Morning trading saw London shares broadly flat as the rather modest rebound ran out of steam. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Royal Dutch Shell (RDSB) has had a bit more success in its disposal programme than its supermajor peer. Yesterday, the Anglo-Dutch group confirmed the sale of its upstream interests in Denmark to Norwegian firm Noreco, for a headline consideration of $1.9bn. Adjusting for the effective date of the transaction (1 January 2017), Shell will actually pocket $1.1-1.3bn, though shareholders will likely welcome the transfer of $1.1bn of decommissioning liabilities. Both Panmure Gordon and RBC now reckon Shell has surpassed its $30bn divestment programme. Under review.
Third quarter results for Shanta Gold (SHG), out today, contained several negatives. First, lower than expected mine grades has led to a drop full-year production guidance to 80,000 ounces, from a range of 82,000-88,000, while expected all-in sustaining costs have been lifted to $750, from a range of $680-$730. And while net debt decreased in the three months to September, the Tanzanian miner has been hit by another $2.5m increase in stockpiles and a $2m increase in VAT receivables. Under review.
Shares in RWS Holdings (RWS) are up 2 per cent this morning after the group announced it was expected to beat profit expectations for the full year. The performance was driven by a “markedly improved” second half performance from Moravia, the localisation business which was acquired in November last year. The group also strengthened margins in its IP support services business. Buy.
Discussions regarding SDX Energy (SDX) acquiring a “significant package of assets in Egypt” from BP (BP.) have been terminated by mutual agreement. Shares in SDX, which had been suspended since confirming the discussions on 20 September, are once again trading, albeit six per cent down this morning on the news. We remain buyers.
Late yesterday morning, Scisys (SSY) gave an update on its previously-announced Brexit contingency planning – the principal objectives of which were to protect shareholder value, mitigate possible negative effects of Brexit on its space business, and retain its Aim-listing. Scisys has proposed the creation of a new group holding company, which will be a public limited company incorporated in Ireland, and listed on Aim as well as the Enterprise Securities Market of Euronext Dublin (ESM). This ‘new’ Scisys will likely be tax resident in the UK. A circular laying out full details of the proposals will be sent to shareholders around 26 October. The shares closed down around 5 per cent lower yesterday against the previous day’s close. We’re still positive. Buy.
Unilever (ULVR) recently backed out of its plans to simplify its legal structure by having its headquarters solely in the Netherlands, but appears to be on track with its other objectives. The consumer goods giant reported a 3.8 per cent increase in underlying sales growth during the third quarter – in line with the goal of achieving sales growth of between 3 per cent and 5 per cent. During the first nine months of the financial year underlying sales growth has just missed this target at 2.9 per cent, but strip out the spreads business, which has been sold to private equity group KKR, and this figure is 3.1 per cent. Chief executive Paul Polman said the company is “on track” to meet its 2020 goals, including an improvement in underlying operating margin and strong cash flow. Shares fell more than 1 per cent in early trading. Buy.
GVC (GVC) reported a 14 per cent increase in net gaming revenue (NGR) during the third quarter. This was driven by online NGR which was up by nearly a third, with good growth in both sports and gaming. UK retail like-for-like sales fell 2 per cent, even after a boost from the World Cup. Integration of Ladbrokes Coral is “progressing well”. Chief executive Kenneth Alexander said the company will continue to use its excess returns to consolidate its position in markets where it is taking market share. The company also announced that Rob Wood has been appointed deputy chief financial officer, with the intention that he will succeed current CFO Paul Bowtell after he steps down in March. Shares were up nearly 3 per cent in early trading. Buy.
Hilton Food Group (HFG) announced that it has purchased a 50 per cent stake in Netherlands-based vegetarian product manufacturer Dalco Food. Hilton will initially enter into a joint venture with Dalco, but will have the option to purchase the remaining half of outstanding shares in 2024. The agreement is meant to expand Hilton’s presence in vegetarian foods. Shares were up less than 1 per cent in early trading. Buy.
Shares in National Express Group (NEX) were up 4 per cent in early trading after the transport group announced a 9.5 per cent increase in sales during the third quarter, with pre-tax profit up 18.3 per cent. Year-to-date group pre-tax profits are up 14.5 per cent, or 16 per cent at constant currency, with an improvement in group margin. Chief executive Dean Finch said the UK coach business had delivered “outstanding” organic growth, and expects this momentum to continue into what is usually a quieter fourth quarter. Moody's also recently upgraded the company’s investment rating to Baa2. Buy.
Shares in Domino’s Pizza Group (DOM) are up 8 per cent in early trading after it reported a 5.9 per cent increase in group system sales during the third quarter, with growth across the UK, Ireland, and its international markets. There were 23 stores that opened during the period, 20 of which are in the UK, bringing the total number to 1,236. The company completed a £50m share buyback, and will now repurchase an additional £25m worth of shares. Earlier this month the company appointed a new chief financial officer, after it had gone through four CFOs in as many years. Our sell tip is under review.
KEY STORIES:
We knew Game Workshop (GAW) was in for a tougher year after its stellar performance last year, and this morning’s share price drop implies the market has realised this too. Sales for the first quarter up to 7 October are ahead of the same period last year, but profits remain flat, reflecting a lower gross margin - largely a result of the sales mix - and higher operating costs, specifically around new openings and wages. What’s more, group bosses have warned that “there are some uncertainties in the trading periods ahead for the rest of the 2018/19 financial year”.That’s despite a 10 per cent profit upgrade from broker Peel Hunt today.
OTHER COMPANY NEWS:
Highland Gold Mining (HGM) has reaffirmed its target production of 265-275,000 ounces of gold and gold equivalent for 2018. Better than expected grades at its MNV offset lower output from Novo, where grades and recoveries have fallen.
Rank Group (RNK) announced a 4.9 per cent decline in like-for-like sales during the 16 weeks to 14th October, as growth in online could not compensate for a decline in venue revenue. This decline was most pronounced in Grosvenor Casinos, where comparable sales fell 7.2 per cent. The company stated that its “transformation programme” had found some cost savings, which is hoped to mitigate revenue shortfall from casinos.
Rentokil Initial (RTO) has confirmed it traded in line with expectations in the third quarter of the year. Ongoing revenues were up 12 per cent in constant currency, 4.1 per cent of which was organic. Pest control, the largest part of the business, saw organic growth of 5.3 per cent, but as ever the group achieved the bulk of its growth through acquisition, buying 16 businesses in the period. These were primarily in pest control - 14 compared with one in hygiene and one in the Ambius division.
