News & Tips: easyJet, Cairn Energy, Sirius Minerals & more

IC TIP UPDATES:

Shares in easyJet (EZJ) were up 5 per cent in early trading after the airline reported a 13.7 per cent increase in total revenue during the first quarter to £1.3bn, with passenger numbers up 15.1 per cent to 21.6m and a 18.2 per cent increase in capacity to 24.1m seats. Revenue per available seat fell 4.2 per cent due to the dilutive impact from first-time flying from Berlin Tegel and one-off benefits in 2018. Management now expect revenue per available seat to decrease by mid to high single digits, compared to previous guidance of low to mid-single digits, due to changes in IFRS reporting standards and Easter shifting to the second half. Both will reverse in the second half. Buy.

Confident of the merits of its claim, Cairn Energy (CNE) expects a final decision on its international arbitration against India tax authorities “in the near term”, as per a trading update out this morning. The FTSE 350 oil and gas group also expects 2019 daily output to rise to between 19,000 and 22,000 barrels of oil-equivalent (kboepd), up from 17.5kboepd last year, and reports that its major project developments are on track. Under review.

Sirius Minerals (SXX) is out with a operational update this morning, and all eyes will be on progress with the prospective polyhalite miner’s $3bn (£2.4bn) debt financing. The most important development appears to be a revision to credit risk allocation among the various lenders about to sign up to the project. Sirius is now proposing its first tranche of debt will be “an uncovered debt capital markets tranche”, followed by a commercial bank facility, and then “the IPA (Infrastructure & Projects Authority) guaranteed bond tranche”, which has been designed to reduce any risk to taxpayers. Although broker Liberum flagged mention of the project and the IPA financing in last week’s Prime Ministers’ Questions as a positive, no further clarity was provided on the commercial terms of a governmental loan, or the additional financing costs a restructure of stage two financing is likely to create. The update was light on details regarding efforts to match “additional capital requirements”. Buy.

Flush with cash flow from its production in Iraqi Kurdistan, Genel Energy (GENL) has agreed to acquire a 30 per cent stake in two of Chevron’s development fields, Sarta and Qara Dagh. In exchange for funding 50 per cent of field costs – likely around $60m until the end of 2020 –  the London-listed group will acquire a 30 per cent equity stake in the Sarta licence; meanwhile, 40 per cent of the Qara Dagh licence is being acquired through a carry arrangement. Under review.

Close Brothers (CBG) reported 3.1 per cent in the loan book during the five months to the end of December last year, driven by the commercial division and premium finance. Management said impairments remained low and the net interest margin broadly stable.  Asset Management continued to achieve net inflows, although these were more than offset by negative market movements, resulting in a 3 per cent decline in managed assets to £10bn. Buy.

Mining royalty outfit Anglo Pacific Group (APF) said its portfolio income hit a record in 2018, powered by the a very strong fourth quarter of revenue from its Kestrel tenement in Australia, and a 180 per cent increase in the royalty from Brazilian vanadium mine Maracás Menchen. And despite £38m of acquisitions and £13.1m of dividend payments in the period, the balance sheet looks stable and all borrowings are expected to be repaid by next month. Under review.

Shares in Learning Technologies (LTG) were up around 2 per cent at the time of writing, on the news that adjusted operating profit (EBIT) is expected to be significantly ahead of expectations for the year ending December 2018, at not less than £26.5m – up from £14m a year previously. This is largely thanks to improved margins, and operational synergies from the acquisition of talent management platform PeopleFluent last May. The company expects to report revenues of around £94m, up from £52.1m, with recurring revenues rising to around 68 per cent from 39 per cent. Net debt is also “significantly” better than management’s expectations, at £11.5m. Buy.

Shares in dotDigital (DOTD) were down 5 per cent at the time of writing, following the company’s half-year trading update to December 2018. Adjusted cash profits (EBITDA) were in line with market expectations, thanks to the core business outperforming – though this was “tempered” by a shortfall in revenues for Comapi, the cloud communications platform which dotDigital acquired in November 2017. Comapi is a lower-margin business and the shortfall was largely driven by challenging retail market conditions. Still, revenues rose 33 per cent to £24.9m, with organic revenues up by 15 per cent to £20.1m. Average revenue per user rose by 16 per cent to £876 per month. And the cash balance as at December was £16.6m, up from £10.5m. Buy.

