London shares were up a little by mid morning. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
The first half of 2018 was “the most important operational and financial period” in the history of Eland Oil & Gas (ELA), says chief executive George Maxwell. Gross daily production increased threefold to 17,000 barrels of oil (bopd), has since notched up to 30,000bopd, and more is promised. That has paved the way for a first maiden profit, and a positive turnaround in the group’s working capital position. Under review.
Scisys’s (SSY) revenues rose 13 per cent to £28.7m over the half-year to June (against restated 2017 numbers under IFRS 15), while the group reported pre-tax profits of £0.98m against a loss of £1.7m a year earlier. All business areas performed either ahead of, or in-line with, bosses’ expectations. The order book was “approaching” £100m, up from £64m. Meanwhile, net debt declined from £9m to £3.3m and the dividend was lifted 10 per cent to 0.65p. The company said it still doesn’t expect any “adverse operational consequences” from Brexit but continues with its contingency preparations, including the idea of redomiciling. Buy.
Diageo (DGE) warned that recent volatility in foreign exchange from emerging markets is expected to have a negative impact of £175m on net sales and £45m on operating profit for the financial year. Chief executive Ivan Menezes said he continues to expect to grow organic operating margins in line with previous guidance of 175 basis points of margin expansion in the three years ending June 2019. Shares fell less than 1 per cent in early trading, which analysts reckon shows that investors are focusing more on the fact that the overall performance remains in line with expectations, and on positives like the £2bn share buyback that began in August. We remain buyers.
Stobart Group (STOB) reported a 37 per cent increase in passenger numbers at London Southend Airport during the six months to August. Ryanair is set to begin flying from Southend in Spring 2019, which is expected to result in at least 1m additional passengers in the first year and more than 5m in the first five years. In the energy business, tonnages processes was up around 50 per cent and has “significantly increased” underlying cash profits. Shares were flat in early trading. Buy.
Insolvency specialist and professional services outfit Begbies Traynor (BEG) reports that trading has so far been “in line” with expectations this year, and that “an improving market for our counter-cyclical activities” is gathering steam. Recent government insolvency statistics suggest corporate failures are up 6 per cent year-on-year to date, though Begbies’ recent acquisitions are also contributing as expected. Contrarian buy.
Sales at City Pub Group (CPC) reported a 24 per cent increase in sales to £20m during the six months to July, with operating profit up by a quarter to £3m. The company has opened nine pubs so far during 2018 and have another four in development, and so the company is on track to reach its goal of between 65 and 70 sites by 2021. The second half is off to a good start, with sales during the 11 weeks since period end up by a quarter. Shares fell 2 per cent in early trading. Buy.
KEY STORIES:
The proposed merger between two of Britain’s largest supermarkets, J Sainsbury (SBRY) and Asda has been referred to a phase two investigation by the Competition and Markets Authority (CMA). This shouldn’t come as a huge surprise, seeing as both companies had requested to be ‘fast-tracked’ to this stage of an investigation, suggesting both boards knew this was inevitable. Both groups have stores which overlap in hundreds of local areas, where the CMA warns that “shoppers could face higher prices or a worse quality of service”. Other issues, related to fuel, general merchandise and increased ‘buyer power’ over suppliers will also be looked at this secondary stage of the investigation.
Rio Tinto (RIO) has decided to return the $3.2bn proceeds of its coal asset disposals to shareholders via a series of on- and off-market buybacks. Given recent form, today’s announcement does not come as much of a surprise, and perhaps instead hints at the commodity group’s paucity of major growth options. Nonetheless, the shares are up 2 per cent on the news.
Half-year numbers for SOCO International (SIA) are eclipsed today by the $215m proposed acquisition of Merlon Petroleum, an Egyptian oil producer with 6,500-7,000 barrels of daily production, low operating costs and a historic exploration success rate above 50 per cent. SOCO says the deal will be “immediately accretive” to its operating cash flow per share, and intends to pay Merlon through $136m in cash and 79m of new shares.
OTHER COMPANY NEWS:
Half-year numbers for Hurricane Energy (HUR) are somewhat academic, arriving after a flurry of post-period news flow, and without any production to the company’s name. But interims do at least reveal the rate of cash burn, which came to $150m in the period, and brought the prospective North Sea producer’s cash position down to $210m (inclusive of $39m in term deposits and $31.5m held in escrow accounts).
Lamprell (LAM) chief executive Christopher McDonald and his team “firmly believe [the company] will return to growth” in 2019. And while it remains the preferred bidder on several major contracts, the performance this year to date has hardly convinced. Low activity levels pushed the group to another interim net loss of $21.9m, while the backlog has halved in six months to just $61.7m. Net cash has also dropped a third to $168m.
British American Tobacco (BATS) chief executive Nicandro Durante will retire in April next year after 37 years with the company, eight of which as CEO. The board has identified a “lead candidate” to take over from Mr Durante, after interviewing both internal and external candidates. An announcement on his replacement will be made soon.
