Shares in London were down marginally in early trading as political uncertainty reigns on both sides of the pond. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Provident Financial (PFG) has appointed former Just Group (JUST) chief finance officer Simon Thomas as its new finance head. Andrew Fisher, the current Finance Director will step down from the Provident Financial board when Mr Thomas takes up his appointment, but will remain employed by the company for three months to handover. Buy.
William Hill (WMH) expects the combination of increased customer due diligence and the increase in Remote Gaming Duty to 21 per cent to reduce profit by £20m in 2018 and a further £25m in 2019. Ahead of its capital market day it set out the initiatives to drive digital growth in the UK an internationally, increase scale in the US, and remodel the UK retail business. During the 43 weeks to 23rd October online net revenue was up 4 per cent, while retail fell 4 per cent. The group’s US business in Nevada has progressed well, with net sales up 36 per cent in local currency. Shares fell more than 3 per cent in early trading, but we think William Hill is managing transitions well. Buy.
Budget airline easyJet (EZJ) carried 14 per cent more passengers during October at 8.58m, though load factor fell 2 percentage points to 90.5 per cent. Over the rolling 12 months passenger numbers are up 10.6 per cent to 89.5m with load factor down 0.1 percentage points to 92.7 per cent. These figures include the airport slots from Berlin Tegel airport. Shares were flat in early trading. Buy.
Castleton Technology’s (CTP) revenues rose 20 per cent to £12.9m over the half-year to September, while pre-tax profits climbed 170 per cent to £0.5m. Professional services revenues grew significantly (by 44 per cent), driving a change in revenue mix – with recurring revenues of £7m constituting 55 per cent of the overall top line, against £6.8m and 63 per cent a year earlier. The group expects further recurring revenue growth, thanks to its entrance into a growing number of multi-year contracts. Management plans to introduce a progressive dividend policy for the full year. The shares were up 2 per cent in morning trading; buy.
Elecosoft (ELCO) has agreed to acquire Germany-based Active Online for an initial consideration of €3.45m and a potential bonus payment of up to €0.4m, subject to certain performance requirements. Active Online comprises a range of software applications for the visualisation of soft furnishings. For the year to December 2017, it saw 17 per cent revenue growth to €2.5m, while pre-tax profits came in at €0.12m. The acquisition is expected to enhance earnings within its first full financial year. Elecosoft also announced the placing of 3.2m shares at 70p each to raise gross proceeds of £2.25m, which should facilitate the integration of Active Online with ESIGN, Elecosoft’s international online visualisation business. Buy.
Wizz Air (WIZZ) has been granted a UK route licence from the UK Secretary of State for Transport, which secures its ability to fly in and out of the UK no matter the outcome of Brexit. The eastern European airline increased capacity my 12.5 per cent to 3.26m seats during October, with passenger numbers up 14.8 per cent to 3.06m giving load factor of 94 per cent. Over the rolling 12 months capacity has increased by 19.6 per cent to 36m seats, with a 20.5 per cent increase in passengers to 33.2m with 92.1 per cent load factor. Shares were up 2 per cent in early trading. Buy.
First Derivatives’ (FDP) revenues climbed 20 per cent to £106m over the half-year to August, while gross profits were up 21 per cent to £43.9m. Total research and development costs rose 14 per cent to £4.9m, while sales and marketing costs rose 32 per cent to £15.8m. Still, First Derivatives’ pre-tax profits increased by 20 per cent to £7.6m. The second half has started with “strong momentum” across the group. And management now expects to deliver revenues and cash profits “slightly ahead” of consensus forecasts for the year ending February 2019 – perhaps supporting the shares’ 7 per cent ascent this morning. But the shares had fallen significantly in early October; this came after bearish research at the start of the month. Recommendation under review.
Greene King (GNK) chief executive Rooney Anand will step down in April next year after 14 years with the company. The company stated that the search for a successor is well under way and that they expect to make an announcement early in the new year. Shares were up 1 per cent in early trading. Buy.
KEY STORIES:
Sales at supermarket chain Morrisons (MRW) are slowing. After a significantly good run in the shares, this morning’s third quarter retail sales growth rate of 1.3 per cent came as a slight disappointment against consensus estimates, which had pencilled in a growth rate closer to 1.8 per cent - the same rate recorded in the first quarter. Management explained the disappointment as a natural easing following an unusually strong second quarter, which was boosted by warm weather and the World Cup. Broker Shore Capital believes the figures reflect consumers’ desire to ease back on spending ahead of the festive trading period, leading analysts there to maintain full-year forecasts for now.
