IC TIP UPDATES:
Shares in petrol forecourt retailer and recent IC buy tip Applegreen (APGN) have been suspended until September following news of the group’s intention to buy a majority stake in motorway service area operator Welcome Break. The transaction will take the form of a reverse takeover and involves buying Appia Group Ltd, which holds a 55.02 per cent stake in Welcome Break for €361.8m (£321m). A separate agreement with the remaining 45 per cent stake owner - which involves transferring them an 8.6 per cent stake on completion - should also give Applegreen greater “operational influence” over the entire brand, as it involves conditions such as equal board representation. The transaction will be financed by a new debt facility of €300m and a proposed equity fundraising of a minimum of €100m, and is expected to be earnings enhancing in the first full-year post-completion. The final terms of the equity fundraise, including the issue price, the number of new ordinary shares and the form of the equity fundraise are still subject to agreement between the company and the joint bookrunners. Once an admission document is circulated in the Autumn, the shares will resume trading.
Countrywide (CWD) plunged on news of a heavily discounted capital raise and a poor set of results at the half-year mark. The real estate group swung to a pre-tax loss of £242.8m over the six months to June 30 compared with a profit of £192,000 a year earlier. On top of that it announced that it was raising around £111m from a firm placing, with another £29m or so coming by way of an open offer. However, an auditor’s note in the half-year results highlighted a “material uncertainty” surrounding the completion of the placing – which could theoretically impact on the status of the business as a going concern. Sell.
Aviva (AV.) grew cash generation more than a quarter during the first-half, predominantly from the UK life business. That prompted management to raise the dividend 10 per cent to 9.25p a share. It also commenced a £600m share buyback and paid down £500m in expensive debt. However, operating profits were dpwm 2 per cent, due to tough market conditions in Canada and higher weather-related claims. Buy.
Shares in Mitchells & Butlers (MAB) fell 3 per cent in early trading after the pub group reported like-for-like sales growth of 0.9 per cent during its third quarter, as challenging conditions in the food business could not be offset by drinks sales. Management blamed the World cup and sunny weather on why wet-led estates did better than food-led locations. Year-to-date, total sales are up 0.4 per cent. Chief executive Phil Urban still expects full-year results to be in line with the board’s expectations. Sell.
Barclays (BARC) reported a decline in pre-tax profits of more than a quarter during the first-half, after litigation and conduct charges more than doubled to £2bn. That included the banking group’s settlement with the Department of Justice over the sales of residential mortgage-backed securities, plus a further £400m taken for mis-selling of payment protection insurance. A reduction in PPI charges meant pre-tax profits at Barclays UK rose 30 per cent, while corporate and investment banking pre-tax profits were up 17 per cent, thanks to better equity trading income. Buy.
In a half-year trading update, construction software provider Elecosoft (ELECO) said revenues were up 5 per cent, or 7 per cent at constant currencies. Adjusted pre-tax profits were up by around 45 per cent, in line with management’s expectations. This metric excludes any contribution from the acquisition of Shire Systems, which was announced on 5 July. The cash position sat at £2.6m as at 30 June, against £1m in December. And, the group has refinanced its bank borrowings into a new £8m medium-term loan agreement, to fund continued growth (including the cost of the Shire Systems purchase). Elecosoft’s shares were up 3 per cent this morning. Buy.
In recent years, KAZ Minerals’ (KAZ) operational track record has been strong. But the copper miner has suddenly, and very dramatically, backed itself to deliver on a whole other scale, by agreeing to acquire the Baimskaya project in the Chukotka region of Russia for $900m in cash and shares. The deal, which will comprise an upfront payment of $463m cash and $239m in new stock, while the deferred portion will only be paid once project delivery conditions are satisfied – more than $5.5bn of capital expenditure away. Shares are off 17 per cent this morning, and are under review.
The sell-off in Ferrexpo (FXPO) shares continues today, following publication of the iron ore pellet miner’s half-year numbers. Investors’ key concern is likely to be with costs, which are up 31 per cent in a year at $41.60 per tonne, and is expected to persist “though at a lower rate, reflecting the full impact of rising oil and energy prices as well as higher mining costs”. Sales and pellet premia are reported to be strong. Under review.
The first line of Centamin’s (CEY) interim results tells you much about what has gone wrong in the first half of the year: though the average realised gold price was 7 per cent higher at $1,316 per ounce, revenue only inched up 2 per cent. That was because sales and production both fell, the latter by 7 per cent. Predictably, profits and free cash flow have been knocked, though the Egyptian gold miner reports good progress in open pit recoveries. Under review.
The introduction of GDPR earlier this year has slowed business at marketing group Communisis (CMS). This is expected to recover, but management expect it to show up in the numbers in the second half of the year. In the first half, adjusted operating profit was also impacted by a strong comparator due to the release of a provision in the prior period. On an underlying basis, however, profits were up. Shares have fallen back since the last update, and so we are reviewing our recommendation.
KEY STORIES:
Sanne (SNN) won new business worth £11.5m during the first-half, on a projected annualised fee basis, up from £10m the prior year. However, shares were down 4 per cent in early trading, likely on news that increased investment in global diversification and alternative asset classes would mean margins during the first-half will be slightly lower than the prior year, before normalising during the second-half.
The market appears to have reacted well to results from London Stock Exchange (LSEG) this morning, where the group says it’s preparing a contingency plan in the event of a ‘hard’ or ‘no-deal’ Brexit. These contingency plans include “incorporation of new entities in the EU27 and applications for authorisation within the EU27 for certain group businesses” according to this morning’s statement. In the meantime, the group has reported what it calls a “strong financial performance”, with double-digit revenue growth across information services, LCH and capital markets. That’s left adjusted operating profit up 21 per cent to £480m.
