With Washington gridlock, click here to read this morning's Market Outlook from The Trader.
IC TIP UPDATES:
Shares in Sportech (SPO) fell 17 per cent in early trading after the betting company announced that some previously expected sales contracts are unlikely to be secured this year, and so forecast adjusted cash profits, excluding sports betting investments, for 2018 will likely be 5 per cent to 10 per cent lower than the current market expectation of £8.5m. Even with the revised forecast, year on year cash profits are forecast to be between 14 per cent and 20 per cent higher than last year. Chief executive Andrew Gaughan said the company will continue to focus on signing these contracts. Our buy tip is under review.
Fulham Shore (FUL) shares are up 10 per cent this morning after the company announced that turnover and customer numbers were up at both its Franco Manca and The Real Greek chains during the first six months of its financial year. Two new Franco Manca locations have opened this year, with another scheduled to open before Christmas. This will bring the site count of Franco Manca to 43, while The Real Greek operates 16. We have concerns that the pace of site openings is not sustainable. No financials were given in the update. Sell.
Good demand for new houses in the UK regions was offset by subdued trading in the London market for housebuilder Redrow (RDW) Average selling prices for private reservations were up 4.6 per cent in the first 18 weeks of the current financial year at £388,000, while the forward order book was up 11 per cent from a year earlier. In addition chairman Steve Morgan is to retire in March 2019, having returned to the company 10 years ago to help with the group’s recovery. Buy.
Shares in Tyman (TYMN) rose nearly four per cent after the doors and windows components supplier revealed that profits and cash flow will be significantly ahead of the previous year. Trading in the last four months has been boosted by a strong contribution from the acquisition of Ashland, and Zoo Hardware. However, a weaker dollar and significant input cost inflation have dented profits, although recovery of input costs and new product introductions are expected to see strong progress in 2019. Buy.
Motor retailer Lookers (LOOK) said it managed to achieve a “respectable result” in September, despite widespread disruption to new car registrations following the introduction of a new emissions test to all cars sold in the EU. It’s been a volatile year for new car sales all round, with sales at Lookers falling 7 per cent in third quarter - bang in line with the industry average. However, margins and profits on new cars was higher year-on-year, which meant gross profits only fell 5 per cent. Broker Numis called it a period of “strong operational execution” as well as a “demonstration of the flexibility of the business”. We remain buyers.
Care home landlord Target Healthcare REIT (THRL) has bought two well-advanced developments in Sevenoaks and Oxford for £37m with a combined total of 130 beds. In keeping with policy, the homes will have a very high standard of facilities including wet rooms and extensive on-site facilities. Buy.
Budget airline Wizz Air (WIZZ) reported a 20 per cent increase in sales to €1.38bn (£1.2bn) during the first half, with passenger numbers up by a fifth and load factor 0.8 percentage points higher at 93.6 per cent. Cost per available seat kilometre was up 6.4 per cent to €3.33m, while revenue per available seat kilometre was flat at €4.27m. On the back of rising fuel prices, the company is scaling back planned capacity expansion in the second half from 18 per cent to 14 per cent. Still, it was “record profits” during the first half, up 1.2 per cent to €292m. Shares were flat in early trading. Buy.
Over the nine months to September, ITV’s (ITV) external revenues grew 6 per cent to £2.3bn, with total advertising up 2 per cent, led by 43 per cent growth in online revenues. ITV Studios saw 10 per cent growth in revenues to £1.1bn, and for this division the group expects to see “good growth” in revenues over the full year, with profit in line with its expectations. That said, some “softening” is being seen in the fourth quarter for ITV Family net advertising revenues, against an uncertain economic backdrop, meaning total advertising is expected to be “broadly flat” over the full year. This goes some way to explain the shares’ 4 per cent fall this morning. We remain positive; buy.
Dairy Crest (DCG) reported a 2 per cent increase in sales to £223m during the first half with adjusted pre-tax profit up 13 per cent to £22.7m. Cathedral City cheddar and Clover spread, the company’s two biggest brands, delivered sales growth of 7 per cent and 9 per cent respectively. A 71 per cent increase in cash generation to £18.5m helped reduce net debt by 21 per cent to £221m. Shares were up 1 per cent in early trading. Buy.
