Shares in London were flat in morning trading as investors digested US-EU trade talks and a flood of corporate results. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
And so begins the era of ex-growth. Today, as previously flagged, Royal Dutch Shell (RDSB) kicks off an initial $2bn share buyback programme to October, part of a $25bn repurchase scheme by the end of 2020. Predictably, the programme is being billed as confidence in the balance sheet (as opposed to uncertainty about future investment options), though gearing looks stubbornly high at 23.6 per cent. Working capital also weighed on free cash flow, and the shares are off 2 per cent this morning. Income buy.
Shares in Schroders (SDR) were off 3 per cent in early trading after the asset manager reported a £2.3bn dip in investment returns during the first-half. However, it gained £1.2bn in net inflows, which meant assets under management rose marginally to £449bn. That boosted net income 11 per cent on the prior year. Buy.
Smith & Nephew’s (SN.) new chief executive Namal Nawana has a big task ahead of him. His predecessor Olivier Bohoun was criticised for not managing costs or integration well enough, so Mr Nawan is here to prove he’s up to the job. Thankfully, the market seems nonplussed by a reported $58m worth of restructuring costs in the first half, which significantly squeezed operating margins and stunted reported profit growth. Perhaps investors are realising that the group’s ‘Accelerating Performance and Execution’ (APEX) programme is going to be a slow burn. Our recommendation is currently under review.
In an AGM statement, GB Group’s (GBG) non-executive chairman David Rasche said the identity data intelligence company was “on track to deliver in line with market expectations”. It secured various contracts during the first quarter, including Aldi and Hugo Boss in Germany, where it is helping with their online sales expansion; BNI, Indonesia’s fourth-largest bank, which is using GB Group’s fraud detection product; and US-based MoneyGram, which is using its global identity verification service. There is a “healthy acquisition pipeline” in place. Buy.
Arrow Global (ARW) has announced the acquisition of Portuguese real estate investment manager Norfin Investimentos for £15.1m, expected to be earning accretive from next year. Management also updated on the debt purchaser’s performance, which is on track to meet its annual target of £230-240m purchases and achieved a 16 per cent internal rate of return during the first-half. Buy.
Brooks Macdonald (BRK) gained £214m in net new business during the three months to June, representing 13 per cent organic growth. Together with £542m in market gains, that took funds under management up almost a fifth on the prior year to £12.4bn. The Managed Portfolio Service grew assets more than a third. Buy.
A weak backdrop for precious metals prices, and a general downturn in sentiment towards Russian companies notwithstanding, Polymetal International (POLY) is holding up operationally. Second quarter production surged 16 per cent year-on-year, thanks to strong volumes at Svetloye and Amursk, while the new Kyzyl mine is on track to produce 80,000 ounces by the end of 2018. Despite strong free cash flow, the payment of the $129m final dividend meant net debt edged up, though a stronger dollar should help the cost profile, and helps to explain why chief executive Vitaly Nesis said he was “very comfortable position vis-a-vis our guidance for 2018”. Buy.
Though mining royalty group Anglo Pacific (APF) continues to benefit from strong income from Kestrel, strong vanadium prices mean over 10 per cent of first half revenues will come from the Maracás Menchen stream. In total, first half income will be up to £18m, compared with £16.1m in the opening six months of 2017. Buy.
Diageo (DGE) kicked off its full-year results with the announcement of a £2bn share buyback programme after a year of strong free cash flow generation of £2.5bn. Reported sales were up 0.9 per cent to £12.2bn while operating profit increased 3.7 per cent to £3.7bn. All regions contributed to the group’s organic growth, with organic net sale sup 5 per cent and organic volume up 2.5 per cent. The group’s biggest acquisition over the year was George Clooney’s tequila brand Casamigos. Shares fell more than 1 per cent in early trading. Buy.
Shares in National Express Group (NEX) were up more than 2 per cent in early trading after the transport group reported a 3.2 per cent increase in revenue to £1.21bn during the first half while pre-tax profit improved 13.3 per cent to £101m. The company reported organic revenue growth across every division, with growth particularly strong in North America. The group made three acquisitions in North America and four in ALSA (its Spanish and Morocco business) during the six months. Free cash flow improved by 3 per cent to £85.2m, and is expected to increase further to £170m by full year. Buy.
