After being buffeted by emerging markets concerns in recent days, London shares are holding their own in morning trading. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Royal Mail (RMG) has been fined £50m by OFCOM after the regulator concluded that it has breached competition laws when it changed wholesale prices In 2014, calling it an abuse of Royal Mail’s dominant position in the market. Royal Mail is appealing the verdict and stated that it believes the decision will be overturned. Analysts reckon this will put greater restraint on Royal Mail given its dominant market share. This could therefore limit the group’s ability to grow the parcels business, which it’s been relying on to make up for declining letter volumes. Shares fell nearly 1 per cent in early trading. Sell.
Though it re-iterated full-year production and cash cost guidance, Antofagasta (ANTO) shares are off this morning, after the Chilean copper giant posted a fall in earnings at the half year. The interim dividend has also been cut by a third, to reflect of 35 per cent net earnings pay-out ratio, while net debt climbed $321m in the six months to June. Nevertheless, there are some signs of encouragement: a cost-cutting programme has taken another 7c of each pound of copper produced, while chief executive Iván Arriagada said tonnages and unit costs are expected to “improve substantially during the second half” of 2018. Buy.
John Menzies’ (MNZS) management sounded an upbeat note on the release of the interim results. The latest numbers are the last to include Menzies Distribution, which is expected to be spun out later this month. Exceptionals related to the sale have impacted statutory numbers, but on an underlying basis profits and EPS are up, and operating cashflow has improved. The group’s next step is to establish itself as the leader in the aviation services sector. Buy.
Marshall Motor Holdings (MMH) has reported a resilient set of interim results this morning, with underlying pre-tax profits up 1.2 per cent to £16.4m. Most of the work lay in the margins as revenues fell 0.4 per cent overall. Lower operational expenses helped, as did a timely disposal of the group’s leasing division. The group also finished up the period with net cash of close to £1m, with £121m-worth of freehold property on the balance sheet. An interim dividend of 2.15p was also maintained. Buy.
In a trading update, remote meetings software group LoopUp (LOOP) said first-half revenues to June rose 39 per cent to £12m. Organic, constant-currency revenues rose 22 per cent to £10.1m – lower than the average growth rate of 31 per cent over three previous first-half periods, because of LoopUp’s expansion into Australia and focus on building the pipeline here. Management now expects greater cost savings from its £61.4m acquisition of MeetingZone, which completed in June, and these savings should come faster than previously stated. The group’s gross margin rose from 76.8 per cent to 77.2 per cent. Its shares were up 5 per cent this morning. Buy.
Sumo Group (SUMO) has acquired The Chinese Room, a Brighton-based independent games development studio, for around £2.2m from its founders. The deal comprises around £0.6m in net consideration, with around £1.6m of cash on the balance sheet. Sumo says the acquisition “accelerates” its own-intellectual property pipeline. The Chinese Room is expected to bring “modest revenue” on published games, primarily ‘Dear Esther’. Management expects The Chinese Room and the Brighton studio to incur a small operating loss for the rest of 2018 as new staff are employed, but should be profitable in 2019. The shares were down 3 per cent this morning. We’re still positive – buy.
A turnaround appears to be underway at Mears (MER). Shares in the group slumped last year after the Grenfell tragedy prompted clients to shift their attention towards firesafety and compliance. Now, however, revenues have begun to rise again and are up on the second half of last year. The care division is also improving. It has returned to profitability and its expanding margin drove improvements in the overall group. Buy.
KEY STORIES:
H&T (HAT) reported a 9 per cent rise, to £47.8m, in the net pledge book at its core pawnbroking business during the first-half. That pushed net revenue for that business up 12 per cent to £16.2m. The loan book at the personal lending business more than three-quarters to £17.8m, while the annualised risk-adjusted margin came down to 37.5 per cent from 44.5 per cent the previous year. Group pre-tax profit was up 12 per cent to £6.1m. Shares were up 5 per cent in early trading.
OTHER COMPANY NEWS:
Faroe Petroleum (FPM) has farmed into the Agar Plantain exploration and appraisal well in the UK Continental Shelf, in a move which will allow Faroe, Cairn Energy and operator Catalyst to appraise the Agar oil field, discovered in 2014.
In its first set of results since completing its tertiary listing in London, Canada-Egypt oil and gas firm Transglobe Energy (TGL) has returned to the dividend list, thanks to a strong turnaround in operating cash flow. However, average production dropped 15 per cent year-on-year, and the operating expense climbed 19 per cent to $9.93 per barrel of oil-equivalent.
Online bingo operator JPJ Group (JPJ) reported a 10 per cent increase in total gaming revenue to £161m during the first half with the average number of active customers per month increased 7 per cent year-on-year to 259,861. Adjusted cash profits fell 4 per cent to £56.9m due to increased spend on marketing the point of consumption tax in the UK now applicable to bonus payments. The improvements in cash flow are being used to pay down debt, with the aim to reach 2.5 times cash profits. Shares fell 5 per cent in early trading.
