Equity markets are flat as positive momentum has run out of steam. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Today’s pre-close trading statement from Superdry (SDRY) might just boost co-founder Julian Dunkerton’s attempt to work his way back onto the board. Managers blamed a sluggish first half performance on unusually hot weather this summer, and claim they have yet to see normal weather patterns which usually support trading. True, the company’s main product category - jackets and outerwear - tends to gather more momentum in the second half, but a first half growth rate of 6.4 per cent in global brand revenue represents a shocking slowdown from the 25.2 per cent reported this time last year. Until a solid decision is made over the management structure of this company, not to mention the future strategy, we remain sellers.
Results today from Burberry (BRBY) have met expectations, hailing an “exceptional” response to the new collections designed by new creative chief Riccardo Tisci. The wholesale division has responded particularly well to the new vision, although specific initiatives via social media and ‘influencers’ mean the consumer perception is shifting also. Ignoring the shift of the beauty division from a wholesale to license arrangement, revenues rose 4 per cent at constant currencies, helping - along with various cost saving measures - to drive an 8 per cent rise in adjusted operating profit. For now, management is FY2019 guidance, which includes cumulative cost savings of £100m. Buy.
Tate & Lyle (TATE) reported a 2 per cent increase in adjusted sales to £1.38bn during the first half, with adjusted pre-tax profit also up 2 per cent to £166m. Chief executive Nick Hampton said the improvements in pre-tax profits and cash flow were achieved despite cost inflation from materials and transport in North America, and lower profits in Commodities. He added that the three company objectives to focus on customers, accelerate portfolio development, and simplify the business are “progressing well”. Shares were up 1 per cent in early trading. Buy.
An August trading update from Tracsis (TRCS) had already guided towards revenues, cash profits and adjusted profits for the year to July being ahead of market expectations. Today’s results revealed that revenues rose 16 per cent to £39.8m, buoyed by 14 per cent organic growth. Meanwhile, statutory pre-tax profits rose 80 per cent to £8.3m, though this stemmed from an exceptional £2.7m credit. This credit relates to contingent consideration regarding the Ontrac acquisition, which did not meet specific target milestones – though Tracsis notes Ontrac still performed very well. Excluding this credit, pre-tax profits still rose 22 per cent to £5.6m. The company remained debt-free at the year-end. Buy.
OneSavingsBank (OSB) reported 16 per cent loan book growth during the first nine months of the year, with a rise of around 20 per cent expected for the full year. New loans of £730m were written during the third quarter alone. Guidance for a net interest margin of 3 per cent and cost-to-income ratio of around 30 per cent remains unchanged. Shares were up arund 4 per cent in early trading. Buy.
Shares in Arrow Global (ARW) jumped 13 per cent in early trading after the distressed debt purchasing specialist its underwriting performance to 104 per cent of the original forecast during the first nine months of the year. Core collections were up almost a fifth, with adjusted cash profits also rising 29 per cent to £202m. Management also issued a new target to double asset management and servicing income, growing to 50 per cent of total income over the next five years. Buy.
Randgold Resources (RRS) has received shareholder backing for its proposed tie-up with Barrick Gold, after investors holding 95 per cent of the FTSE 100 giant’s stock backed a scheme of arrangement. That had been expected, less so an important development in the gold groups’ combined ownership of Acacia Mining (ACA). In an interview with the Times, Randgold chief executive Mark Bristow said that "one of the options that Barrick has is to roll up Acacia into Barrick itself, in other words issue Barrick's shares to the Acacia minorities, take it back within the company and consolidate it." If founded, such a move would clearly be negative to our sell call for Acacia, though Randgold was today forced to state that there have been no “specific discussions with Barrick or Acacia with regards to the making of a possible offer for Acacia”. Under review.
Shares in Renewi (RWI) dropped around 11 per cent in early trading after the waste management group reported a 7 per cent decline in pre-tax profits during the first-half. The hazardous waste division was the worst offender, with revenue and underlying operating profits falling 8 per cent and 62 per cent, respectively. We place our buy recommendation under review.
