Equities in London are up marginally in morning trading. Click here for The Trader Nicole Elliott's latest views on the markets.
IC TIP UPDATES:
Period-on-period growth in the number of Fixed Low Price Plan (FLPP) customers has fallen to 5 per cent at TalkTalk (TALK), compared to 25 per cent in the first quarter of the 2018 financial year. That’s not good news considering the contract has been seen as the main growth driver for the beleaguered telecoms group. Still, management’s reassurance that it’s still on track to meet ambitious forecasts was reassuring to the group’s shareholders (who have had a difficult few months as the share price crashed to an all time low). But there are still 8 months to go in this financial year, plenty of time for a cut to guidance. Sell
Clinigen’s (CLIN) investors can look forward to double digit gross profit growth (and an even stronger increase in adjusted cash profits) when the group releases its results for the financial year to June 2018. In the current financial year sales will also benefit from another cancer treatment which has been licensed from Novartis - Clinigen’s sixth product from the Swiss pharma giant’s portfolio. Buy
As promised, Huntsworth (HNT) is back on the acquisition trail. This time it is planning on spending $72m on a healthcare marketing company based in the US, to be funded from the group’s existing debt facilities. Shares are up 5 per cent on the back of the news - unsurprising as broker Numis has raised its forecasts and price target to account for the acquisition. Buy
Shares in Dairy Crest Group (DCG) are up 3 per cent this morning after the company announced that sales across its four key brands were up 6 per cent during the first quarter of its financial year. This was driven by the company’s two largest brands, Cathedral City cheddar cheese and Clover spread, which both saw 10 per cent revenue growth. Chief executive Mark Allen said the butter market continues to be challenging, but the spread portfolio continues to go from “strength to strength”. Several new product launches are expected to be announced before the end of 2018. Buy.
Arbuthnot Banking (ARBB) grew customer lending by a quarter during the first-half, to £1.1bn, while customer deposits also rose by a similar proportion as the challenger bank continued to diversify its funding sources. That helped push up pre-tax profits by 40 per cent to £3.5m, compared with the same time the prior year. Management also announced plans to launch a short-term secured lending business later this year. Buy.
The DNO-operated Peshkabir field in Iraqi Kurdistan is now producing 25,000 barrels per day, an increase of two-thirds, following the successful well-testing of Peshkabir-4. Furthermore, the strength of early testing of Peshkabir-5 suggests output will rise further when the well is brought online in August. Further wells are expected. That’s all good news for Genel Energy (GENL), which holds a 25 per cent stake in the Tawke licence, and is now generating more than $10m in free cash flow a month. Buy.
Everything appears to be moving in the right direction for Kenmare Resources (KMR), which is out with second-quarter and first-half production figures today. The ever-opaque “average product price” has apparently increased, resulting enough cash flow to reduce net debt by $25m and upgrade a secondary concentrator plant at the Moma mineral sands mine in Mozambique. Zircon and ilmenite production has decreased year-on-year, though heavy mineral concentrate is up and total shipments increased 15 per cent in the three months to June. Long-term buy.
Capital & Regional (CAL) has shown that there are still some parts of the retail sector that are delivering growth. The retail landlord has been focusing on non-discretionary convenience shopping as the core of its £1bn portfolio, and in the first half of 2018 footfall grew by 1.7 per cent on a like-for-like basis. New lettings and lease renewals were secured at an average 3.4 per cent premium to previous passing rent. Buy
Gateley’s (GTLY) revenues rose 11 per cent to £86.1m for the year to April, with pre-tax profits up 11.7 per cent to £14.6m. The law firm acquired housebuilder specialists GCL Solicitors in May, gaining 80 new staff. Post-period-end – in July – it also bought Kiddy & Partners, a human capital consultancy. The group continued to invest in staff, which contributed to a 10.7 per cent rise in operating costs to £71.6m. Management has proposed a final dividend of 4.8p, taking the full-year dividend to 7p – up 6.1 per cent year-on-year. The shares were up 4 per cent this morning. Buy.
Shares in Somero Enterprises (SOM) were up 2 per cent this morning, on the news that first-half trading was “solid”. Four of its six territories enjoyed growth during the period. This growth, along with good market conditions, “robust margins” and continuing operating cash flow generation, means full-year trading is still expected to be in-line with expectations. North America and Europe – Somero’s largest markets – were the largest contributors to growth against the first half of 2017. Trading in China was “slightly down” year-on-year, but activity levels here remain encouraging. Latin American sales were down year-on-year, but an improvement is expected in the second half. Buy.