FDM (FDM) expects its full-year performance to 31 December 2018 to be in line with its expectations. Revenues were £245m, up 5 per cent year-on-year, while Mountie revenues were £239m – up 15 per cent on a reported basis, and 17 per cent at constant currencies. The company ended the year with 3,747 Mounties placed on client sites, up 18 per cent from 2017. It said its balance sheet “remains strong” with significant cash and no debt. The shares have fallen in recent months, but were up by around 1 per cent this morning. We remain positive. Buy.

Time Out (TMO) has completed the sale of its stake in Flyt to Just East (JE). It has received £9.6m in proceeds for its entire stake – representing a £4.5m profit on disposal, or an 88 per cent increase over the previously reported investment holding. Time Out invested in Flyt in July 2015. Since then, it says that Flyt has scaled up its operations, grown its revenues and grown to over 3,000 quick service and branded restaurants. Just Eat initially made a minority investment in Flyt in 2016. Time Out will use the proceeds to invest in the global roll-out of Time Out Market, with new markets due to open in North America this year. The shares were up 2 per cent this morning. Buy.

For the half-year to October 2018, Ideagen’s (IDEA) revenues rose 22 per cent to £21m. Underlying organic revenues were up 8 per cent, which management sees as a strong performance, given Ideagen’s shift towards a software-as-a-service model – something it says is currently ahead of schedule. Recurring revenues rose 30 per cent to £14m, now constituting 67 per cent of total sales. By the end of 2020, Ideagen expects to generate 74 per cent of revenues from recurring contracts. After acquisition and restructuring costs, and higher amortisation and depreciation charges and share-based payment charges, the company swung to pre-tax losses of £0.64m from profits of £0.75m. The shares have fallen in recent months, but we’re still positive. Buy.

KEY STORIES:

As expected, IG Group (IGG) reported a 6 per cent decline in net trading revenue during the six months to November, pushing earning per share down 16 per cent. New clients for the over-the-counter leveraged business were down also lower than the prior year at 14,626 from 18,027. Management continues to expect revenue for 2019 to be lower than 2018.  

Despite the successful disposal of its US onshore portfolio, the first half of BHP Group’s (BHP) fiscal year has been up and down. Though the commodities giant re-iterated output guidance for each of its major commodities (bar copper, which has increased slightly), a mixture of maintenance and production outages meant unit costs were “tracking above full year guidance at the December 2018 half-year”. Those outages have also had a $600m negative impact on the ongoing productivity drive.

Jupiter Fund Management’s (JUP) chief executive Maarten Slendebroek is to step down from his role earlier than expected on 1 March. Former Janus Henderson co-chief executive Andrew Formica has been appointed as his replacement. Mr Slendebroek will also cease to be a director of the group but will remain with the business until 1 May to ensure an orderly handover.

IntegraFin (IHP) reported net inflows of £884m during the final quarter of last year, lower than the £1.1bn the same time the prior year. However, £2.3bn in negative market movements meant funds under direction dropped 4.4 per cent over the quarter to £31.7bn.

Non-Standard Finance (NSF) expects trading for 2018 to be in line with market expectations, with branch-based lender Everyday Loans reporting a 25 per cent increase in the net loan book and a 62 per cent rise in that of its guarantor lending business. The sub-prime lender increased its committed debt facilities to £330m in September 2018, giving it £57.2m in headroom in its debt facilities.

Shares in Zoo Digital (ZOO) plunged by nearly a half in morning trading, after the group said it expects revenues for the second half ending March to be around 10 per cent below full-year expectations. It also expects adjusted cash profits (EBITDA) for the full year to be “significantly below expectations”. The second half has been hit by the loss of a material localisation project which had been scheduled to begin and end during the period – due to reasons wholly unrelated to Zoo. Meanwhile, revenues associated with processing legacy DVD and Blu-ray titles will be far lower than expected, because of a faster-than-expected overall market decline here. The cash balance is expected to be broadly in line with FY2018.

