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News & Tips: Provident Financial, Clinigen, Persimmon & more

Equities are up, but only marginally
January 15, 2019

Shares in London started the day in positive fashion but have since lost momentum as eyes turn towards Westminster and the 'meaningful vote' on Theresa May's Brexit deal this evening. Click here for The Trader Nicole Elliott's latest thoughts on the wider markets. 

IC TIP UPDATES:

Clinigen (CLIN) has released an in-line first half trading update this morning, which shows interim revenues and gross profit both up by a quarter, helped by two recent acquisitions. The unlicensed division is said to have been a particularly strong performer, although a detailed breakdown on divisional performance will likely have to wait until interim results are released in late February. We remain buyers.

Shares in Atalaya Mining (ATYM) are up 6 per cent this morning, after the Spanish copper miner said output from Proyecto Riotinto rose 13 per cent in 2018, above the upper range of forecasts. This year, Atalaya expects copper production to climb by up to 10 per cent, to between 45,000 and 46,500 tonnes, and to as much as 55,000 tonnes in 2020. Investors will have also cheered a drop in fourth quarter cash operating costs to below bottom-rung guidance of $2.15 per pound, though guidance for 2019 has not yet been provided. Buy.

In 2019, Iraqi Kurdistan-focused Genel Energy (GENL) should be producing positive free cash flow even if oil prices drop to $20 per barrel. And should prices average $45 a barrel, then chief executive Murat Özgül expects his company to generate at least $100m free cash flow. Last year, that figure totaled $164m, an increase of 66 per cent on the previous year, and a free cash flow yield of 27 per cent on the year-end share price. Year-end net cash was $37m. Under review.

Frontier Developments (FDEV) expects to report “record company financial results” for the half-year to November 2018, based on the successful launch of ‘Jurassic World Evolution’ last June and the continuing performances of the games ‘Elite Dangerous’ and ‘Planet Coaster’. It expects revenues of around £64m, which would represent a 237 per cent increase year-on-year. Management is “comfortable” with broker revenue projections of £75 - £88m for the full year to May 2019. It expects revenues to sit beyond the mid-point of this range. The shares dipped slightly in morning trading. We’re still positive; buy.

Shares in Provident Financial (PFG) were down almost a fifth in early trading after the sub-prime lender revealed impairments at Vanquis Bank would be modestly higher than expected, with adjusted pre-tax profits for 2018 expected to be at the lower-end of the £151m- £166m range expected by the market. We place our recommendation under review.

Shares in StatPro (SOG) were up by around 8 per cent this morning on the news that it has won a $1.5m, three-year contract with a US asset management service provider for one of its clients to use StatPro’s ‘Revolution’ platform. This is the respective provider’s sixth client to use Revolution. Buy.

KEY STORIES:

A lot have changed since we reported on boohoo.com’s (BOO) interim results last September, particularly the discussion around “fast-fashion” and its detrimental effect on the environment. This mounting backlash against such unsustainable businesses perhaps explains why Boohoo shares failed to find any positive momentum in early trading, despite revealing strong growth during the last four months of 2018 - enough to prompt a full-year earnings upgrade. The group now expects full-year revenue growth to be between 43 per cent and 45 per cent, ahead of previous 38 per cent to 43 per cent guidance. The market is clearly still on edge from last month’s profit warning from close rival Asos (ASC) which said sales and profits for the year would fail to meet expectations after a weak November.

Ashmore (ASHM) gained net inflows of $0.5m during the final three months of last year, which offset a negative market performance of $0.2m and meant assets under management nudged up 0.4 per cent to $76.7m.

Assuming Medco Energi is doubtful of the prospects for Ophir Energy's (OPHR) legacy interests in Equatorial Guinea, what residual value does the potential acquirer see in the rest of the portfolio? The answer, per a trading statement released this morning, is a production base of around 29,700 barrels of oil-equivalent per day (boepd), following the integration of the Santos deal. That's the pro-forma figure for 2018, at least, though guidance for 2019 remains at 25,000 boepd.

After rising output in 2018, Nigeria-focused explorer-producer Eland Oil & Gas (ELA) expects production to climb to between 14,000 and 17,000 barrels of oil per day in 2019, after budgeting for downtime. Capital expenditure will also hit up to $90m, as Eland and its subsidiary Elcrest seek to develop four new wells in Opuama and Gbetiokun.

