Babcock hit by critical research
But analysts are sceptical
Shares in Babcock (BAB) fell early in the week after Boatman Capital Research released a note criticising the company and its leadership. The note alleged relations had become strained between the outsourcer and the Ministry of Defence, as well as alleging organic growth had been poor in the core business for “at least a decade”. Babcock’s management did not comment, but analysts treated the report with suspicion. Numis said there was “little substance behind the issues raised in the report”, while Liberum pointed to a recently secured five-year Ship Naval Design Partnering contract with the Ministry of Defence as evidence tensions with the MoD were not a cause for concern.
Netflix subscribers up
Despite target price cuts
Netflix surprised the market by adding almost 2m more subscribers than expected in the third quarter. The streaming service added 6.96m subscribers, up from previous expectations of 5m. Analysts had been braced for a disappointing set of results, with Goldman Sachs and Morgan Stanley both trimming expectations in the run-up to the announcement. The group missed expectations in July, prompting a downward spiral in the share price that ran until mid August.
US deficit balloons
“A blunt warning”
The US budget deficit reached $779bn (£593bn) – its highest level in six years – in the fiscal year to 30 September, according to a report from the US Treasury and the Office of Management and Budget (OMB). The figure was a $113bn increase on the previous year, although it was still $70bn less than forecast in the full-year 2019 mid-session review. OMB director Mick Mulvaney described the situation as a “blunt warning to Congress of the dire consequences of irresponsible and unnecessary spending”.
Pearson on track
Underlying picture flat
Pearson (PSON) announced it was “on track” to return to underlying profit growth, reconfirming its operating profit guidance for the year. The share price climbed 6 per cent in early trading, despite the company reporting underlying revenues were flat. Fundamentally, though, Numis was unconvinced about the group’s long-term prospects, citing flat revenues in North America driven by declines in schools and higher education courseware. Lower than predicted finance costs are expected to push EPS up 19p, although this is a one-off.
Medicinal cannabis legal
Following campaign
Patients in the UK can be prescribed medicinal cannabis from 1 November, the Home Office has announced. The policy change came about following campaigns from the parents of Alfie Dingley and Billy Caldwell, two children with severe epilepsy. The new law does not limit the types of conditions that can be considered for treatment with the drug, although the decision to prescribe must be made by a specialist doctor, not a GP. Analysts expect to see an increase in the number of cannabis-based products coming to market in future, with Canaccord expecting demand to grow 80 per cent in 2018.
Risers and fallers (%)
| POLYMETAL INTERNATIONAL | 18.29 |
| LONMIN | 17.06 |
| FRESNILLO | 16.61 |
| INTERSERVE | 14.85 |
| CENTAMIN | 13.21 |
| KELLER | -33.8 |
| CONVATEC GROUP | -30.3 |
| SUPERDRY | -20.14 |
| HAYS | -13.12 |
| MAN GROUP | -12.86 |
Week to 16 October 2018
Merlin falls as Legoland stays flat
New openings offer hope
Flat sales from Legoland led shares in Merlin Entertainment (MERL) to drop almost 7 per cent following the group’s latest update. The division has been a growth driver in recent years, but saw flat like-for-like growth in the year so far. However, the launch of Legoland Japan helped push the division up overall, and sales for the group as a whole were up 4.7 per cent on an organic basis. The group recently opened two new brands – Peppa Pig World of Play in Shanghai and the Bear Grylls Adventure in Birmingham – and management is “pleased” with early feedback.
Sears files for Chapter 11
Chief exec stands down
Sears has filed for bankruptcy protection. The US retailer, started in 1886, has faced losses and store closures for years, but on Monday filed for Chapter 11 bankruptcy protection and announced $300m (£227m) in debtor-in-possession funding. The funding will allow the group to continue operating as it seeks to avoid liquidation. It has announced the closure of 142 stores, in addition to a previously announced disclosure of 46, which is expected to complete by November. The retailer has also announced Eddie Lampert will step down as chief executive but will remain chairman of the board.
