Shares in London sold off in early trading on Monday as geopolitical concerns remain. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
The Financial Times caused a stir on Friday when it revealed several of GlaxoSmithKline’s (GSK) shareholders had been talking to the group’s chairman about a possible break-up. The pharma giant is yet to respond but may provide more clarity on the strategy in interim results on Wednesday. Buy
Hutchison China Meditech (HCM) is hoping to expand the potential of its cancer drug, Sulfatinib with a trial into the safety and efficacy of the drug in treating pancreatic neuroendocrine tumours and biliary tract cancer in the US. That’s in addition to the two final phase studies into pancreatic cancer which are currently taking place in China. This will be the first drug that the group is seeking to develop on its own outside of China. Buy
SDX Energy (SDX) has made another discovery, this time at its SD-3X well at South Disouq, Egypt, where the driller locate 32.6 feet of net conventional natural gas pay. The well will now be completed and tested once the drilling rig has moved off location. Pending results from the test, the well may be connected to infrastructure located adjacent to the original SD-1X discovery, which should be producing by the end of 2018. The shares are barely moved this morning, but we remain buyers.
Petra Diamonds’ (PDL) recovery may prove rougher than supportive investors have bargained for. Future price guidance has been abandoned and production guidance has been softened slightly, meaning earnings forecasts take a hit. Still, current output remains on track with levels flagged in June’s rights issue. Shares, off 4 per cent this morning, are under review.
A profit warning from McColl’s (MCLS) as part of the convenience chain’s interim results is the result of the recent collapse of wholesaler Palmer & Harvey. Although the group says it expects to recover from the disruption to its supply chain during the second half, cash profits will likely only report in line with last year. The resignation of chief financial officer Simon Fuller to allow for his move to publishing group Reach has also put investors on edge this morning. Our recommendation is under review.
Paragon Banking (PAG) grew net loans £171m during the three months to the end of June, taking growth during the financial year to date to £393m. The buy-to-let pipeline was up £71m, taking the total to £859m by the end of the period. Idem Capital also completed its first transaction of the year, after increased competition had delayed buying activity. Buy.
The rumour mill is in overdrive: is Tesco (TSCO) planning to open its own discounting chain to rival German brands Lidl and Aldi? The weekend business papers seem to believe this is looking likely, while brokerage Shore Capital has also added to the Chinese whispers this morning. The brokerage reckons that, in honour of the group’s co-founder Jack Cohen, “a fascia under the 'Jack's’ banner will be hitting our streets, initially in a tranche of up to sixty outlets”. We wait for all to be - officially - revealed. In the meantime, buy.
FDM’s (FDM) Mountie (consultant) revenue rose 14 per cent to £115m in the first half. Group revenue rose just 1 per cent to £118m, reflecting the planned reduction in lower-margin contractor revenue which contributed to the gross margin increasing from 43 per cent to 49 per cent. Pre-tax profits rose 11 per cent to £23m. Good news, though cash conversion fell from 96.8 per cent to 76.4 per cent – something FDM attributes to the 2017 year-end’s “exceptionally strong working capital position”. The results didn’t mention the potential public inquiry regarding repayment of training costs. However, FDM did receive 31 per cent more online applications for its training programmes. Recommendation under review.
Keywords Studios (KWS) – which provides technical services to the video games industry – has acquired Yokozuna Data (YD) from Japanese games developer Silicon Studio Corporation. The transaction will cost Keywords a total of $1.5m for the business and all associated tech and trademark rights. Based in Tokyo, YD has developed a range of predictive analytic models using AI and machine learning technologies to predict individual players’ behaviour and adapt to changes in the game – helping to gauge how likely players are to abandon the game and whether they will buy items in the game. Buy.
KEY STORIES:
Shares in Capita (CPI) are down 2 per cent this morning after a story in the Financial Times revealed the Ministry of Defence had suspended the group’s recent contract award. Rival Outsourcer Serco (SRP) is appealing the contract award and a government assessment of risks gave Capita a 10/10 rating for riskiness, versus a 7/10 rating for Serco.
Hammerson (HMSO) has exchanged contracts for the sale of two of its retail parks, Imperial Retail Park in Bristol and Fife Central Retail Park in Kirkcaldy, for £164m to Capreon. The sale price represents a net initial yield of 7 per cent and a discount of around 10 per cent to the December 2017 book value.
Shares in Draper Esprit (GROW) climbed a further 6 per cent in early morning trading after the venture capital specialist invested a further £29m across eight transactions during the three months since April. As part of its strategic agreement with German-based Earlybird Digital West, it also invested an initial €18m (£16m) in the latest Earlybird Fund VI and committed to invest a further c.€17m (£15m) per annum over the next four years in the fund.
Solid interim results from Ascential (ASCL) have reaffirmed the group’s falling reliance on its events business. In the first half of the 2018 financial year, the newer, information services business contributed 70 per cent of revenue. But falling margins and the ongoing integration costs are a little concerning.
The board of IWG (IWG) has requested that the Panel on Takeovers and Mergers extend the deadline to announce the intention to make a firm offer to August 7th for Starwood, TDR and Terra Firma, but not for Prime Opportunities. The investment group made its own announcement on Friday that it would not be making an offer.
Shares in Ryanair (RYA) are down more than 5 per cent this morning after the budget airline reported that after-tax profits fell by a fifth to €397m during the first quarter of its financial year. This was due in part to an increase in staff costs of more than a third and higher fuel prices. The average fare fell 4 per cent to €38.68. Traffic grew 7 per cent to 37.6m, despite over 2,500 flight cancellations from air traffic controller strikes, and load factor was an “industry leading” 96 per cent. Sales were up over the period by 9 per cent to €1.9bn, while ancillary revenue was up by a quarter as more passengers paid for extra bags and on board services.
Microgen (MCGN) reported a 23 per cent increase in revenue to £34.9m during the first half of the year, or 9 per cent on an organic basis. Analysts reckon that the first half shows that Microgen is making progress towards its goal of gaining early Aptitude Software wins in the insurance sector and building a pipeline of deals to come. In the financial systems division, the payments business was sold during the period to give the division better focus. Shares were up more than 1 per cent in early trading.
OTHER COMPANY NEWS:
Legal issues beget legal issues. Commodities giant BHP Billiton (BLT) has said it has been served with a shareholder class action in the Federal Court of Australia in relation to the 2015 Samarco dam failure in Minas Gerais. BHP said it intends to defend the claim.
Though it is subject to approvals, Schlumberger has decided to convert its synthetic interest in Sound Energy’s (SOU) Eastern Morocco licences into a direct 27.5 per cent holding. Sound will remain the operator of the project, with the Moroccan state.
The introduction of GDPR data protection regulations has been a boon for Restore (RST) in the first half of the year. The group traded in line with expectations in the six months to June and its document management division experienced higher levels of document removal and destruction as customers ensured they were compliant with the new rules. The other divisions also performed well, with Restore Digital carrying out a major scanning contract towards the end of the period.
Flybe (FLYB) has appointed Sir Timothy Anderson as chief operating officer (COO), effective from 15 October. He will replace Luke Farajallah, who spent three years at the company. Sir Timothy has experience as a senior adviser in the aerospace, defence and security sector, and has been a non-executive director on the Flybe board since May 2014.