Shares in John Menzies (MNZS) have jumped 10 per cent this morning after the group announced the sale of its long-troubled distribution business.Earlier attempts to combine it with DX Group (DX) were derailed in the second half of last year. The distribution division will be sold to private equity house Endless LLP for £74.5m, though Menzies will retain a 10 per cent stake. As we wrote in our tip of the company last month, this will free up the group to focus on its thriving aviation business. Buy.
KEY STORIES:
Mothercare (MTC) shareholders will vote at the company’s AGM today about whether to raise £33m via an equity placing, priced at 19p per share. The fundraising is part of a wider rescue mission at the parent-and-baby chain, which has also entered into a company voluntary arrangement (CVA) to help it close underperforming stores and cut costs.
CMC Markets (CMCX) reported an 8 per cent rise in revenue per active client for the three months to June. As previously guided, costs for the full-year will be slightly higher than the prior year, but management reiterated that revenue from elective professionals will account for 40 per cent of UK and EU revenue.
Intermediate Capital (ICP) gained €4.8bn in inflows during the three months to June, with €3.7bn raised for the Europe Fund VII. That meant assets under management were 15 per cent up on the same time last year at €32.9bn, while third-party fee earning income was up a fifth to €25.2bn.
Shares in Lancashire Holdings (LRE) were down 6 per cent in early trading after the insurer reported a decline in return on equity to 2.9 per cent, from 3.2 per cent the prior year. Net written premiums were also down 2 per cent to £234m, although the combined ratio improved to 67.1 per cent, from 78.4 per cent the same time last year.
The retail division at motor group Inchcape (INCH) is suffering, as the car industry remains under pressure in the UK. Trading profits from that segment fell by nearly two-thirds during the first half of the financial year, but it doesn’t tell the whole story. Trading profits from the distribution segment - often overlooked - actually grew by a steady 13 per cent, or 21 per cent at constant currencies. Aftersales also grew by 7 per cent at constant exchange rates, which helped minimise damage at the group level to a 3 per cent drop in adjusted pre-tax profits.
On several measures, first half results from Anglo American (AAL) were strong. Revenues, return on capital employed, production and productivity all climbed, and investors can take cheer from the miner’s decision to press ahead with the construction of the Quellaveco copper mine in Peru. But adjusted figures – in the shape of an 11 per cent uptick in underlying cash profits – won’t always hoodwink the market, especially if $306m of special charges knock 6 per cent off basic earnings per share. Shares are off 1.3 per cent this morning.
First half copper production from KAZ Minerals (KAZ) is up 18 per cent on 2017, thanks largely to a successful start to life of the sulphide concentrator at the Aktogay mine. The concentrator averaged 89 per cent of its design throughput capacity in the second quarter of the year, resulting in an 83 per cent leap in plant output to 60.5kt. Production from Bozshakol declined slightly in line with the mining plan, while planned idling of the concentrator at Nikolayevsky led to a 11 per cent in tonnes from the ageing East Region and Bozymchak sites.
Highland Gold Mining (HGM) is also on track to produce 265-275,000 ounces this year, after second quarter output from its Mnogovershinnoye, Novoshirokinskoye and Belaya Gora mines came in 4.6 per cent ahead of 66,542 ounces produced in the first three months of the year. Expansion of Novo is underway, along with “infrastructure preparation and construction work” at Kekura.
Amid a steel-based trade war, Evraz (EVR) is holding up pretty well. First half figures for the Roman Abramovich-backed firm may have showed a 2.3 per cent dip in total crude steel production, but sales of coking coal concentrate and third party steel products are well up year-on-year. Owing to strong market fundamentals, sales of vanadium products were brought forward to the second quarter.
Shares in British American Tobacco (BATS) are up more than 5 per cent in early trading after the company reported a 56.9 per cent increase in revenue to £11.6bn during the first half, with profit from operations up 72.4 per cent to £4.4bn. The company has continued to benefit from the acquisition of Reynolds America. The group sold 345bn cigarettes during the period, a 10 per cent increase on the previous year. Sales from next generation products increased more than fourfold to £405m driven mainly by tobacco heating products.
