Heavy selling overnight across US and Asian markets has not continued in London, where the FTSE100 is up a little in mid-morning trading. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
B&M (BME) has surprised the market with interim results this morning. The numbers are in line, but a minimal 0.9 per cent rise in UK like-for-like sales has caught the market off-guard. Adjusted cash profits rose by nearly 14 per cent overall, and by 12 per cent in the UK, thanks to better gross margins in the wake of reduced clearance activity. But while full-year guidance remains intact, the market seems spooked by the idea that by cutting promotions, underlying volumes have slumped, and that total growth in the period was largely the result of store expansion. Our recommendation is under review.
Ideagen’s (IDEA) trading “remained strong” over the first half to October, with revenues and cash profits both anticipated to be significantly ahead year-on-year and in line with management’s expectations - driven by organic sales growth and acquisitions. The company also said that it will henceforth report on total bookings growth and software-as-a-service (SaaS) bookings growth. For the respective period, like-for-like bookings growth rose 34 per cent and SaaS bookings increased by 80 per cent. Meanwhile, thanks to growth in the SaaS business, Ideagen now expects to see 74 per cent of revenues from recurring contracts by the end of 2020 – up from 70 per cent. The shares were up 3 per cent this morning. Buy.
Sportech (SPO) announced that its chief executive Andrew Gaughan will step down from his role at the end of February 2019 to “pursue other interests”. Non-executive chairman Richard McGuire will take over on an interim basis. Shares fell 2 per cent in early trading, thought he group looks like it’s managing the transition well. Buy.
Shares in Taylor Wimpey (TW.) lost ground after the housebuilder said that customer caution is expected to leave volumes next year broadly flat. However, the longer term picture remains brighter, given the continued housing shortage. Outlets were lower than expected at 261 after delays impacted the timing of new openings. Overall, the order book is strong and there is plenty of cash, with next year’s promised dividend yielding 11.3 per cent. Buy
SolGold (SOLG) has promised to update its mineral resources estimate for Alpala before the year is out. Before then, around 20,000m of drilling needs to be completed, though investors will likely be encouraged by the results of several new drilling holes, disclosed today, which the copper-gold miner said showed signs of “extraordinarily high grade” zones, including large intersections of 2.5 per cent copper-equivalent. We remain buyers.
Shares in Melrose Industries (MRO) are nearly a third down on their May peak, as investors remain concerned by signs of global trade rifts. Today, the stock is up, after the company said cash generation and net debt were both trending in line with forecasts. And while revenues in the automotive division remain flat, aerospace and powder metallurgy are up 6 and 9 per cent respectively. Under review.
Vodafone (VOD) has kept its interim dividend “stable” at 4.84ȼ, and currently anticipates a full-year dividend of 15.07ȼ, flat year-on-year. Management will consider growing this over the long-term, once leverage has reduced towards the lower end of its revised target range. The shares climbed 8 per cent this morning in reply. The group also updated full-year guidance – now expecting underlying organic adjusted cash profit growth of around 3 per cent, against a prior range of 1-5 per cent. And, pre-spectrum free-cash-flow has been raised to around €5.4bn, up from €5.2bn. For the half-year to September, revenues fell 5.5 per cent to €21.8bn. Operating losses of €2.1bn were down from profits of €2.0bn - stemming largely from €3.5bn in impairments in Spain, Romania and Vodafone Idea. We remain buyers.
KEY STORIES:
Irish conglomerate DCC (DCC) revealed a 16 per cent rise in half-year operating profits to £142m, with performance boosted by the retail and oil division. Operating cash-flow was double the rate at the 2017 half-year, while revenue from continuing operations rose by 24.7 per cent to £7.4bn. Group operating profit is well ahead of the prior year and trading across each division remains in line with expectations. Shareholders will also welcome news that the interim dividend was increased by 10 per cent to 44.98p per share.
Shares in healthcare group BTG (BTG) jumped on the release of interim results, which showed total revenue growth of 12 per cent and a 35 per cent improvement in adjusted operating profits (at constant currencies). It seems the market is also glad to see the group make a final cash payment to settle its legal dispute with Wellstat Therapeutics as well. Free cash flow fell by nearly two-thirds as a result, but excluding the one-off payment, free cash would have risen 15 per cent.
Shares in FirstGroup (FGP) are up 10 per cent in early trading after the transport company reported a 21.6 per cent increase in revenue to £3.3bn during the first half, including the contribution from the South Western Rail franchise, with adjusted operating profit up 9.2 per cent to £92.4m. On a statutory basis, operating profit fell by nearly a fifth to £46.3m due to restructuring costs after the end of Greyhound bus services in Western Canada. Outlook for the full year is unchanged.
