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News & Tips: Debenhams, WPP, BT & more

Morning trade in London steadies after sharp falls in global markets overnight
October 25, 2018

IC TIP UPDATES:

Debenhams’ (DEB) full-year results revealed pre-tax losses of £492m against profits of £59m a year earlier. Net debt sat at £321m, in line with previous guidance. That said, the group said it has seen the “first positive signs of results” in its ‘Debenhams Redesigned’ strategy. Today, it announced actions including further cost savings of at least £30m, annualised to around £50m by FY2020; a reduction of capital expenditure to around £70m, around half the level of FY2018; and the closure of up to 50 stores over three to five years, against the 10 stores previously identified. Alongside other activities, these are expected to help release around £350m in cashflow by FY2020 – perhaps going some way to explain the more than 15 per cent rise in Debenhams’ shares this morning. But we remain sceptical. Sell.

A pre-close update from GB Group (GBG) revealed that revenues grew 9 per cent to £57.2m for the half year to September – or 11 per cent on an underlying organic basis, adjusting for a material non-recurring revenue item last year. The company said trading was in line with expectations. Adjusted operating profits of £8.7m – down 16 per cent on the prior year – came after planned additional technology investments and sales and marketing costs, which will have a “disproportionate effect” on first half-profitability compared to the second-half this financial year. These were up 7 per cent on an underlying basis. Management is confident about meeting full-year consensus revenue and profit expectations. But the shares were down by around a tenth this morning. We’re still positive. Buy.

In a third-quarter update to September, StatPro (SOG) said revenues and profits remain in line with expectations for the current year. For the 12 months to September, annualised recurring revenues (ARR) rose 3 per cent to £54.8m. Underlying ARR growth for the flagship Revolution platform (excluding acquired revenue and including conversions from the StatPro Seven platform) came in at 16 per cent. StatPro said its continued focus on fund administrators has engendered a steady quarter-on-quarter improvement in new revenues from current fund administrator partners. Management continues to believe the market is trending towards outsourcing and that StatPro is “uniquely positioned to benefit from this development”. Buy.

Third-quarter numbers from media and events giant Relx (RELX) were characteristically strong. The 4 per cent revenue increase was largely driven by growth in the data and analytics business. Management expects continued momentum in the final quarter. Buy.

WPP’s (WPP) new chief executive has cut guidance for 2018 after revealing that growth had slowed in the third quarter. But considering previous guidance was hardly optimistic and WPP has made no secret of its problems, the 17 per cent share price crash looks like an over reaction. Mark Read has revealed plans to simplify the business and increase the focus on technology. We reiterate our long-term buy call.

BT’s (BT.A) new chief executive is Philip Jansen, current chief executive of Worldpay. The announcement comes after several months of negotiations regarding pay - in leaving Worldpay so soon after its merger with US giant Vantiv, Mr Jansen has had to forfeit a substantial amount of money in unvested share options. That has been reflected in his new salary from BT. Sell.

Shares in RPS (RPS) lost around 30 per cent hit of their value in early trading after the professional services firm warned that Q3 profits would miss expectations, with profit before tax and amortisation (PBTA) down 7.9 per cent year-on-year at constant currencies to £12.8m for the three months to the end of September - below board expectations. The board now expects that fee income for 2018 will be slightly above the prior year at constant currencies (but below market expectations), and PBTA will be slightly below the 2017 outcome. Looking ahead, increased investment and a one-off global brand relaunch are expected to bump up costs through 2019, meaning that PBTA will be "broadly similar" to full-year 2018. Under review.

Lloyds Banking Group (LLOY) reported an 18 per cent increase in statutory after tax profit to £3.7bn, with a 5 per cent improvement in underlying profit, during the nine months to September. Net income came in 2 per cent higher at £13.4bn with net interest margin stable in the quarter at 2.9 per cent. The group has cut operating costs while maintaining “strong” asset quality. Lloyds is on track to deliver its financial targets for 2018 that were announced in August, as well as all of its longer-term guidance. Shares were up 1 per cent in early trading. Buy.

A trading update from Eckoh (ECK) for the half-year to September revealed that trading was in line with market expectations. The group continues to see “excellent momentum” within US secure payments, including its largest-ever secure payments contract win. This previously disclosed two-year, $7.4m deal, sees Eckoh providing payment services to one of the largest companies in the US. In the first half, Eckoh has already exceeded the total contract value of $9.3m for US secure payments that it saw for FY2018 as a whole. As with the US business, in the UK, the total contract value of new contracts exceeded the total won in FY2018. Eckoh’s net cash sat at £3.4m as at September, against £1.7m a year earlier. Buy.

The number of UK companies showing signs of “significant financial distress” in the third quarter of 2018 was 5 per cent higher than the same period a year ago, according to the latest report from mid-market insolvency firm Begbies Traynor (BEG). The number of businesses showing signs of trouble – 469,006 – was slightly down on the figure at the mid-point of 2018, however, which led Begbies to suggest that UK business health “may be showing some signs of stability”. Buy.

Drinks maker C&C Group (CCR) results received a boost thanks to the €6.1m (£5.39m) acquisition of Matthew Clark and Bibendum that completed during the period. Group revenue was up 186 per cent with operating profit up 16 per cent. In the core business sales were up 6.4 per cent to €309m with operating profit up 4 per cent to €52.3m. The company has reached a new distribution agreement in UK and Ireland with Tsingtao, and signed a multi-year sponsorship of Cheltenham Gold Cup by Magners and Bulmers.  Shares were flat in early trading. Buy.

Against a backdrop of weak copper prices and a sceptical industry, shareholders in KAZ Minerals (KAZ) have had a dreadful time this year. Operationally, the miner continues to defy expectations, posting a 7 per cent rise in third quarter copper production to 77.2k tonnes, and a 13 per cent rise in gold output to 45,100 ounces. The latter means full-year output should exceed the 160-175koz guidance range. Shares, up 10 per cent today, remain a buy.

KEY STORIES:

Shares in Evraz (EVR) are 5 per cent to the good this morning, after the Russian coal-steel giant posted a 13 per cent drop in quarter-on-quarter slab cash costs per tonne, and a smaller decline in iron ore product costs. Raw coking coal output also rose by a tenth, though product sales dropped 8 per cent owing to “logistical limitations and maintenance works at railroads in Russia”.

OTHER COMPANY NEWS:

Aveva (AVV) said it continued to perform well over the first half to September, with low double-digit revenue growth at constant currencies. This momentum included the impact of “good sales execution” – a number of contracts were brought forward into the first half – and some benefits from up-front revenue recognition on multiyear rental contracts. Encouragingly, the group said that the integration of the heritage Aveva business and Schneider Electric’s software arm is on track. The shares were up by around 2 per cent at the time of writing.

Almost half a year on from its London IPO, Pan-African fuel retailer and distributor Vivo Energy (VVO) continues to underwhelm the market. A third-quarter report out today reveals signs of volume growth but a 4 per cent year-on-year drop in the “gross cash unit margin” of $72 per thousand litres. The fall is primarily due to lower retail margins in Morocco, though lubricants margins also dropped. Consequently, gross cash profit fell two per cent year on year to $167m.