Ideagen’s (IDEA) full-year sales rose 33 per cent to £36.1m, supported by 11 per cent underlying organic growth. A continued focus on improving software-as-a-services revenues led these to rise 76 per cent to £8.4m, in turn helping recurring revenues to constitute 62 per cent of the top line. Meanwhile, sales bookings rose by 63 per cent to £22.7m. Further down the income statement, pre-tax profits came in at £1.4m against £0.6m. Looking ahead, the group said trading since the year-end has been robust and acquisitions from last year are performing well. The shares were up 5 per cent in morning trading. Buy.
Amino Technologies’ (AMO) first-half results were in line with bosses’ expectations. Revenues were down 17 per cent to $41.2m, while the group swung to a pre-tax loss of $0.1m from a profit of $6.3m. Revenues declined because – in line with earlier guidance – order phasing changed for a major customer, meaning Amino is returning to its usual seasonality this year, becoming second-half weighted. 75 per cent of expected full-year revenues have already been secured, and the group cites good visibility stemming from its order backlog and pipeline. Management still expects to meet full-year expectations. The shares were down 3 per cent in morning trading. Recommendation under review.
Sales from parcels and letters sent in the UK was 1 per cent lower at Royal Mail Group (RMG) during the first quarter of its financial year, as a 6 per cent improvement in parcel revenue was not enough to offset a 7 per cent decline in letters. Data protection rules under GDPR could see some customers sending even fewer letters. Addressed letter volumes are expected to fall between 4 per cent and 6 per cent by the full year, though possibly further outside of this range as the full impact of GDPR is difficult to predict. The smaller GLS logistics division continues to perform well, with a 10 per cent increase in volumes and 11 per cent improvement in sales. Shares were up 3 per cent in early trading, but we’re still bearish on the long-term outlook for the company. Sell.
Leeds-based landlord Town Centre Securities (TOWN) secured a 4.1 per cent increase in passing rents in the year to June. Significant progress has been made updating and improving its property portfolio, including the Merrion Centre and the Burlington House residential development in Manchester. Buy
Richard Logan, finance director at cloud computing group Iomart (IOM), is retiring. He has worked at the company for 12 years. He will be replaced by Scott Cunningham on 3 September 2018. Scott has been employed in accounting and finance for 25 years, and was finance director of AIM-quoted InterBulk for nine years before this was sold to Den Hartogh in March 2016. The shares were down 3 per cent in morning trading. We’re still buyers.
KEY STORIES:
NCC (NCC) has swung back into a pre-tax profit position and expanded its margins as it looks to put the troubles of 2016 firmly behind it. Following a strategic review, the new management team are looking to improve client relationships to help improve revenue visibility and ensure profit growth is more closely linked to revenue growth.
Group revenue at SSP Group (SSP) was up 7.3 per cent at constant currency, or 5.8 per cent at actual rates considering the strength of sterling, during the third quarter of its financial year. UK and continental Europe sales were driven by growth in air travel, although trading in the rail sector continued to be soft with strikes in France. Net contract gains of 3.3 per cent were mainly in North America and rest of world. Like-for-like sales growth for the full year is still expected to fall between 2 per cent and 3 per cent. Shares were up nearly 3 per cent in early trading.
Galliford Try (GFRD) delivered a strong performance in the year to June, and confirmed in a trading statement that the troubled Aberdeen relief road is expected to be completed this summer, although there will be a further exceptional charge of less than the £25m already charged. Housing completions were ahead from a year earlier, while average selling prices rose four per cent. Hold
Hot on the heels of a debt financing agreement, Bacanora Minerals (BCN) has announced two further stepping stones on the way to funding its Sonora lithium carbonate mine and plant in Mexico. First will be a $100m equity raise, at an unspecified price, followed by $90m in further investments from Oman’s sovereign wealth fund and existing shareholder Hanwa. The fundraisings, which will “meaningfully progress” construction of the project, will nevertheless require a further $120m of capital by April 2019.
OTHER COMPANY NEWS:
As normally befits a sprawling mining conglomerate, second quarter production figures Rio Tinto (RIO) are a mixed bag. Copper and hard coking coal output were both well up year-on-year, thanks to improved labour and weather conditions, respectively, though the mineral sands and aluminium divisions have been impacted by strikes and operational issues. Most critically, Pilbara iron ore shipments were 14 per cent up year-on-year, putting the division on course to hit pre-existing guidance of 330 to 340 million tonnes in 2018.
