For the latest Market Outlook from The Trader's desk, click here.
IC TIP UPDATES:
Simon Bird, one of dotdigital’s (DOTD) co-founders, has decided to step down from the board with immediate effect in order to pursue other business opportunities. Executive chairman ‘Tink’ Ian Taylor, the other co-founder on the board, remains. We’re still positive. Buy.
Castleton Technology (CTP) has won a new managed services contract with Dumfries and Galloway Housing Partnership (‘DGHP’). The contract is due to last four years, with an option for two further annual extensions. The total contract value is worth £1.2m, rising to £1.6m if the respective options to extend are exercised. Among others, services that Castleton will provide DGHP include a hosted workspace, and business continuity via Castleton’s disaster recovery operation. The shares were up by around 3 per cent this morning. Buy.
Legal & General (LGEN) may have reported a 7 per cent rise in operating profits during the first-half – off the back of its annuity back book and gains made by Legal & General Capital – but the net cash release from operations declined 2 per cent, missing consensus expectations. That was due to lower than expected bulk annuity sales, with less than half last year’s transaction value completed at £735m. Nevertheless the interim dividend was raised 7 per cent to 4.6p a share. Buy.
AA (AA.) reported a 1 per cent decline in roadside membership in its first-half pre-close statement, with the retention rate declining to 81 per cent. Management blamed that reduction on regulatory pressures, including renewal price transparency, while an 8 per cent rise in breakdowns drove up costs. However, following recent refinancing, management managed to extend the effective near-term maturities on its debt to January 2022. Sell.
In keeping with its July trading update, Ibstock’s (IBST) first-half adjusted cash profits were down 2.2 per cent at £58.4m, after poor weather at the start of the year and higher energy costs. While revenues rose 0.7 per cent to £230m, pre-tax profits climbed 30.8 per cent to £50.9m – benefitting from the disposal of surplus property near Bristol. In keeping with its recent guidance, increased maintenance spending on Ibstock’s UK brick manufacturing assets will have a short-term impact on financial performance. Management reiterated expectations of full-year adjusted cash profits of between £121m and £125m. But the interim dividend rose from 2.6p to 3p, alongside a special dividend of 6.5p. Buy.
Shares in Caledonia Mining (CMCL) are off 6 per cent in early trading, after the Zimbabwean gold digger revealed the working capital strain on its cash position. Net cash is down 51 per cent in a year, as higher capital expenditure, tax payments and other mine costs dented cash flow already hampered by lower-than-expected grades. The group said higher production is anticipated in the second half of 2018. Under review.
Today’s monthly update from Colombian oil explorer and producer Amerisur Resources (AMER) provided investors with another reminder of the challenges and opportunities of its portfolio. Production in July dropped 5 per cent to 4,868 barrels of oil per day (bopd), as issues with the Platanillo-22 workover chewed up time and resources. Better news comes the Chiritza re-pumping station project, which is progressing ahead of schedule and on budget. Once online in September, the station will have access to a minimum daily carrying capacity of 9,000 bopd. Under review.
Phoenix Global Resources (PGR), London’s largest “pure play” on Argentinean shale, has announced a change of chief financial officer. Former banker Philip Wolfe is out (or will be, after a four month handover); BP’s former man in Argentina, Kevin Dennehy, is in. We remain buyers.
KEY STORIES:
Shares in Tui (TUI) fell nearly 10 per cent in early trading after the group reported a 12.7 per cent decline in cash profits to €193m (£174m) during its third quarter. This was mainly driven by an 80.2 per cent decline in cash profits from Northern Europe as the World Cup and heatwave encouraged would-be travellers to stay home. Management said high levels of early bookings helps to limit the impact of prolonged good weather in key markets, but outperformance is still “less likely”. Disruption costs from air traffic controller strikes in France, the timing of Easter, and foreign exchange also hurt the third quarter results. Holidays in central Europe and cruises saw the best improvements in cash profits during the period.
The interim results announced today by Cineworld (CINE) reflect the $5.8bn (£4.5bn) acquisition of Regal Entertainment, which completed in February. Statutory revenue was up 252 per cent to $1.86bn during the first half, or up 10.8 per cent to $2.46bn on a pro-forma constant currency basis. Adjusted cash profits improved by 285 per cent to $414m, or up 14 per cent to $554m at pro-forma constant currency. The group is now the second largest cinema chain in the world by number of screens. Six new sites totalling 56 screens were opened during the first half, taking the group total to 9,542 screens. Shares were up 7 per cent in early trading.
BHP Billiton (BLT) has paid $50m to settle a class action brought by a group of US shareholders, relating to the 2015 Samarco dam disaster. The agreement was reached “with no admission of liability”, though potential liabilities related to a $41bn civil claim against the mining giant and joint venture partner Vale could take two years to settle.
Roman Abramovich-backed Evraz (EVR) has firmly established itself as one of the biggest cash cows in the London market. With its interim results today, the Russian steel giant has announced a second interim dividend for 2018 of $577m, equivalent to 40 cents a share, which the board said reflected its “confidence in the group's financial position and outlook”. That’s on top of distributions of $430m and $188m already this year.
“Across-the-board advances” is how Randgold Resources (RRS) has elected to paint its second quarter performance. With a 9 per cent quarter-on-quarter increase in gold production, a 3 per cent drop in cash costs per ounce, and a 49 per cent increase in cash generation to $95.5m, the headline metrics could claim to meet that carefully-worded description. But despite a higher average gold price, weaker first half sales have pushed down basic earnings per share from $1.64 to $1.16, year-on-year.
OTHER COMPANY NEWS:
EVR Holdings (EVRH) has signed an exclusive multi-year partnership with National Exhibition Center Limited to offer virtual reality access to certain live events at NEC Group Arenas. Selected concerts at these arenas will be available to purchase via EVR’s MelodyVR app, on Oculus Go and Samsung Gear VR headsets. Shares in EVR were up 3 per cent in morning trading.
Shares in Card Factory (CARD) took a tumble this morning after the group cut full-year cash profit guidance to between £89m-£91m, compared to previous consensus estimates of £93.5m. Bosses are blaming a weak consumer environment and extreme weather patterns for a recent trading slump, which saw like-for-like sales down 0.7 per cent in the first half, compared to a positive growth rate of 3 per cent this time last year. However, between new store openings and strong cash generation, management reckon it can still muster up a special dividend between 5-10p. Analysts at Liberum are shooting for 7.5p.
Budget accommodation chain easyHotel (EZH) has completed the acquisition of a site in Cardiff, and planning permission has been granted for a 120 room hotel. The company has also signed an agreement to develop 174 more rooms in Switzerland, with four hotels in Zurich and one in Basel. These should open over the course of the next 14 months. Shares were up nearly 2 per cent in early trading.