OTHER COMPANY NEWS:
So far, so seemingly good for Jardine Lloyd Thompson’s (JLT) global transformation programme. The group has restructured into three divisions: speciality, employee benefits and reinsurance. And it is still on track to deliver annualised benefits of £40m by 2020, for a one-off cost of £45m. For the first half to June, it delivered £6.1m in benefits. Meanwhile, revenues rose 3 per cent to £714m, with organic growth of 4 per cent. Underlying pre-tax profits rose 10 per cent to £109m, but reported pre-tax profits fell 9 per cent to £89.4m – reflecting the exceptional costs tied to the restructuring programme.
As previously disclosed, Sophos’s (SOPH) first-quarter billings growth was below expectations, at 6 per cent (2 per cent at constant currencies). This stemmed largely from enduser security billings facing a “particularly challenging” prior-year comparison. Meanwhile, Sophos’s net renewal rate was 114 per cent, down from 141 per cent. While revenues rose 24 per cent, buoyed by an improvement in subscription sales, adjusted cash profits fell from $27.3m to $20.3m - after the lower-than-expected billings growth and a planned increase in R&D and sales and marketing costs. But adjusted operating profits increased from $3.7m to $21.9m, while net operating cash flow rose 33 per cent. Bosses expect a return to mid-teens constant currency billings growth in the second half.
Aveva (AVV) said this morning that it has made a “solid start” to the financial year, while integration remains on track. As a reminder, Aveva recently merged with the software wing of France’s Schneider Electric. The group added that it maintains a strong balance sheet, and cash generation over the first quarter was strong. Net cash as at the end of June was £117m, up from £96m as at 31 March. The full-year outlook is still in keeping with management’s expectations.
Retail minnow Bonmarché (BON) has reported a 2.7 per cent rise in first quarter sales, driven mainly by online revenues, which shot up by more than a quarter. Store sales still slumped by 1.2 per cent on a like-for-like basis, although combining the two channels led to growth of 1.5 per cent. The group has also confirmed that, after a review, it intends to keep dividends progressive so long as cover on a cash flow basis remains comfortable.
Howden Joinery’s (HWDN) first-half revenues rose 12 per cent to £619m. While gross profits rose 7 per cent to £380m, the gross margin fell from 64.1 per cent to 61.3 per cent - the result of lower prices after the first quarter of 2017, stemming from giving depots “more flexibility in margin”. Still, pre-tax profits came in at £68.8m - 4.9 per cent higher year-on-year. The group anticipates costs including new depots and inflationary pressures during the rest of 2018, along with further operating costs from ongoing investments in various business areas. But, management’s expectations for the full year haven’t changed.
Flybe (FLYB) has continued to cut capacity, with a 7.9 per cent reduction to 3.1m seats in the first quarter of its financial year. Load factor has continued to improve, by 8.8 per cent to 81.3 per cent during the period, on a 3.3 per cent increase in passengers to 2.5m. This strategy update sent shares up more than 3 per cent in early trading. But underlying cost per seat at actual currency rose 14.1 per cent due to costs associated with handling the higher load factors and more expensive fuel, and made worse by the lower value of sterling. Passenger yield fell 2.4 per cent to 70.2 per cent.
Sales at Compass Group (CPG) were up 5.7 per cent during the third quarter of its financial year driven by new business in North America, growth in Europe, and good progress in rest of world. Operating margin improved during the third quarter, but in the nine months to March it’s “slightly lower” than the same period the previous year. The company is on track for “modest” margin improvement by full year. Management expect to report organic growth above the middle of its 4 per cent to 6 per cent range. Shares fell more than 2 per cent in early trading.
On the day four of its supermajor peers publish second quarter earnings figures, BP (BP.) has announced the early appointment of incoming chairman Helge Lund as a non-executive director. He is joined by Pamela Daley, a lawyer who has held senior roles at General Electric, Blackrock and is a trustee of the World Wildlife Fund.