Dixons Carphone (DC.) shares failed to find much momentum this morning, as mobile sales across the UK and Ireland held back overall growth during the festive period. Despite a 2 per cent improvement in electrical sales, and good international growth, overall group sales only nudged up 1 per cent. But bosses called it a “good performance” and thanks to the stability of gross margins, still expect full-year profits of around £300m.

Kier Group (KIE) has announced the ousting of chief executive Haydn Mursell. It is understood that the board took the decision to replace Mr Mursell. The decision was influenced by an underwhelming December rights issue, with just 38 per cent of shares taken up by investors. Chairman Phillip Cox will act as executive chairman until a new chief executive is appointed - a search is underway, but no timeline has been given for the announcement of a replacement. Shares were static in response to Mr Mursell’s departure, along with a trading update that indicated that the group remains on track to meet its full year expectations. Kier’s month-end net debt stands at circa £370m compared to a H2 FY18 position of £410m, “reflecting the impact of the recent rights issue”, according to a statement from the company.

OTHER COMPANY NEWS:

Midwich (MIDW) has released a positive, if somewhat undetailed trading update for the full-year to December. The audiovisual distributor grew across all of its divisions, while all of its 2017 acquisitions have performed in line with or ahead of the board’s expectations. As a result, management expects adjusted profits to come in ahead of analyst forecasts.  

An independently-evaluated preliminary reserve estimate for Amerisur Resources’ (AMER) Indico-1X discovery has been marked at 22.7 million barrels of proven and probable reserves, more than double the Colombian explorer’s pre-drilling estimates. The group’s share price, up slightly this morning, has almost doubled in the past two months.

Analyst Peel Hunt this morning released a wide-ranging note on the support services sector, prompting a few of the shares mentioned to move. Shares in Equiniti (EQN) were up 3 per cent after the analyst upgraded its recommendation to buy, from add, albeit while reducing the target price to 242p from 293p. Aggreko (AGK), meanwhile, fell 5 per cent after being named the “least preferred” share in the sector. Peel Hunt said that while it rated AGK’s management team highly, it continued to face a number of cyclical and structural challenges that were likely to delay the achievement of its 2020 return on capital employed objective.

Pets at Home (PETS) enjoyed a bumper Christmas, enough to send the shares soaring in early trading. As part of a third quarter trading update, the pet retailer revealed retail like-for-like revenue growth of 4.7 per cent, while its vet group grew revenues by more than 9 per cent on the same basis. Pets has been busy slashing prices in a competitive market, but bosses claim most of that work is now complete. As such, management has maintained full-year guidance, and still expects pre-tax profits to land somewhere between £80m-£85m.

A trading update from Ricardo (RCDO) indicated that management’s expectations have been met for its first half, ahead of an interim results announcement on 28 February. Difficult market conditions for US and UK automobiles have not prevented Ricardo from generating a total order intake in excess of £200m. Shares were unmoved on the news that the group’s order book for the period stood at £300m, with revenues coming in “slightly ahead of the prior period”.

Meggitt (MGGT) has announced the appointment to the board of Caroline Silver, who will take up her role as non-executive director on 25 April 2019. Ms Silver will also join the company’s Audit, Remuneration and Nominations Committees. She is currently a senior managing director at investment bank Moelis & Company and non-executive chairman of consumer products group, PZ Cussons.

Just one day after revealing that its chief executive was leaving, online takeaway service Just Eat (JE.) has announced a £22m acquisition of Flyt, a software platform that helps restaurant groups and restaurant suppliers “to integrate their point of sale systems with third party services”. According to Just Eat -which previously owned an 8 per cent minority stake in the target company - Flyt’s technology platform “removes the need for manual restaurant processes, reduces driver wait times in restaurants and eliminates human error in order processing”. Once the all-cash deal completes, Flyt will continue to operate as a standalone entity.

IG Design Group (IGR) reported a 36 per cent increase in revenue during the first nine months of its financial year, or up 9 per cent on a like-for-like basis. Reported revenue and profits increased across all regions, and non-UK revenue now account for more than 70 per cent of group sales. The company expects to deliver 20 per cent growth in EPS by the full year. Shares were up 1 per cent in early trading.