London shares leapt out of the blocks this morning on the hope that global trade tensions could recede. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Another day, another divestment of drug rights by AstraZeneca (AZN) as it continues to offload medicines it deems less important to its future growth. This time, the pharma giant has sold prescription medicine rights to stomach acid drug Nexium in Europe, as well as the global rights (excluding the US and Japan) to another stomach acid pain reliever Vimovo to German phama company Grünenthal. We remain sellers.
In a first for the industry, Royal Dutch Shell (RDSB) has responded to investor pressure by agreeing to link its executives' remuneration to short-term targets for carbon emissions reductions. Chief executive Ben van Beurden told the Financial Times that by setting targets, the Anglo-Dutch group will be “systematically driving down our carbon footprint over time”. Under review.
Diversified Gas & Oil (DGOC) is trading "materially ahead of market expectations", as per an operating update out this morning. However, the group's balance sheet highlights the strain of acquisitions in the past year - net debt of $507m is now 1.8 times' adjusted annualized cash profits. Under review.
Interserve (IRV) has seen its shares continue to plummet this morning, reaching 26p in early trading. Investors have become spooked after Building, a trade publication for the construction industry, reported Rudi Klein, chief executive of trade body the Specialist Engineering Contractors Group, as saying he advised members not to work for Interserve if possible, but if they do to seek assurances from the group’s client to ensure they are paid should IRV collapse. This feeds into concerns about its large debt burden, which it recently warned would be in the range of £625m-£650m for the full year. Sell.
Drax (DRX) has revised the terms of its deal to buy Scottish Power’s portfolio of pumped storage, hydro and gas-fired generation assets. The price will remain £702m, as agreed previously, but the acquisition agreement now includes a risk-sharing mechanism to counteract the risks in the capacity market. The European Commission is investigating the UK’s capacity market, and payments are suspended while it is being carried out. A large proportion of the portfolio’s earnings are from contracted capacity payments, so Drax and Iberdrola have agreed a risk-sharing mechanism worth £36m covering the period from 1st January 2019 to 30th September 2019. Buy.
Shares in Stobart Group (STOB) fell 10 per cent in early trading after the company announced it would cut its fourth quarter to 1.5p, compared to the most recent quarterly dividend of 4.5p. This follows on from a capital review announced at the interim results in October. The board now feels that proceeds from disposals should be used to fund new investment opportunities instead of increasing the dividend. Our buy tip is under review.
Unilever (ULVR) announced that it will buy the health foods drinks portfolio from GlaxoSmithKline (GSK) in India, Bangladesh and 20 other predominantly Asian markets. This includes “iconic brands” like Horlicks and Boost. The €3.3bn (£2.9bn) transaction consists of three elements: an all-equity merger of Hindustan Unilever Ltd with the publicly listed GSK Consumer Healthcare India, the acquisition of an 82 per cent stake in GSK Bangladesh, and the acquisition of certain other commercial operations and assets outside India. Shares in both Unilever and GSK were flat in early trading, likely because the deal was not unexpected. Buy.
KEY STORIES:
Shares in convenience chain McColl’s (MCLS) plummeted another 24 per cent in early trading after the group issued its second profit warning of the year. Although like-for-like sales were flat in the final quarter - an improvement on the prior quarter - underlying sales for the year are down 1.4 per cent. But the collapse of wholesaler Palmer & Harvey is hitting the group hard, so added “transitional challenges” combined with difficult trading conditions have pushed cash profit estimates down to £35m this year. That compares to broker Liberum’s pre-update estimate of £44.5m - a number analysts there have been forced to cut.
Ted Baker (TED) are down sharply this morning after allegations of sexual harassment by the group’s founder Ray Kelvin emerged over the weekend. Famously media-shy Mr Kelvin has been on the receiving end of a petition signed by 2,000 staff members, accusing him of fostering a culture which includes “forced hugging” as well as other inappropriate comments and behaviour. The BBC reports that the board is committed to a “thorough” and independent investigation of the claims.
Bain Capital has dropped out of the running to make an offer for RPC Group (RPC). Having previously made a handful of extensions to its deadline for submissions, the plastics engineering group disclosed that Bain had not asked for an extension of the 3 December deadline. This leaves Apollo Global Management as the sole party in a position to submit an offer, whose deadline has been extended to 5pm on 21 December. Shares were down nearly 4 per cent in morning trading.
Shares in Ceres Power Holdings (CWR) are up more than 5 per cent this morning after the group confirmed it was in discussions with Chinese group Weichai Power. Weichai is already a 10 per cent owner of Ceres, but on Saturday The Times newspaper reported plans to up its stake. Media commentary speculated the groups were about to announce an increased stake of 20 per cent for Weichai and the creation of a manufacturing joint venture. If announced, the deal would signal further confidence in the group’s future to investors, who have been hesitant on the basis of fuel cell technology’s turbulent past. Hold.
There has been some much-needed good news from Babcock (BAB) this morning. The group announced its Naval Ship Management joint venture has won a contract with the Australian Defence Force worth up to AU$1.5bn (£867m) over a potential 15 years. Babcock will make around AU$250m during the first five years of the contract, with the potential for two, five-year extensions. The joint venture will be asset steward of the two largest vessels in the Australian Navy, as well as their 12 associated landing crafts. The contract begins in July next year.
OTHER COMPANY NEWS:
A subsidiary of ECO Animal Health (ECO) has signed an agreement with Agrinnovation and Yissum Research Development Company of the Hebrew University of Jerusalem. The development and licensing deal allows ECO to licence patented research-related technology which could aid the development of an injectable florfenicol product to treat swine bacterial respiratory disease. Florfenicol is an antimicrobial used in veterinary medicine and will complement Aivlosin, ECO’s patented molecule for the treatment of “economically important” diseases in pigs and poultry.
The fair value of Mercia Technologies’ (MERC) direct investment portfolio rose from £64.7m to £77.8m during the half-year to September, after the group invested £9.2m across 11 companies and after its existing portfolio saw a net fair value increase of £2.6m. Three of its direct investment portfolio companies – Oxford genetics, nDreams and Aston EyeTech – won their largest ever multi-million pound contracts to date. Meanwhile, Mercia’s total revenues rose by 8.7 per cent to £5.3m, and pre-tax profits were up 35.5 per cent to £1.9m. The shares were up 3 per cent this morning.
Spirax-Sarco (SPX) has disposed of air humidification business HygroMatik for €59m (£52.3m). The industrial engineering group has sold HygroMatik to air humidification technology company Carel Industries. HygroMatik has been part of the Spirax-Sarco group since 1988, but “due to limited strategic fit has always operated separately from the steam specialties division”, according to Spirax-Sarco. “This low level of integration limits our ability to improve sales growth while maintaining HygroMatik's excellent profitability,” the company added. Shares rose 4 per cent in morning trading.
Enquest (ENQ) has completed the $300m acquisition of BP's Magnus field, two months after the deal was first announced.
