy rating. 

Breedon (BREE) has completed an asset swap with Tarmac, acquiring three quarries near Inverness, Penrith and Wrexham, together with a quarry and asphalt plant near Porthamadog, in exchange for 23 of its ready-mixed concrete plants and a payment to Tarmac of £6.1 million in cash. Buy.

In a trade which “is in no way an indication of a diminished outlook in respect of the value of SolGold (SOLG) or its growth outlook in the future,” a philanthropic fund directed by CEO Nick Mather has sold 850,000 shares in the miner. The disposal, we are told, will raise money to fund obligated donations to charities including prostate cancer research and mental health. The market apparently isn’t buying Mr Mather’s elaborate explanation, and has sent the shares down 5 per cent in early trading. We remain buyers.

News that “lower growth for the year will delay UK profitability from Q4 2018” knocked the stuffing out of eve Sleep (EVE), prompted the departure of chief executive Jas Bagniewski, and sent the market valuation down by around 55 per cent. Recommendation under review.

Gareth Davies will take over as chief executive of Wynnstay (WYN) from 10 July. He’ll replace Ken Greetham who will retire after 21 years and Wynnstay, 10 of which as chief executive. Mr Davies has been with the company since 1999. Shares are up 3 per cent in early trading. Buy.

KEY STORIES:

Plus500 (PLUS) has “materially” upgraded expectations for this year’s financial performance after a strong second quarter. The threat of trade wars meant higher than expected levels of market volatility. Ahead of the introduction of new restrictions on spread-betting products, management also estimated around 12 per cent of its customers in Europe could be considered elective professionals - which would be exempt from the changes - accounting for around three-quarters of revenue from the area.   

Micro Focus (MCRO) has agreed to sell its SUSE business – a provider of open source software – to Swedish private equity firm EQT for $2.5bn (£1.9bn). This comes after Micro Focus’s market value was halved in March on the news of difficulties with integrating Hewlett Packard’s software arm. Micro Focus bought SUSE in November 2014 as part of its acquisition of Attachmate for $2.35bn. It says the proposed consideration represents a “highly attractive” enterprise valuation for SUSE – at around its 7.9 times revenue and 26.7 times adjusted operating profit for the year ending October 2017. The sale should complete in Q1 of 2019. Micro Focus’s shares were up 5 per cent this morning.

Indian metals tycoon Anil Agarwal has tabled a cash offer to buy the 33.5 per cent of shares in Vedanta Resources (VED) he doesn’t already own. The deal values the debt-laden commodities group at a 28 per cent premium to Friday’s closing price, or 825p a share. If accepted, Vedanta will be folded into Volcan, a family trust owned by Mr Agarwal, for an outlay of just £778m. Shareholders on the register by 20 July will also be entitled to receive a 41¢-a-share full-year dividend.

OTHER COMPANY NEWS:

Mercia Technologies (MERC) saw a 53.1 per cent uptick in revenue for the year to March, with pre-tax profits up 62.7 per cent to £1.6m. The investment group’s direct investment portfolio value rose from £52m to £66.1m. Meanwhile, net fair value gains were £2.8m against £4.3m year-on-year. Management notes that Mercia’s balance sheet direct investments haven’t yet delivered the fair value uplifts it would like to see, which would in turn lift the group’s net asset value – though it says this reflects the time required to build such businesses. The shares were down 7 per cent in morning trading.

Zoo Digital (ZOO) enjoyed revenue growth of 73 per cent to $28.6m for the year ending March, with adjusted cash profits up 35 per cent to $2.4m. Localisation, the group’s fastest-growing segment, saw sales grow by 149 per cent to $21.4m. This was due to subtitling sales almost doubling year-on-year, and the maiden contribution from the company’s dubbing services - launched in the first half. A pre-tax loss of $5m against a profit of $0.5m in FY2017 stemmed from a non-cash charge for the fair value movement on an embedded derivative (a convertible loan note), caused by Zoo Digital’s rising share price.

First-half trading for Quartix (QTX), the supplier of subscription-based vehicle tracking systems, was in-line with management’s expectations for the full year. Revenue growth for the six months ending June should be in the high single-digits, with profit in line with the same period last year. This reflects the group’s increased investment in expanding its international presence. Free cash flow should be slightly ahead year-on-year. In France, new installations of tracking systems grew 61 per cent to 2,820 vehicles, reaching 15,390 in total. In the US, the increase was 62 per cent to 3,400 vehicles, reaching 10,840 in total. In the UK, the subscription base increased by 3.7 per cent to 86,300. This was a slower rate compared to the first half of FY2017, but management is working to reverse this.

The share price of Sound Energy (SOU) might be range bound, but the company has again showed an impressive knack of raising money. Today, the Morocco-based gas explorer announced it is to tap the market for $15m, selling 30.8 million shares at 37p, or a 7 per cent discount to Friday’s closing price. The placing will be used to “strengthen the company’s cash position” ahead of a three-well drilling campaign – though last investors knew, the financial position was already reported to be “solid”, with £21.2m of net cash.

Shares in Bacanora Lithium (BCN) are up 7 per cent today, after the prospective battery metals miner said it has reached final stage talks “with a number of financing and offtake partners” for its Sonora project. Investors can therefore expect an imminent update on the plan for full-funding of the construction of the development’s first stage.

Shares in Playtech (PTEC) are down 26 per cent this morning after the digital gambling company warned that a highly competitive market in Asia would wipe around €70m off sales, and this would drop through to lower cash profits. Excluding the Asian business, average daily revenue is up 7 per cent year to date.

Premier Foods (PFD) issued a statement that Oasis Investments, which has a 9.34 per cent stake in the company, intends to vote against the re-election of current chief executive Gavin Darby at the annual general meeting on 18 July. The board voiced its full support for Mr Darby.