The febrile state of UK politics is failing to dent the upwards march of UK equities. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Central Asia Metals (CAML) is on track to meet each of its 2018 production targets. After a cold winter in Kazakhstan, second quarter copper production at Kounrad jumped 19 per cent and within sight of a 13-14,000 tonne goal. Eight months into the ownership of Sasa, chief executive officer Nigel Robinson said operations were “firmly on track to meet annual guidance” for zinc and lead. Cash was down slightly to $40.5m, though there was no update on the overall net debt figure. Buy.
Nine months into a year-long, sink-or-swim cost saving initiative, Shanta Gold (SHG) has managed to strip $7.2m from its annual budget. The reductions, largely the result of contract renegotiations and the “elimination of non-essential G&A spend” would have arguably gone further, had the Tanzanian miner not had to face a three-month decline in the gold price to $1,260 an ounce. Buy.
Premier Asset Management (PAM) gained net inflows of £202m during the three months to the end of June, marking 20 consecutive quarters of net inflows. Together with market returns, that took assets under management up £1bn year on year to £6.8bn. Shares were up 5 per cent in early trading. Buy.
With its largely fixed cost base, it doesn’t take much for Begbies Traynor’s (BEG) earnings to jump. Against a steadily improving market for insolvency services, the top line grew 5 per cent, and adjusted pre-tax profits climbed 14 per cent to £5.6m. At the same time, the group reduced net debt by 27 per cent, spent £1.9m on acquisitions, and had enough cash left over to propose the first increase in the total annual dividend since 2011. Buy.
Secure payments provider Eckoh (ECK) has won a new contract worth £1.4m through its partnership with Capita Customer Management. This represents Eckoh’s fifth significant contract win through Capita since the partnership was established in 2013. The contract will last three-and-a-half years, entailing Eckoh providing customer engagement and secure payments to one of Capita’s public-sector clients. Buy.
CareTech (CTH) has confirmed it is considering a takeover for its peer Cambian (CMBN). The two care home groups have had hugely different fortunes in the last few months - the former climbing gradually as a sensible acquisition strategy has allowed it to increase revenues and profits, while the latter has reported multiple profit warnings which resulted in the disposal of half of the company. We rate shares in high yielding Caretech a buy, but will assess the investment case once more details of the potential acquisition emerge.
Veterinary pharma group Dechra (DPH) has provided the market with a typically reassuring update. Revenues in the year to June 2018 are expected to be 14 per cent up on last year thanks to solid organic growth and recent acquisitions. Shares are up 75 per cent in the last twelve months and therefore could be tipping towards ‘too expensive’ for new buyers. We place our recommendation under review.
This morning’s update from Robert Walters (RWA) is positive, if a little uneventful. The group has seen double digit net fee income growth across all of its geographies, with even the UK - which has been a laggard in recent times - posting an increase of 12 per cent in the first half of the year. Driving this has been strong demand for candidates for technology, accounting, legal and finance roles. The net cash will be of particular interest to investors. It grew to £22.9m in the first half of the year, and management said there is scope for dividend increases and even potential buybacks. Buy.
Shares in Equiniti (EQN) are down 5 per cent this morning following a damning note from analyst Panmure Gordon. The note mentions a “bewildering abundance of concerns” with the shares, along with 15 red flags including falling cash generation and recurring exceptional charges. We’re reviewing our buy recommendation
Young’s & Co (YNGA) reported a 8.8 per cent increase in managed house sales during the first thirteen weeks of its financial year, or up 5.2 per cent on a like-for-like basis. Management noted they are already seeing some benefit from the seven acquisitions made last year, and the three transfers from its tenanted operation Ram Pub Company to managed houses. Cost pressures have continued into the current financial year, but have begun to moderate. The company called uncertainty around Brexit “unhelpful for business”, but are still optimistic about the year ahead. Buy.
Tesco (TSCO) announced that Charles Wilson, its chief executive for the UK and Republic of Ireland, will step down from his role due to illness. Mr Wilson will remain on the Tesco Executive Committee. He will be replaced by Jason Tarry, currently group chief product officer, while Andrew Yaxley, currently chief executive of the Ireland division, will be promoted to group chief product officer. Shares fell 1 per cent in early trading. Buy.
KEY STORIES:
WPP (WPP) has been outbid in its quest to get its hands on digital production company MediaMonk by its old boss, Sir Martin Sorrell. Under the guise of his new advertising platform, S4 the media mogul has won the company for an estimated €300m.
Shares in TP Icap (TCAP) plummeted almost a third this morning after the trading specialist announced earnings per share this year would be slightly the below the bottom-end of analyst expectations of between 34.9p and 39p. Costs relating to Brexit, Mifid II, regulatory and legal expenses and IT security will dent underlying operating profits by around £10m, while refinancing of the revolving credit facility will increases finance costs by £35m. Management has also revised down expected synergies from the 2016 acquisition of Icap’s voice broking division to £75m on an annualised basis, down from the £100m expected. Chief executive John Phizackerley will also step down with immediate effect and be replaced by global broking head Nicolas Breteau, subject to FCA approval.
OTHER COMPANY NEWS:
Ocado’s (OCDO) revenues rose 12.1 per cent to £800m in the first half, buoyed by an increase in the average number of orders per week and fees earned from clients. The group swung to a £9m pre-tax loss from a £7.7m profit, due to higher investment in its new Andover customer fulfilment centre, and higher estimates for senior management’s share-based incentive charges after the share price’s significant growth in recent months. Looking ahead, the retail segment is expected to enjoy 10-15 per cent revenue growth for the full year. Cash profits will reflect the costs of Ocado’s largest-ever customer fulfilment centre in Enrith, while the group will also continue to invest in its solutions platform.
Telit Communications (TCM) gave an update yesterday regarding Bartolini After Market Electronic Services (‘BAMES’). As previously disclosed, between 2007-2010, Telit and its Italian subsidiaries were parties to various agreements with BAMES and its subsidiary. BAMES went into liquidation in 2013. In 2016, Telit learnt of a criminal investigation against “a number of parties” regarding this insolvency – including Telit’s former chief executive. Telit hasn’t been formally involved in these criminal legal proceedings. But, BAMES’ administrators now plan to bring a civil claim against Telit. The group believes this is without merit and will “vigorously defend its position”. It’s not yet possible to gauge what possible liability Telit might face. The shares were down 2 per cent this morning.
In an update ahead of its 31 July year-end, IT infrastructure group Softcat (SCT) said it has continued to perform “exceptionally well”, against a favourable market backdrop. Management expects full-year adjusted operating profit to be “materially ahead of its prior expectations”. The shares were up 7 per cent in morning trading.
Shares in Photo-Me International (PHTM) are up more than 6 per cent after the company reported a 7.1 per cent increase in revenue to £230m in the year to April, or a 5.9 per cent improvement at constant currency. Underlying pre-tax profit was flat, but fell 1.6 per cent at constant currency. Sales growth was driven by the laundry business, which saw revenue increase by 69 per cent. This division now contributes 16 per cent of sales, up from 10 per cent last year. The company reported revenue growth in every market it operates in apart from Japan. It had warned in May that a highly competitive market for photo booths in Japan had meant that pre-tax profits would be lower than expected.