Shares in Purplebricks (PURP) rose five per cent after the online hybrid estate agent delivered 20 per cent revenue growth in the six months to 31 October 2018. A year after its launch in the US there are now 140 local real estate experts operating in seven states, although most of these remain at the early stage of development. Turnover for the full year is expected to be between £165m and £185m. Hold
ASA International (ASAI) expects net profits for 2018 to be between $1.5m and $2m lower than previously expected due to higher than anticipated depreciation of Asian currencies against the US dollar. However, client numbers grew almost a quarter during the third quarter, compared with the same time the prior year, while the outstanding loan portfolio was up more than a fifth to $321m.
Shares in IWG (IWG) have jumped close to 8 per cent this morning, after a positive third-quarter trading update. The group had been struggling in recent months, after talks with the four separate private equity companies courting it for acquisition ended, followed in short order by a disappointing set of half-year numbers. Things have picked up in the three months to September, however, with revenue growth in the mature business accelerating, and continued growth in the number of “Spaces” co-working locations - up 30 in the third quarter for a total of 75 in the year-to-date.
Connect Group (CNCT) traded in line with expectations in the year to August. Unfortunately, however, expectations were low. Adjusted pre-tax profits were down 41 per cent to £28.4m in the year and the company will not be paying a final dividend. Trading was weaker in both Tuffnells and Smiths News, leading chairman Gary Kennedy to note the year had “exposed weaknesses in our strategy and its execution”. The group is now formulating a recovery and growth strategy under newly appointed chief executive Jos Opdeweegh, which it will unveil in January 2019.
Randgold Resources’ (RRS) shares, well up since the announcement of the merger with Barrick Gold, continue to push ahead today, after a strong third quarter update revealed a 16 per cent drop in total cash costs per ounce, a 25 per cent rise in profits, and an 8 per cent increase in third quarter cash to $654m. Each of Randgold’s mines put in strong performances, with operations at Tongon back to normal after industrial action.
Sentiment towards FTSE 250 engineering firm Weir Group (WEIR) has definitively soured over the summer, though a strong third quarter trading update has pushed the shares up 6 per cent this morning. Orders were up 16 per cent from continuing operations (or 40 per cent once the ESCO acquisition is included), thanks to robust demand from mining clients – though North American oil and gas trading has slowed.
Associated British Foods (ABF) reported a 3 per cent increase in sales at constant currency to £15.6bn during the year to September, with adjusted pre-tax profit up 5 per cent to £1.37bn. But on a statutory basis, pre-tax profit fell 19 per cent to £1.28bn because the year before had benefited from a one-off profit from sale of businesses. Chief executive George Weston said profits from Primark, grocery, agriculture and ingredients helped to offset losses in the sugar business. Shares were up 3 per cent in early trading.
OTHER COMPANY NEWS:
AstraZeneca (AZN) has announced plans to sell the rights to three respiratory drugs to Swiss pharmaceutical group Covis Pharma, in a deal worth $350m (£268m). Alvesco and Omnaris were only bought three years ago as part of the pharma giant’s $575m acquisition of Japanese group Takeda’s respiratory portfolio. They will now be sold on - along with nasal medicine Zetonna - as the group continues to divest non-core medicines, and re-invest the proceeds into new drug development. While the $350m will be due to AstraZeneca on the closing of the deal, Covis could pay an additional $21m over the next four years, depending on how well the drugs sell. The sold rights cover ex-US markets and US royalties.
In a pre-close trading update, DS Smith (DS) has confirmed that it expects to complete its acquisition of European packaging business Europac by the end of the calendar year. It is hoped that the €1.9bn (£1.66bn) deal, announced in June, will offer the packaging group added opportunity for growth in the Iberian region. Ahead of its half-year ending on 31 October, the group anticipates its return on sales and adjusted operating profit in its results to be “materially ahead” of last year’s comparable period. Previously rising input costs are on the way down, while the group’s FMCG division has experienced solid volume growth.
The greater the interest Serica Energy (SQZ) acquires in the Bruce and Keith fields in the North Sea, the more the market cheers. Shares in the group are up today, after Serica signed a further sale and purchase agreement to buy Marubeni’s 3.8 and 8.3 per cent interests in Bruce and Keith respectively, in exchange for taking on the decommissioning liabilities in both fields.