Persimmon (PSN) expects to deliver full-year results slightly ahead of expectations for the year to December 2018. Legal completions grew by three per cent, while average selling prices were up one per cent at £215,560. Demand remained strong especially as selling prices are at the lower end of the scale. And while input cost inflation remains, the housebuilder has developed its own manufacturing facilities making bricks, roof tiles and frames.

Shares in Spirent Communications (SPT) were up around 10 per cent this morning after the group said “good momentum” continued into its fourth quarter ending December 2018. For its continuing businesses, order intake for the full year reached $470m – up 6 per cent – and revenue grew by 6 per cent to $477m. Spirent expects to report adjusted operating profits of between $75m - $77m, up by around 30 per cent – ahead of market expectations.

OTHER COMPANY NEWS:

Anglo Asian Mining (AAZ) was one of the top-performing shares in 2018, and a trading update this morning shows why. The group, which produces gold, silver and copper from its production contract area in western Azerbaijan, saw a 17 per cent rise in output last year to the upper-end of its forecast range. Notwithstanding dividend payments, that also meant net cash more than doubled in the final quarter to $6.1m.

Platinum miner Lonmin (LMI), and its acquirer Sibanye-Stillwater have agreed to extend the longstop date for their scheme of arrangement to become unconditional. Pending consent from the takeover panel, both parties now have until 30 June to complete the deal, to which both Sibanye-Stillwater and Lonmin are committed to.

Games Workshop (GAW) shares were flat in early trading following the release of half-year numbers from the hobbyist retailer. Reported sales grew by 14 per cent to £125m over the six months ended 2 December 2018 - a record - which helped push operating profits (including royalties) up by by £2.7m to £40.8m. The group logged growth across all channels - retail, trade and online - although retail sales in Australia and New Zealand were an exception to this. Investments in working capital held back cash generation year-on-year, although the interim dividend still rose from 61p to 65p a share.

Shares in Spectris (SXS) were unmoved by the news that group finance director Clive Watson is to retire after 12 years in his role. Mr Watson will be replaced by Derek Harding, who will join the board on 1 March. Mr Harding has most recently served as group finance director at online retailer Shop Direct.

Telit Communications (TCM) expects revenue to be at the top end of previous guidance for the year to December 2018, at around $427m – up 14 per cent. Cloud and connectivity revenues are expected to be up by more than a fifth at $33.5m. The company said it saw a positive “profit in cash” in the second half, with full-year adjusted cash profits expected to be in line with previous guidance of $30-35m. Net debt sat at around $34.5m as at December, up from $30.2m. The group added that TUS, which is purchasing Telit’s automotive segment, published details on 14 January of a placing and subscription to finance the transaction.

Shares in funeral provider Dignity (DTY) found momentary relief this morning following news of a stronger than expected fourth quarter. Market share held up year-on-year, while funeral average income was also higher than anticipated. The group has also been busy cutting costs, so underlying pre-tax profits are now expected to land at £79m - ahead of current market expectations.

The Gym Group (GYM) has said it expects full-year adjusted cash profits to land at £37m - 6 per cent short of brokerage Numis’ £39.2m forecast. That takes EPS forecasts down 12 per cent from 9.2p to 8.1p. Numbers for FY2019 have also been moved down. Gym Group has seen a slower number of new openings, as well as a one-off impact from converting outlets from its acquisition of Lifestyle Fitness.

But the Gym Group isn’t the only faller this morning. Hospital operator Spire Healthcare (SPI) has also cut its profit expectations for the year, after a challenging market will bring cash profits close to £119m-£120m this year, compared to September’s guidance of £120m-£125m and 3 per cent short of Numis’ forecast. Unpredictable NHS revenues are mainly to blame, although analysts also want more detail around the mix of procedures Spire is conducting as well as the impact from the new accounting standard known as IFRS 16.

Knights (KGH), the legal services and professional services group which floated last June, has announced its maiden set of half-year results ending October 2018. Revenues rose 36.6 per cent to £23.9m, with a 10.9 per cent increase in revenue from organic growth. Adjusted pre-tax profits rose by 104 per cent to £4.4m, while reported pre-tax profits – before amortisation, non-underlying costs relating to acquisitions and the IPO, and share-based payment charges. Knights also announced its acquisition of employment specialist Cummins Solicitors today. Cummins saw revenues of £0.78m for the year to December 2018, with adjusted cash profits of £0.18m. Shares in Knights were up by around 5 per cent this morning.