Auto Trader (AUTO) boosted its interim dividend on a rise in first half profits, helped by higher product prices and advertising. The FTSE 250 constituent said pre-tax profits grew to £115m from £105m a year ago, with full page advert views increasing 0.8 per cent to £247m per month. Under review
Halfords’ (HFD) revenues grew 1.9 per cent to £600m for the half-year to 28 September, with like-for-like sales up 2.5 per cent. The group attributed this to good sales of e-bikes, dash cams and motoring services. Pre-tax profits declined by a considerable 23 per cent to £28.2m – reflecting an 8 per cent rise in operating costs, most of which entailed one-off items, phasing impacts and planned investments. Management reconfirmed its full-year outlook, expecting pre-tax profits to be largely unchanged year-on-year, though guidance is partly subject to Christmas trading. It expects short-term conditions for discretionary spend to remain challenging. But the interim dividend was lifted 3 per cent to 6.18p, and free-cash-flow remained strong. The shares were down slightly this morning; we’re still buyers.
KEY STORIES:
A 7 per cent jump in Hikma’s (HIK) share price this morning is the result of a new deal with Vectura (VEC) - shares there rose 10 per cent in early trading and we remain buyers - and a lift to annual revenue and profit guidance. Ahead of today’s investor event, the generic drug business said good progress across branded, injectables and its generic divisions meant revenue and profit growth had exceeded expectations this year, while a new agreement with Vectura aims to develop and commercialise their dry product inhaler platform, including generic versions of GSK's five Ellipta inhaler products.
For the third quarter to September, Inmarsat’s (ISAT) revenues rose 3.7 per cent to $369m, while cash profits rose 6.8 per cent to $207m. Over nine months, group revenues rose 4.5 per cent to $1.09bn, with cash profits up 1.1 per cent to $580m. That said, maritime suffered a decline – with revenues down 5.7 per cent to $135m over three months, and down 1.4 per cent to $417m over nine months – something likely to have contributed to the shares’ 7 per cent mark-down in morning trading. Inmarsat gave updated 2018 guidance, noting revenues and cash profits for the full year (excluding Ligado) are expected to be “at least in line” with current market consensus (revenues: $1.3bn; cash profits: $0.61m).
Worries about the London office market seemed even less relevant after London office landlord Derwent London (DLN) delivered a strong third quarter update. Total lettings for the year to date have almost doubled from the £11.8m announced as recently as August, and new lettings are being achieved at a six per cent premium to June rental values. There is a further 623,000 sq ft under construction, nearly three-quarters of which is already pre-let. And while net debt rose to £892m, this is just 16.3 per cent on a loan-to-value basis.
Has AstraZeneca (AZN) really turned a corner with these third quarter numbers? A return to sales growth following strong demand for the group’s cancer products suggest just that. Total revenues of $5.3bn (£4.04bn) represented a 1.2 per cent beat to consensus expectations, after product sales of $5.3bn beat consensus estimates by 8 per cent. Albeit down nearly a third year-on-year, operating profits of $1.4bn also exceeded expectations, thanks to higher operating income and lower R&D costs. However, sales and general administrative costs are likely to increase, while R&D costs fall at a slightly faster rate than expected for the remainder of the year.
It’s hardly surprising to see these interim results from Sainsbury’s (SBRY) fail to move the dial on the group’s share price. The supermarket chain is still embroiled in its bid to merge with fellow chain Asda, which is currently tied up in a second phase investigation with the Competition and Markets Authority (CMA). In the meantime, Sainsbury’s is still reaping the rewards from its last big acquisition - Argos. Group sales rose 3.5 per cent during the first half to £16.9bn, although like-for-like progress was less dramatic at just 0.6 per cent. Statutory profits fell as a result of ongoing integration work, but underlying profits actually grew by a fifth. Cost savings came in at more than £120m, while retail free cash flow grew by £183m to £619m as a result of strong cash generation and the timing of specific capital injections.
