Shares in London recovered some of their recent losses in morning trading. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Shares in SSP Group (SSPG) fell 7 per cent in early trading after the operator of food concessions in travel locations announced that chief executive Kate Swann would step down from the role in May next year. She will be replaced by Simon Smith, currently chief executive for the UK and Ireland. During the year to September sales at constant currency were up 9.5 per cent at constant currency to £2.56bn, with a 22.7 per cent increase in underlying operating profit to £195m. A £150m special dividend was also announced. Buy.
Ahead of its annual general meeting, management at Finsbury Food Group (FIF) said its free cash flow-funded investment programme has continued to improve operational efficiency despite a difficult environment with “sustained inflationary pressures”. Weaker customer demand over the summer season has resulted in sales being weighted to the second half, with “significant” contract wins heading into the Christmas season. Shares fell more than 2 per cent in early trading. Buy.
Liontrust Asset Management (LIO) gained £723m in net inflows during the first-half, up on the £178m reported the same time the prior year. Together with £847m in market gains, that took funds under management up by £1.6bn to £12bn by the end of September. However, that had fallen back to £11.5bn by 19 November. Adjusted pre-tax profits rose a fifth to £14.5m. Buy.
Auto Trader (AUTO) has revealed its joint venture with Cox Automotive UK has received clearance from the Competition and Markets Authority (CMA). The two companies hope to develop a “comprehensive” online auction service called Dealer Auction. The deal was first revealed in mid-August. We remain sellers.
Marston’s (MARS) reported a 15 per cent increase in underlying revenue to £1.14bn during the year to September, with pre-tax profit up 4 per cent to £104m. On a like-for-like basis, sales were up 0.6 per cent as pubs that focus more on drinks outperformed those that serve food. Brewing volumes improved 47 per cent, reflecting the benefits of the Charles Wells acquisition and the World Cup. Chief executive Ralph Findlay said the outlook for the pub sector is good despite macroeconomic uncertainty. Cash flow improved over the period, helping to reduce leverage. Shares were flat in early trading. Buy.
TalkTalk’s (TALK) revenues declined by 0.6 per cent to £822m over the half-year to September, largely due to the group’s exiting of its MVNO offering. Pre-tax losses narrowed to £4m from £95m a year earlier. The customer-base grew by 104,000 to 4.2m in total. But the main news this morning was, first, TalkTalk’s decision to move its headquarters from London to Salford, which it says will engender a more efficient operating model; and, second, its launch of a new company called FibreNation. FibreNation is expected to roll-out full-fibre broadband to 100,000 homes in the next 12-18 months. Back in February, TalkTalk had agreed heads of term to form a new company with Infracapital to roll out full-fibre, but this is no longer progressing. TalkTalk’s shares were down 6 per cent this morning. Sell.
KEY STORIES:
Babcock (BAB) is down 7 per cent this morning after it announced exceptional charges of £120m relating to disposals and restructuring, confirming rumours that emerged earlier this month. What’s more, the group increased the expected step-down in revenues from the ending of its Magnox nuclear decommissioning contract to £250m, from £100m previously. The group has faced a steady stream of negative news in recent weeks, and after this update we are forced to review our hold recommendation.
Indivior (INDV) shares fell sharply in early trading after news emerged that the group has lost a Federal Appeals Court ruling which might allow for an imminent launch of a cheaper, rival version of Suboxone Film - Indivior’s prescription treatment which is used in patients who are addicted to opiods. Indivior had said it was reviewing the ruling and has confirmed it will file for a rehearing at the Court of Appeals for the Federal Circuit. Indian group Dr Reddy’s is preparing to launch a copycat version of Suboxone - which could damage Indivior’s market share by as much as 80 per cent. For now, guidance remains intact until Dr Reddy’s actually hits the market, although broker Numis suspects contingency plans are being “accelerated” at Indivior to prepare for such an event.
B&Q-owner Kingfisher (KGF) has revealed a less-than-exciting set of third quarter numbers this morning, pushing the stock down another 2 per cent. The shares have lost roughly a fifth of their value over the last 12 months, as DIY markets - especially in France - remain challenging. Like-for-like sales across France fell 3.4 per cent during the third quarter, while like-for-like sales at home fared only slightly better, but still down 0.7 per cent. Unsurprisingly, the Screwfix brand - which benefits from a loyal, trade customer base - registered a 4.1 per cent improvement in underlying sales, whereas B&Q reported a 3 per cent decline. Castorama, the French equivalent of B&Q, posted a whipping 7.3 per cent plunge in like-for-like sales. Chief executive Véronique Laury insisted the wider Kingfisher ONE transformation plan was still making progress, although she admitted that transformation on this scale was “tough”. Ms Laury also revealed that the group is planning to exit Russia, Poland and Spain to make the business more efficient.
Alpha FMC (AFM) grew revenues by more than a third to £39m during the first-half, with the Europe & Asia division enjoying the biggest jump in sales at 41 per cent. The asset management consultancy grew headcount by more than a quarter to 352 and launched a fintech and innovation practice.
HSS Hire (HSS) seems to be moving in the right direction. The equipment hire group’s Q3 trading update contained plenty of reason for optimism, with net debt falling to 3.6 times cash profits, margins expanding and sales improving. The momentum seems to have continued into the fourth quarter, too. However, the group is far from out of the woods.
OTHER COMPANY NEWS:
Sage (SGE) reported 6.8 per cent organic revenue growth to £1.82bn for the year to September, broadly in line with guidance which was revised down earlier this year. The organic operating margin came in at 27.8 per cent, or 27.2 per cent excluding assets held for sale, against guidance of 27.5 per cent. The technology group attributed its improved second-half momentum to a renewed focus on high-quality recurring and subscription revenues. But management said the organic revenue growth rate may reduce in the short-term as Sage “accelerates the pace of transition towards subscription”. And, after a planned £60m investment to fuel the transition to software-as-a-service (SaaS) sales, FY2019 organic operating margins will range between 23-25 per cent. The shares were down 4 per cent this morning.
There were no surprises from United Utilities (UU.) this morning as it posted half year numbers broadly in line with expectations. This is probably just as well, as the water sector is nearing the end of its current regulatory period and investors are focused on what they can expect when the next one starts in 2020. Analyst consensus seems to be that there is no need to fear deep cuts to the dividend payment, but investors are best off holding off for now.