OTHER COMPANY NEWS :
AstraZeneca’s (AZN) strategy to divest what it deems to be ‘non-core’ medicines from its product portfolio continues this morning with the news that it has sold the US rights to Synagis, a respiratory syncytial virus (RSV) medication, to biopharmaceutical group Sobi for an upfront sum on $1.5bn (£1.16bn). Sobi will commercialise Synagis in the US and around 130 AstraZeneca employees will transfer over to the biopharma group as part of the transaction. Sobi will also have the right to a share of US profits and losses related to a potential new medicine, known only as MEDI8897 right now.
Paper and packaging group James Cropper (CRPR) reported mixed half-year results this morning. Its technical fibre products division delivered its best-ever sales performance for the first half with a 7 per cent gain on the equivalent period in 2017. But profit before tax is down to £1.4m from £2.3m over the same timescales. Higher than forecast pulp prices have harmed the paper business, and are expected to contribute a further £3.5m in costs over the financial year compared to last year. Shares held firm during morning trading.
N Brown (BWNG) shares are down after the group revealed it is “disappointed” by a draft decision it has received from HM Revenues and Customs (HMRC) regarding an ongoing VAT dispute. N Brown is arguing that it should be able to recover the VAT paid on its marketing expenses, but the tax authority says it is not clear what marketing costs refer to the company’s financial services division, which would not be exempt from VAT. A final outcome has yet to be fully agreed, but N Brown admits the draft decision - where the judge has sided with HMRC in some aspects of the case and N Brown on others - has unclear financial implications. But for now, the board expects that irrecoverable VAT on marketing costs will increase “by between £6m to £9m per annum on a full-year basis from FY2020”. It’s hoped much of this will be offset by continued cost-cutting elsewhere, and operational “efficiencies”.
Shares were unmoved in morning trading as half-year results from outsourcer Castings (CGS) outlined a fall in profits before tax and persisting issues within its machining operation CNC Speedwell. PBT for the half are down to £5.8m compared to £5.9 over last year’s equivalent period. A time lag in passing on raw material costs and inefficiencies emanating from new production processes at its foundry arm have dragged profits down for the segment to £6.5m, at a rate of 5.7 per cent. As part of the turnaround at CNC, the outsourcer’s management team, which was installed in March, has extended the lifespan of CNC’s recently-acquired plant and machinery items to 15 years from 10 years.
Shares in Grafton (GFTU) rose five per cent after the builders merchant reported a 5.5 per cent rise in revenue for the four months to 31 October. Group revenue for the 10 months grew by 9.3 per cent, with its Netherlands and Irish businesses performing particularly well.
With crude prices down, and final preparations for its early production system under way, investors were already getting twitchy Hurricane Energy (HUR). This morning, shares in the North Sea explorer-producer are off 4 per cent after the group said that its floating production storage and offloading vessel, the Aoka Mizu, is to make an extended stopover at Algeciras in Spain to repair an auxiliary power generation system. No date has been given for eventual sail-away.
Stronger orders, better cash conversion, lower debt and an increased dividend were just four of the highlights in half-year numbers for Oxford Instruments (OXIG), which has shrugged off any near-term concerns about Brexit, or – it would seem – souring trade relations between the US and China. Shares in the technology group are up 4 per cent in early trading.
Half-year performance at Carclo (CAR) came in below the plastic maker’s expectations. Underperformance in its technical plastics division and inefficiencies associated with its LED division dragged profits before tax down to £3.4m over the half, compared to £4.6m over the comparable period. The company’s premium automotive business Wipac delivered some good news over the period, securing two new electric vehicle programmes. Despite its disappointing half-year, management anticipates that full-year performance will sit in line with its own expectations. Shares were up 3.5 per cent in morning trading.
Ahead of its capital markets day BBA Aviation (BBA) set out plans for its private jet business Signature and its Ontic aftermarket services provider. Overall, management now expect Signature to outperform its market by 250 basis points. In Ontic, new licences and the recent acquisition of Firstmark Coprp mean that the division is expected to deliver $100m in cash profits by the end of 2021. Shares were up 6 per cent in early trading.
In its maiden first-half results since floating on Aim in June, Codemasters (CDM) reported a 19.6 per cent fall in revenues to £39.7m - a decline driven by the fact that two video games were released over the six-month period, against three a year earlier. However, the group stands to benefit from two further game launches in the second half, against no new launches in the second half of 2017. And management anticipates full-year results in line with expectations.Meanwhile, the gross margin rose from 83.6 per cent to 88.5 per cent, supported by a continuing shift towards digital revenues. But pre-tax losses of £7.7m reflected a decline from £1.4m in profits a year earlier.