Shares in Portmeirion Group (PMP) are up 5 per cent in early trading after the home accessories maker reported a 11.4 increase in sales to £36.9m during the first half with pre-tax profits up by nearly a third to £2.1m. Non-executive chairman Dick Steele said the company benefitted from new product launches and further diversification into new markets. The company usually makes a “disproportionate” amount of its profit during the second half, and management expect to meet full-year expectations.
Big news for Randgold Resources (RRS) this morning. The Malian government has granted the gold giant’s Gounkoto mine a 50 per cent corporate tax cut for the next four years, in support of a super pit mine. The project, which Randgold says “will be one of the largest opencast gold mines in Africa” will extend the life of the Loulo-Gounkoto complex by around five years.
Revenue at Merlin Entertainment (MERL) was up 1.3 per cent to £694m during the first half, or 4.5 per cent at constant currency, while the number of visitors was largely flat at 30m. Operating profit fell 14.3 per cent, or a 6.5 per cent decline at constant currency. Resort theme parks sales grew 9.7 per cent, with accommodation revenue up by nearly a third. Legoland continued to be strong sales up 7.8 per cent. Midway attractions organic revenue declined of 1.1 per cent due to a challenging market in London. Shares fell 1 per cent in early trading.
OTHER COMPANY NEWS:
Ion has issued an update on its offer to acquire Fidessa (FDSA) and the level of acceptances received so far. As at 1 August, the bidder had received acceptances in relation to around 90.2 per cent of Fidessa’s share capital. The offer is unconditional as to acceptances, meaning Fidessa shareholders who have accepted the offer now cannot withdraw their acceptance. The offer remains open for acceptances until further notice. For now, the deal remains subject to other conditions including the receipt of antitrust clearance from the Competition and Markets Authority (CMA).
The Gambling Commission has notified Stride Gaming (STR) that it must pay a “significant financial penalty” for the way it’s carried on its licenced activities in the past. The notice is not yet final and the company is looking to advisers to potentially appeal the decision. Shares fell 33 per cent in early trading. Sell.
Trading has not improved for Walker Greenbank (WGB) during the first half of its financial year. Total brand sales fell 5.7 per cent, or 5.1 per cent at constant currency. This decline was most pronounced in the UK with a 6.8 per cent fall in brand revenue compared to last year. The income from licencing was up 40.4 per cent driven by apparel and a strong period in Japan. The company expects adjusted pre-tax profit for the year to January 2019 to be in the range of £9.5m to £10m. Shares were flat in early trading.
Sage’s (SGE) organic revenue rose 6.8 per cent in the third quarter, representing growth of 6.5 per cent for the first nine months of the year. Recurring revenue growth accelerated slightly, at 6.8 per cent in the third quarter and 6.6 per cent for the first nine months of the year. Within this recurring revenue, software subscription rose 25 per cent over the nine months. Meanwhile, the Sage Business Cloud saw ongoing momentum; cloud annualised recurring revenue reached £386m, up from £336m at the half-year stage. Management reiterated its full-year guidance of 7 per cent organic sales growth and around 27.5 per cent organic operating margin. The shares were up 2 per cent in morning trading.
Shares in IGas (IGAS) are off 4 per cent this morning, after the UK independent driller said production guidance would be lower at 2,200-2,300 barrels per day. The field recovery project “has progressed with mixed results”, with workovers delivering above expectations, though a side-track well has not gone to plan.
In its first set of results since going public, pan African forecourt business Vivo Energy (VVO) has posted an 11 per cent uptick in adjusted net income, and a 4 per cent increase in fuel volumes. The outlook for the remainder of the year if for “mid-single digit percentage” volume growth and “an overall broadly stable gross cash unit margin”.
Spirent’s (SPT) performance is seasonally weighted towards the second half. So, first-half revenues were broadly flat – at $209.2m against $213.6m one year earlier. Meanwhile, order intake from continuing businesses was up 6 per cent, buoyed by strong momentum within the lifecycle service assurance business. Networks and security – comprising 60 per cent of the top line – saw slower demand for its 100 Ethernet testing as some customers moved their focus to 400G development, and while Spirent’s business with ZTE was restricted because of US/ China trade challenges. The respective embargo has since been lifted. Overall, pre-tax profits rose 20.8 per cent to $17.4m. Management has maintained its full-year expectations.
Eurocell’s (ECEL) first-half revenues rose 10 per cent to £119m, or 5 per cent on a like-for-like basis - buoyed by 9 per cent like-for-like growth within the profiles segment and 3 per cent like-for-like sales growth within the building plastics segment. But, the gross margin declined from 51.4 per cent to 50 per cent. This stemmed partly from a short-term increase in manufacturing costs, to meet a spike in demand in the second quarter, and was also driven by raw material price inflation of around £2m year-on-year – offset in part by selling price increases. Still, the group has proposed an interim dividend of 3.1p – up 3 per cent – and management expects full-year results in line with its expectations.
Rumour has it that department store House of Fraser is teetering on the brink of collapse. Yesterday it emerged that Chinese group C.banner had abandoned plans to raise the required £150m needed to invest in the British retailer. That put the rumour mill into overdrive, with some industry commentators suspecting that Sports Direct (SPD) owner Mike Ashley would consider a rescue bid of his own. This morning, another name has entered the frame - Philip Day, the owner of Edinburgh Woollen Mill Group and Jaegar amongst others. Mr Day has a reputation for a series of takeovers, which have amassed him a significant retail empire. House of Fraser needs to secure immediate funding of at least £50m before the end of the month to avoid collapse.
