London equities have taken a hit this morning on softer global economic data suggesting trade fears may have some substance. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Lloyds (LLOY) grew pre-tax profits almost a quarter during the first-half, as regulatory provisions almost halved. That included payment protection provisions, which were down more than half to £500m. Net interest income was also up 7 per cent and management upgraded capital generation guidance to 200 basis points for the year, up from the 170 to 200 basis point range expected in February. That led management to recommend a 1.07p interim dividend, the highest yet. Buy.
Could this morning’s share price fall for Next (NXT) be some timely profit-taking? It wouldn’t be surprising seeing as the shares have risen more than 43 per cent in the last 12 months. Others might be nervous about the group’s future when it comes to its traditional retail stores. Figures released this morning as part of a second quarter trading update showed retail store full-price sales down 5.9 per cent, compared to a comparable 12.5 per cent rise in online sales. Thankfully, this strong online growth has offset retail declines, leaving first-half sales up a comfortable 4.5 per cent. Management actually said this performance exceeded expectations, but believes the hot weather has acted as a drag-forward for summer sales. Full-year guidance is therefore unchanged. Take advantage of today’s momentary weakness - buy.
Shares in St James’ Place (STJ) are off this morning, though it’s hard to find much fault with half-year numbers, even accounting for the tough comparators set in 2017. A 21 per cent year-on-year rise in net inflow of funds was matched by strong client retention, while a post-tax underlying cash result of £147m fed through to a 20 per cent rise in the interim dividend. If the market has taken one dampener from today’s news, it is that managing director of investments, David Lamb, is to move to a part-time role in early 2019, after 27 years at the group. Buy.
Collagen product manufacturer Devro (DVO) reported an 8 per cent rise in operating profit to £16.2m during the first half despite a 4 per cent decline in sales to £120m. This was due to stronger performance on manufacturing yields and savings from the Devro 100 programme, partially offset by energy and salary inflation and foreign exchange headwinds. Volumes were maintained year-on-year, with strong growth in Europe, Russia and Latin America offset by Asia. The company discontinued imports of legacy products into China. Shares were up nearly 2 per cent in early trading. Buy.
BAE Systems’ (BA.) half-year revenues fell 8.5 per cent to £8.16bn, while operating profits declined 10.5 per cent to £792m. While the order backlog rose from £38.7bn to £39.7bn, this didn’t reflect recent contract wins including the Australian SEA 5000 programme, or the contract to supply Typhoon and Hawk aircraft to Qatar. Both are anticipated in the second half. Management maintained its full-year earnings guidance, noting that some issues regarding certain programmes within Platforms & Services and Maritime will be covered by higher earnings in the Electronic Systems and Cyber & Intelligence businesses. The interim dividend was lifted 2 per cent to 9p. We’re still buyers.
StatPro (SOG) reported a 22 per cent rise in first-half revenues to £27.2m, while it swung to a £0.9m pre-tax profit from a loss. Annualised recurring revenues (ARR) were broadly flat year-on-year, but StatPro Revolution – the company’s flagship product – enjoyed underlying ARR growth of 19 per cent against just 9 per cent last year. And, the integration of Delta – acquired last year– into Revolution is going well. Looking ahead, the group expects asset managers to continue outsourcing non-core activities such as regulatory reports – hence, StatPro now offers managed services and pre-sales support. The shares were down 5 per cent this morning, but we’re still positive. Buy.
KEY STORIES:
Shares in funeral provider Dignity (DTY) have shot up in early trading on release of the group’s half-year results. Despite a profit warning at the start of the year, cash profits of £56.4m actually reported higher than forecasts, helped by a 5 per cent increase in the number of deaths. Pricing adjustments have helped to stem loss of market share for Dignity, while actions have already been taken to claw back £8m in costs by 2021. That said, marketing expenses are set to rise, as are general costs around property and equipment. Analysts admit there’s “a lot to absorb” from this morning’s numbers and we’re inclined to agree.
Shares in BBA Aviation (BBA) after the flight support company reported an 11 per cent fall in pre-tax profit to $76.2m (£58.1m) during the first half of its financial year due to exceptional items. Strip those out, and continuing underlying pre-tax profit increased to $140.2m. Flight support, the group’s largest division, saw organic revenue increase 5 per cent with network agreements contributing to outperformance. Free cash flow increased $57.9m to $115m, helping to support the 5 per cent dividend increase to 4¢. During the period the company spent $88m on the acquisition of EPIC, a leading fuel and fuel related services supplier.
Rio Tinto (RIO) just posted a record interim dividend, a $1bn top-up of its share buyback programme, and its shares are off 3.4 per cent. So why the long face? One answer could be CEO J-S Jacques’ reference to “inflationary pressures…across the industry”; or could it be disappointment with the board’s decision to return its $5bn disposal haul to shareholders (net of tax); or perhaps a sharp drop in free cash flow?
OTHER COMPANY NEWS:
Sales at AG Barr (BAG) are up 5 per cent to £136m during the first half, which management called “especially positive” considering last year’s tough comparator of 8.8 per cent revenue increase. This compared to a soft drink that was up 4.5 per cent in value terms and increased 1.4 per cent in volume. But the market is still “volatile”, since management think it’s too soon to tell the full impact of the soft drinks levy. Investment in reformulation and brands will impact margins in the current financial year but should help support long-term growth.
