Shares in London are down at the start of the week. Click here for The Trader Nicole Elliott's latest views on the markets.
IC TIP UPDATES:
A poor first quarter update from online fast-fashion e-tailer Asos (ASC) has sent the stock crashing this morning after management warned of a significant slowdown in trading, particularly during the “key month” of November. Revenue growth of just 14 per cent represented sluggish progress in France and Germany, although domestic trading remained robust, with UK sales up 19 per cent. However, a rampant promotional environment weighed on ‘rest of the world’ sales – down 3 per cent overall – forcing management to re-evaluate its expectations for the full-year. For analysts, this meant severe cuts to profit forecasts, with brokerage Numis lowering FY2019 expectations by as much as 50 per cent. While this could be a blip – and we see little point in crystallising a loss by offloading the shares altogether – we’re inclined to move back into neutral as the retail industry absorbs what appears to be a far weaker festive trading period than expected. Downgrade to hold.
Acacia Mining (ACA) has “been in contact with the Serious Fraud Office about the allegations of corrupt activities in Tanzania”, according to the West African gold miner. The statement, rushed out after markets closed on Friday, came in response to a Wall Street Journal article stated the fraud agency was investigating “accusations that employees of the company…bribed Tanzanian government officials and consultants”. Acacia says it is not aware of an investigation. The shares, off 7 per cent this morning, are under review.
The gradual shrinkage of Polymetal International’s (POLY) asset base continues with the $30m sale of the miner’s 100 per cent stake in the Khakanja project. Khakanja, which represents 2 per cent of the group’s total production, is high-cost, largely depleted, and with “limited near-mine exploration upside”. The company also said decommissioning or an “aggressive cost-cutting campaign needed to maintain the asset in operation” would have placed a significant demand on management time. We remain buyers.
Scisys (SSY), the supplier of software to the space, media and broadcast, government, defence and commercial sectors, has won an €11.2m contract with Thales Alenia Space France – the prime contractor to the European Space Agency. The deal is for the “continuation and further enhancement” of four Galileo Ground Mission Segment (GMS) elements. The contract is under a programme funded by the European Union, and it will begin this month – lasting until June 2020. It has already been included in existing market guidance. Shares in Scisys were up 4 per cent this morning. Buy.
Respiratory disease specialist Verona Pharma (VRP) has initiated a second phase trial of its new dry powder inhaler formulation for patients suffering from chronic obstructive pulmonary disease (COPD). The treatment - known only as RPL554 for now - will be tested on roughly 36 patients, with data expected sometime during the first half in 2019. We remain buyers.
Johnson Services Group (JSG) has reconfirmed Peter Egan will take over as chief executive on January 1st. He will replace Chris Sander, who has been chief for the last five years. Mr Egan was appointed chief operating officer on April 1st. Shares are up 1.5 per cent this morning. Buy.
Sky News reported over the weekend that Interserve (IRV) is weighing the possibility of handing RMD Kwikform, its business materials unit, to its lenders. The business is thought to be worth £250-300m. Interserve has been fighting to find a way out from under its more than £600m debt pile, including mooting a debt for equity swap earlier this month. Nothing is confirmed yet, so investors are best waiting until we know for sure what will happen. Sell.
Flush with the proceeds of its sale to BP, BHP Group (BHP) – formerly listed as BHP Billiton (BLT) – has completed a $5.2bn off-market share buy-back, at a 14 per cent discount to the Australian-listed shares’ market price. The mining group has also declared a special dividend of $1.02 per share to all investor on the register as of 11 January, equivalent to another $5.2bn in shareholder returns.
US-focused oil and gas services outfit Hunting (HTG) is a lot more cautious than it was this time last year. “Some market softness has been observed within those businesses focused on the US onshore”, the company informed in, which in turn has “marginally impacted daily sales run-rates”. The group, whose shares have sunk 40 per cent in less than three months, also expects “the current volatile market environment” to impact customers’ short-term budgetary decision making.
SSE (SSE) will no longer be spinning out its household energy supply business to merge with NPower. The energy giant’s management announced this morning it would not be in the interests of stakeholders to proceed, leading to a 1.5 per cent drop in the shares. The division still appears destined to be dropped, SSE is exploring options including a standalone demerger and listing or a sale, among other options. The board has said it does not believe the company would be in a position to meet trading collateral requirements “in a sustainable way”, and would therefore be incapable of listing on the premium segment of the London Stock Exchange. This demerger was an opportunity for SSE to refocus on its high-potential markets.
OTHER COMPANY NEWS:
Energean Oil & Gas (ENOG) has agreed to transfer the infrastructure providing gas from the Karish and Tanin floating production, storage and offloading vessel to the Israeli national gas transmission grid. The agreement, for which Energean will eventually receive $98m, will contribute to the capital-hungry developer’s liquidity in early 2019.
On Asos’ shock profit warning this morning, close rival boohoo.com (BOO) has snuck out a trading update - albeit one hour after market open and, to say the update is brief is an understatement. Despite bosses insisting the group enjoyed a “strong” Black Friday and that the overall trading performance remains robust, the market has taken the stock down 10 per cent as the fierce sell off of European retail stocks continues.