KEY STORIES:
Shares in Mark and Spencer (MKS) fell 3 per cent on release of interim figures, despite what broker Liberum called “no surprises”. Of course, where M&S is concerned that’s not necessarily a good thing. Adjusted pre-tax profits of £224m actually beat consensus expectations of £208m, but this was largely the result of a timing issue with various cost savings, so full-year guidance is unchanged. Food sales fell by 2.9 per cent on a like-for-like basis - below expectations - while clothing and home fell 1.1 per cent. Online sales, however, fared much better, growing ahead of the wider market.
Shares in Capita (CPI) are up almost 6 per cent this morning after it won a renewal on its revenues and benefits contract with Westminster City Council. The renewed deal will last seven years with the option for a three-year extension, and will be worth £65m if it lasts the full ten years. The group had annual revenues of over £4bn in 2017, making the share price reaction to this deal look outsized, however, with the disposal of ParkingEye completed on Monday, perhaps investors are seeing the announcement as a sign of Capita’s growing momentum. Sell.
Shares in JD Wetherspoon (JDW) fell 10 per cent in early trading after the pub group announced it would increase staff pay, but not look to recoup this rise in costs by increasing prices or other means of mitigation. Chairman Tim Martin said the company now expects a trading outcome that will be below that of last year. During the first quarter sales were up 6.2 per cent, or 5.5 per cent on a like-for-like basis.
Persimmon (PSN) chief executive Jeff Fairburn is to step down by mutual agreement and at the request of the company. The board admitted that the distraction caused by criticism of the bonus agreement was having a negative impact of the housebuilder’s reputation. It also revealed that private sales in the three months to 6 November were up three per cent from a year earlier, while forward sales are ahead by nine per cent. Hold
Shares in G4S (GFS) have plunged 10 per cent this morning after it warned on profits. In a trading update for the three months to September, the group warned profits before interest, tax and amortisation would be the same as in 2017, when it clocked up £496m. Analyst Jefferies said this would likely translate to EPS downgrades of 4-5 per cent, but added the security giant “still struggles to gain momentum” despite five years of turnaround strategy.
Sophos’s (SOPH) shares tumbled more than a third on its half-year results this morning, before retracing slightly to a decline of around 20 per cent. First-half billings to September rose 3 per cent to $353m, or by 2 per cent at constant currencies to $361m. A renewal rate of 118 per cent marked a significant fall from 142 per cent a year previously, though the group noted that cross-sell activity in its end-user business had returned to “more sustainable levels” after elevated growth in the comparative period. Revenues climbed 18 per cent to $350m, and pre-tax profits came in at $26m, up from a $36m loss. The company expects a “modest improvement” in constant currency billings growth in the second half against the first.
OTHER COMPANY NEWS:
Mulberry (MUL) shares are also down in early trading after the release of interim numbers from the luxury leather goods maker. Total revenue fell 8 per cent to £68.3m, with the UK business significantly impacted by the recent collapse of House of Fraser. Poor consumer confidence was also blamed for the 11 per cent collapse in UK retail sales. All of this led to an underlying loss of £3.6m, which included a £2.1m charge on House of Fraser and £2.5m spent on new business launches in Korea. The picture hasn’t improved much in recent weeks either: UK retail sales have fallen 7 per cent on a like-for-like basis over the six weeks ended 3 November.
Versarien (VRS) has signed a ‘memorandum of understanding’ with Tunghsu Optoelectronic, a leading supplier of optoelectronic display materials. The agreement will focus on cooperation over graphene industrialisation. The parties plan to jointly establish a ‘Graphene Industry Fund’ to support graphene industrialisation projects. Alongside a range of public bodies, they will also set up a ‘Graphene Industry Research Institute’. The announcement is the latest in a long line of collaborative arrangements pursued by Versarien in a bid to bolster its graphene production capability.
Consumer foods company Kerry Group (KYGA) reported a 3.5 per cent increase in business volumes during the nine months to September, with a 4.1 per cent increase in taste and nutrition and 1.2 per cent in consumer foods. Chief executive Edward Scanlon said he’s “pleased” with performance so far this year, with volume growth “well ahead of our markets” and underlying margin expansion in line with expectations. The group reiterated its guidance of 7 per cent EPS growth, or 10 per cent at constant currency, by full year. Shares were up more than 1 per cent in early trading.
