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News & Tips: Asos, Liontrust, Sky & more

London equities have regained some of their losses
July 12, 2018

Shares in London were positive mid-morning as investors flip flop over global trade war fears. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES:

This morning’s drop in Asos (ASC) shares is a clear example of highly-rated companies being held to high standards. The market was clearly disappointed to hear that full-year sales growth will be towards the lower end of expectations - even if that is growth of 25 per cent, and even if gross margins did expand quicker than bosses had expected. Overall, full-year gross margins are expected to widen by around 100 basis points this year. We’d take advantage of this morning’s share price weakness - buy.

Liontrust Asset Management (LIO) gained net inflows of £320m during the three months to the end of June. Together with market gains of £629m, that took assets under management up 9 per cent year on year to £11.4bn. Buy.

Revenue growth at Allergy Therapeutics (AGY) fell short of analyst expectations in the year to June 2018, but that is more a reflection of a weak pollen season than poor demand for the group’s products. Indeed, the group increased its European market share by nearly 1 per cent. Still all eyes are on the pipeline with the pivotal study for the group’s novel birch allergy medicine due to complete before the end of September. Buy

Computacenter (CCC) enjoyed “continued momentum” within its supply chain business for the second quarter, particularly in Germany. The IT infrastructure group said performance for the half-year to June reflected progress in terms of adjusted profitability, and more-so in terms of adjusted EPS after February’s share buyback. Management now expects full-year trading results to be “comfortably in excess” of its prior expectations - despite there being much to do in the second half. The shares were up 6 per cent in morning trading. Buy.

Shares in Dart Group (DTG) are up 34 per cent this morning after the company reported a 38 per cent increase in sales to £2.4bn during the year to March, with pre-tax profit up by 49 per cent to £135m. Strip out the effects of foreign exchange and tax changes, and profit before tax was up 13 per cent to £115m. Passenger numbers increased by 46 per cent to 10.4m with load factor of 92.2 per cent, compared to 91.5 per cent last year. Increased capacity pushed down average ticket yields by 15 per cent. Still, management expect FY2019 results to beat expectations. Our sell tip is under review.

Things are hotting up at Mears Group (MER). Last week activist investor Shareholder Value Management requisitioned a general meeting to vote on whether Bob Holt should remain chairman of the board. Late last Friday the housing services group announced Mr Holt would not seek reelection. This week the investor sought to press it’s advantage by attempting to call a vote on the election of Andy Hogarth, former chief executive of Staffline (STAF). Mears have pushed back on this request, saying board appointments “are not a matter for a single shareholder” and that due process must be followed. We are awaiting SVM’s response. Buy.

Renewi (RWI) plans to begin reporting in Euros as of the interim results in November. The group announced the change in a trading statement this morning, on the basis that its revenues, earnings and cash flow are predominantly generated in Euros. Besides this change, things are ticking along in line with expectation for the group, with signs of improvement in the municipal division and merger integration on track to generate €30m (£26.5m) of synergies by next March. Buy.

Now we know why ADES International (ADES) was building a veritable war-chest. The Middle East-based oil services group has agreed to buy 31 onshore drilling rigs from Swiss-headquartered Weatherford International (US:WFT), for approximately $287.5m. The deal, which is expected to close this year, adds 2,300 employees and contract personnel to ADES’ headcount in Algeria, Kuwait and Saudi Arabia, and will generate annual revenues of $150m, and a cumulative order book of $750m. Shares in the group, 15 per cent up today, remain a buy.

KEY STORIES:

There’s no respite in the battle for Sky (SKY), especially when all of its bidders are currently gathered in the annual media conference in Sun Valley, Idaho. Shortly after the markets closed yesterday, Comcast upped its cash offer for the media group to 1475p from 1255p previously - a deal which values the entire group at £25.9bn. That’s a premium to the £24bn offer made by Twenty First Century Fox earlier in the day.

Abcam’s (ABC) shares suffered a 4 per cent fall in early trading following the release of its trading update for the year to June 2018. With the shares trading on 45 times 2018 earnings, an 11 per cent increase in like-for-like revenues - in line with previous expectations - was not quite enough for shareholders.

Polar Capital (POLR) gained £694m in net inflows during the three months to June, most of which were into its long-only funds. Together with £927m of market movements, that took funds under management up to £13.6bn.   

Shares in Capita (CPI) are up 5 per cent this morning following a double shot of good news from the outsourcer. It has sold ParkingEye, its parking management business, for £235m to a vehicle owned by Macquarie and other funds, as part of its plan to sell off non-core businesses. Alongside this the group has won a £109m, six year contract with the Department for Education. Things do appear to be improving, but we’ve yet to be convinced. 

OTHER COMPANY NEWS:

Immotion (IMMO) - a virtual reality ‘out of home’ entertainment business - joined Aim this morning. It raised £5.75m in gross proceeds via the placing of 57.5m shares at 10p each, and was expected to have a market cap of £19.5m on admission. The group says the out of home VR experience market is forecast to grow eight-fold to $8bn by the year 2022. Its own operations include selling VR motion platforms to leisure and entertainment operators, working with concession partners such as theme parks, and providing VR experiences in shopping centres.

At the end of May, DFS (DFS) shares were trading at a yearly-high of 250p. In less than two months, the shares have lost a quarter of their value, including the 5 per cent drop prompted by this morning’s trading update. Order intake during the third quarter continued to exceed management’s expectations, but hot weather during the fourth has reversed this trend. Disruption in the shipping sector - outside of the group’s control, admittedly - has also proved to be an unexpected drag. Within the business, like-for-like revenues have therefore been 3 per cent lower than last year over the 23 weeks to 7 July 2018, and 4 per cent lower over the 49 weeks to 7 July 2018.

Sales at homeware manufacturer and distributor Portmeirion (PMP) were up 11 per cent during the six months to June, or 15 per cent at constant currency. Management said progress has been made in both the ceramics and home fragrance divisions, and are confident that full-year profits will meet market expectations. Shares were up more than 2 per cent in early trading.

Budget hotel chain easyHotel (EZH) has completed the acquisition of a leasehold site in Milton Keynes. The company has been granted planning permission for a 124 bedroom hotel on the site, expected to open in 2019. It’s also bought a 109 bedroom hotel in Chester, which is also scheduled to open next year. The easyHotel Maastricht opened at the beginning of July bringing the total number of hotels in the Group to 28.

Telit Communications’ (TCM) ‘deviceWISE’ internet of things platform is now fully interoperable with IBM’s ‘Watson’ internet of things platform. Telit said that by working together, the two companies will be able to help manufacturers and other businesses reduce cost, risk, complexity and lead time when using products involved in monitoring and control, industrial automation and field service operations.

Despite a very challenging financial year, Pan African Resources (PAF) finished the 12 months to June by beating its most recent production guidance of 157-160koz (thousand ounces). Production for the 2019 financial year has now been raised to 170koz, “excluding any production from Evander’s underground operations”, and the market appears to have warmed to CEO Cobus Loots’ comments that the company is “re-positioned as a lower-cost, long-life gold miner”.

Could Sirius Minerals (SXX) soon have a competitor for its potash debt financing? Australia-listed miner Danakali (ASX:DNK), developer of the Colluli potash project in Eritrea, today announced it is seeking a secondary listing on London’s main board. Shares in the group will begin trading “on or around 24 July”, whereupon the company will presumably look to raise the hundreds of millions of dollars needed to fund a project with a net present value of $902m.