London shares sank again after markets opened this morning as political and economic concerns remain to the fore. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Vodafone (VOD) has decided to buy back bonds worth a total of £184m from bondholders. This follows its announcement of an invitation last week to eligible bondholders to offer to sell up to around £300m of its outstanding £600m zero-coupon equity-linked bonds due in 2020. Vodafone said at the time that this was part of an “opportunistic liability management exercise”. Settlement of Vodafone’s purchase of the bonds is expected to happen on 12 December. Buy.
Shares in Domino’s Pizza Group (DOM) fell 7 per cent in early trading after weekend reports that disgruntled franchisees have threatened to “declare war” on the company is they are not given a greater share of profits. Franchisees want Domino’s to help them out with rising labour costs, business rates, and food price inflation, saying that a disproportionate amount of profits go to the company while franchisees are faced with the growing cost burden. Analysts at Goodbody expect the issues between the company and its franchisees to “remain an overhang” and could pose risks to Domino’s rollout targets. Sell.
Shares in Interserve (IRV) have plummeted 47 per cent after the group announced it is likely to convert its debt into equity, which it would then sell to investors, resulting in a “material dilution” of existing shareholder’s ownership. Shareholders would have to vote to approve the plan, which is expected to be finalised early next year. The question facing investors is whether there will be demand for the shares. Not from us. Sell.
Shares in Just Group (JUST) jumped more than a fifth in early trading after the Prudential Regulation Authority softened its stance towards the capital treatment of equity release mortgages, which the life assurer uses to back its annuity portfolio. Transitional measures for technical provisions for pre-2016 business will be recognised over the remaining transitional period to 31 December 2031, while house price volatility will be set at 13 per cent, towards the lower end of the range consulted on. Buy.
KEY STORIES:
Shares in Photo-Me International (PHTM) fell more than 10 per cent in early trading after the photo booth and laundry company reported a 21 per cent fall in pre-tax profits to £26m during the six months to October, with earnings per share down 16.7 per cent to 5.33p. The results follow on from a profit warning in May stemming from issues in Japan. Management now say that the operations in Japan have recovered “faster than expected” with underlying Asia operating profit up 15 per cent, excluding the cost of restructuring operations in Japan.
OTHER COMPANY NEWS:
Meggitt (MGGT) has signed a $15m (£11.8m) contract with Turkish Technic, a service provider in aircraft maintenance, repair and modification. The five-year deal covers spare components and maintenance activities. Shares were unmoved in morning trading.
Shares in Eco Animal Health (EAH) didn’t react all that well to the group’s interim results, out this morning, even though analysts at Peel Hunt said the numbers “should be taken well” particularly against a difficult market backdrop. It seems investors are more concerned with the recent outbreak in African Swine Flu in China and the threat of potential trade wars than they are with strong sales growth of the company’s antibiotic product Avilosin. Despite a slight margin contractions (a reflection of last year’s currency boost), pre-tax profits also rose by 15 per cent to £6.8m.
Shares in Hollywood Bowl (BOWL) were up 8 per cent in early trading after that company announced a special dividend of 4.33p per share alongside its full-year results. Sales were up 5.8 per cent during the year to £121m with operating profit up 12.2 per cent to £24.9m. Management said the refurbishments made during the year are on track to outperform the 33 per cent return on investment target and that the company is on track to open two new centres each year.
A £68m placing from Genus (GNS) has us scratching our heads, although maybe the African Swine Fever epidemic in China is also proving too much for the animal genetics specialist. Raising funds via the placing of 3.1m new shares will hopefully allow the group to pay down some of its debt - even though it claims to be well within covenant limits. It’s also going to direct some of the money towards its new partnership with Møllevang - even though that deal is over a year old. The truth is, that venture and other investments will start to accelerate the company’s leverage position, so the board is trying to buy itself some financial flexibility ahead of time.
