After yesterday's gains, London shares are taking a breather. Click here for the Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Shares in UDG Healthcare (UDG) took a tumble this morning, despite news of a comfortable beat to full-year EPS expectations. EPS of 46p actually marked growth of 22 per cent (rather than the 18 to 21 per cent guided range), putting to bed months of concern that the group would fail to meet its 2018 forecasts. But reported pre-tax profits still plummeted in the wake of restructuring costs, losses on disposal and impairment charges. But news of a stronger second half, coupled with a step-up in investment this year has analysts thinking UDG is now on the road to recovery. Our recommendation is under review.
Shares in Inland Homes (INL) rose over four per cent after the specialist housebuilding and regeneration specialist delivered an upbeat trading statement at its annual general meeting. Good progress has been made with its master planning application for 1,853 homes on its Cheshunt Lakeside site, while its partnership housing is delivering higher than expected margins. Buy
GB Group’s (GBG) half-year results to September were broadly in line with its October trading update. Revenues rose 9 per cent to £57.3m, while – excluding the impact of the one-off sale of a perpetual licence to a European bank last year – underlying organic growth came in at 11 per cent. A 28 per cent decline in operating profits to £2.7m followed continued investment in the business, higher amortisation costs and share-based payments. Adjusted underlying operating profits were up 8 per cent at £8.8m. Management noted that the company is second-half weighted; it is confident of meeting full-year revenue and profit growth expectations. The shares were up 5 per cent at the time of writing; buy.
Fish farming specialist Benchmark Holdings (BMK) has won a patent infringement case in Thailand. A court in Bangkok has ruled that Marine Tech International did infringe two of Benchmark’s patents, and must now cease using Benchmark’s patented technology. The patents related to the group’s Artemia hatching and enrichment technologies. The case may still be subject to appeal. We remain buyers.
Shares in Cranswick (CWK) fell 5 per cent after the food producer announced flat adjusted pre-tax profits and EPS during the first half, while sales growth was up 1 per cent to £719m. Chief executive Adam Couch this was achieved “despite more uncertain domestic market conditions and softer pricing in key export markets”. Challenges in the period included reduced prices in certain key wholesale and export markets and the relocation of the continental products business to new premises. This hasn’t deterred the group from spending, with £41m spend on its asset base during the period. Our buy tip is under review.
Shares in Pennon (PNN) are up 2 per cent this morning following half-year results coming in ahead of expectations. The outperformance came from increased demand at Southwest Water during the summer months, as well as increased totex efficiencies. As with peers UU. and SVT last week, investors will be more focused on Ofwat’s upcoming response to the water companies’ business plans. Buy.
Shares in VP (VP.) have jumped 6 per cent this morning following a strong set of half-year numbers. The group hit record levels of revenue and profits in the six months to September, with pre-tax profits up 22 per cent to £25.9m in the period. The group’s acquisition of Brandon Hire is integrating well, and the group is seeing healthy demand from the rail, transmission and water infrastructure markets. Buy.
KEY STORIES:
Shares in Thomas Cook (TCG) fell more than 20 per cent in early trading after the travel group warned that full year operating profit would be £58m lower than last year at £250m. Profit growth of £35m form the group’s airline was not enough to offset an £88m decline from the tour operator business. The results also include £28m of legacy and non-recurring charges to underlying operating profit. Management said the “larger-than-anticipated decline in gross margin” was due to the prolonged period of hot weather during the key summer trading period.
In a trading update for the year to October, Blue Prism (PRSM) said strong first-half momentum had continued, particularly in the fourth quarter. The Robotic Process Automation specialist secured 1,359 software deals, up from 609, comprising 528 new customer additions (against 324) , 723 upsells (against 310) and 108 renewals (against 21). Management now expects revenues for FY2018 to be “slightly ahead of expectations”. And net cash also looks set to come in higher than anticipated. But cash losses are expected to be larger than current expectations, because of ongoing investment into driving growth, and higher fourth-quarter sales commissions. The shares were largely unmoved this morning.
Amigo Holdings (AMGO) reported a 40 per cent rise in revenue during the first-half, driven by customer numbers rising more than a third on the prior year. The net loan book was up almost a quarter to £672m, while 4.4 per cent of gross customer loans were more than 30 days overdue up from 2.4 per cent last year. Management declared a maiden interim dividend of 1.87p a share.
AJ Bell has priced the shares for its upcoming offer at between 154p and 166p, which would give the platform provider a market capitalisation of £626 to £675m. The IPO is due to take place in December, with shares being made available via existing shareholders, including founder and chief executive Andy Bell, selling part of their holdings.