OTHER COMPANY NEWS:
The world’s largest uranium producer, Kazatomprom, has secured investors for a proposed listing of global depositary receipts in London, the Financial Times reports. Uranium prices have turned a corner in recent months, following a series of mine closures.
Clipper Logistics (CLG) announced that it has signed a new three-year contract with Sportsdirect.com Retail Limited to provide logistics services to Sports Direct from one of the two Clipper sites in Peterborough. Shares were up 6 per cent in early trading.
Urban Logistics REIT (SHED) has bought the Bedford hub formerly owned by 3M for £17m. The site covers 20.1 acres, and strong interest has already been received from a number of potential occupiers. As part of the deal, it is selling 12.1 acres of the site to a local developer for £5m to build new logistics facilities over which Urban will have first refusal. Trading at a 7.1 per cent discount to net asset value, the shares look undervalued.
A third quarter update from car distributor and retailer Inchcape (INCH) showed a 2 per cent improvement in revenues, with retail revenues only registering a 1 per cent decline despite widespread turbulence in auto markets. An acquisition in Central America provided a timely boost to growth, while Inchcape’s diversified business model and geographic spread likely proved a natural hedge against individual market volatility. Despite noted margin pressure in the retail business, chief executive Stefan Bomhard said the group still expected to report a “reislient” profit performance this year.
Shares in Wincanton (WIN) were up 6 per cent in early trading after the supply chain support company reported a 40.4 per cent increase in statutory operating profit to £33m during the first half, or a 5.1 per cent increase on an underlying basis to £27m. The company won new contracts with EDF Energy, Roper Rhodes and Hapag-Lloyd, and renewed agreements with Ibstock, Halfords, Loaf.com and AvantiGas. Chief executive Adrian Colman attributed the strong profit growth to good cost control.
Half year results from National Grid (NG) revealed underlying operating profit of £1,285bn, down 6 per cent on the first half of 2017 and lower than consensus expectations. The utility company pointed to lower US profits resulting from storm costs, most of which will be recoverable, US tax reforms, and the expected return of UK gas transmission allowances for its Avonmouth project. More positive news came with a 6 per cent boost to underlying earnings per share, fuelled by a share consolidation and buyback programme over 2017/18 as National Grid sought to return proceeds to shareholders from the disposal of its UK gas distribution business. Shares ticked up 1.4 per cent in early trading.
A third quarter update from TI Fluid Systems (TIFS) lowered expectations for the second half of 2018. Global light vehicle production volume growth is forecast to be lower in the second half versus the first, and the third quarter saw lower global production of light vehicles. Chinese consumers are losing interest in their cars, it seems, while the manufacturer of fluid storage systems has been dogged by the same new EU emissions standards that have caused backlogs across the automobile supply chain.
BAE Systems (BA) is unfazed by the uncertainty enveloping the Middle East. In a trading update, the business said that it was positive on the prospects of its recent Qatar Typhoon and Hawk programme, and envisages more opportunities for Typhoon with partner nations. Nor does BAE appear to be concerned by the National Audit Office’s comments this week that the Ministry of Defence’s plan for procuring new equipment is “unaffordable”. BAE has placed faith in the Autumn Budget’s commitment to defence spending, which awarded the MoD an extra £1bn for this year. It also expects short term Brexit impacts to its business to be limited, given the relative paucity of UK-EU trading conducted by its businesses.
Specialist engineering company IMI (IMI) has observed rising market volatility in the third quarter, but expects its full year 2018 results to fall in line with market expectations. Revenues for the third quarter were 7 per cent above the same period last year, while management forecasts organic revenue and profits for the second half of 2018 to next to the comparable period in 2017. Rising order intakes in critical engineering and aftermarket divisions have offset a fall in orders received by its new construction business.