Rathbone Brothers (RAT) chief executive Philip Howell will retire from the board by the annual general meeting on 9 May, to be replaced by finance director and managing director of Rathbone Investment Management Paul Stockton.
Last week, KCom (KCOM) said its trading performance for the year ending March 2019 would be weaker than anticipated, with cash profits around 5 per cent lower than market expectations for the current year and “significantly below” market expectations for FY2020. Management also said it had resolved to reduce the proposed dividend for FY2019 from 6p to 3p. KCom’s shares plummeted in reply. Today’s numbers detail performance for the six months to September. Revenues fell 5 per cent to £142m, and pre-tax losses came in at £21m, down from profits of £14.8m, after a previously-disclosed £32.2m impairment charge. Still, the Hull and East Yorkshire business performed well, in line with market expectations.
Greggs (GRG) shares leapt close to 11 per cent in early trading after bosses raised FY2018 profit guidance to “at least £86m” (from roughly £82m previously). The good third quarter performance has seemingly continued into October and through November, with sales up 4.5 per cent on a like-for-like basis during the eight weeks ended 24 November.
Faroe Petroleum (FPM) has rejected DNO’s takeover offer. In a message to investors yesterday, the North Sea oil operator said the long-awaited bid undervalued the company “on every available metric”, came in “substantially below” the average premium on UK takeovers in the sector over the last decade, and failed to reflect the group’s “exciting prospects as an independent business”.
Ingredients business Treatt (TET) reported a 10.8 per cent increase in sale to £112m during the year to September, with operating profit up 11.1 per cent to £13.9m. The group won “significant new business” with global consumer goods companies with a focus on the “key growth drivers of citrus, tea and sugar reduction solutions”. The US expansion is so far on time and on budget, and is expected to be fully operational by Spring 2019. The company sold its subsidiary, Earthoil Plantations, for enterprise value of £11.3m during the year. Shares were up more than 1 per cent in early trading.
OTHER COMPANY NEWS:
In a trading update for the year to October, Idox (IDOX) – a provider of information management services – revealed continuing revenues had fallen 8.6 per cent to £67.2m, while reported revenues fell 14.7 per cent to £73.6m. Continuing adjusted cash profits are expected to come in at £14.4m, down 13.8 per cent. Still, the contracted order book for software and services nearly doubled, and the group expects the decline in costs in its continuing business to continue into FY2019.
Pets at Home (PETS) shares stayed flat this morning, despite news of a 5.3 per cent improvement in half-year like-for-like sales. That’s possibly because underlying gross margins are still suffering, contracting by 160 basis points from 51.9 per cent to 50.3 per cent year-on-year, reflecting management’s strategy to cut prices in order to remain competitive in an increasingly crowded market. During this period alone, bosses estimate price cuts have amounted to a total £4m-worth investment. Couple this with a £29m provision made against “all Pets at Home funding and recognition of bank and lease obligations”, and statutory pre-tax profits plummeted by close to 81 per cent to just £8m.
Gooch & Housego (GHH) trickled down 4 per cent in morning trading on the news that pre-tax profits for the year had fallen 20 per cent. Chief executive officer Mark Webster recognised “some recent gradual softening in demand growth for critical components in microelectronic manufacturing” - better news came in the form of a record order book, up 33 per cent on the previous year. The company also announced the departure of chief financial officer Andy Boteler in the summer of 2019. The recruitment process for Mr Boteler’s successor is now underway.
Shares were flat on the news that Severfield (SFR) half-year pre-tax profits were up 14 per cent on last year’s comparable period. The structural steel group, which has been involved in the design of the retractable roof for Wimbledon’s No. 1 court and Tottenham Hotspur’s stadium, has witnessed a growing order book in its India operating. With the expansion of its India facility now underway, it holds an order book of £124m in the region compared with £106m in June 2018.
Serial disappointment Nostrum Oil & Gas (NOG) is down 13 per cent today, after the company downgraded 2019 production guidance to 30,000 barrels of oil-equivalent per day, owing to ongoing drilling and reservoir issues.
Shares in Intertek (ITRK) were up 1 per cent this morning after management revealed organic revenue growth had been accelerating. Currency effects continued to weigh on the quality assurance group, but at constant rates revenues climbed 4.8 per cent to £2.3bn. The products division delivered the strongest growth in the first half, climbing 5.7 per cent, while resources lagged behind, dropping 0.7 per cent in the period.
