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News & Tips: Vodafone, Burberry, Metro Bank & more

London equities are in the red
January 23, 2019

Shares in London's blue chip FTSE100 sold off at the open with mid caps also lagging behind. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

Vodafone (VOD) and Telefonica UK (O2) have agreed non-binding heads of terms to extend their existing network sharing partnership in the UK, to include 5G – allowing them to deploy 5G faster, to more customers, less expensively. They intend to devolve additional activities to ‘CTIL’, their 50:50 joint venture which owns and manages the parties’ telephone masts, potentially opening up the tower infrastructure to third-party tenants. Vodafone and O2 will consider a “potential monetisation” of CTIL once the new arrangements are finalised. Shares in Vodafone were up just under 1 per cent this morning. Buy.

Burberry (BRBY) says there is growing excitement around new creative chief Riccardo Tisci’s debut collection, which is due to hit stores in February. The luxury fashion house has been busy building what it calls “brand heat” since it appointed Mr Tisci to replace long-time designer Christopher Bailey last year. The group’s wholesale customers are also said to have responded well to Mr Tisci’s brand refresh. Sales were largely flat in the third quarter at actual exchange rates, although same-store sales did nudge up 1 per cent. Sales in Mainland China performed particularly well, up by mid single digits. We remain buyers.

Metro Bank’s (MTRO) shares plunged more than a quarter in early trading after the challenger bank flagged weaker-than-expected profits for 2018, following a “softer” fourth quarter. Underlying pre-tax profits are anticipated to come in at £50m, behind analyst expectations of £59m. What’s more the lender’s risk-weighted assets increased to £8.9bn - around £900m higher than analyst estimates - partly driven by net loan growth but also an adjustment in the risk weighting of certain commercial loans secured on property and certain specialist buy-to-let loans to large portfolio landlords. Sell.

Brewin Dolphin (BRW) reported a 7.7 per cent decline in funds under management, after suffering £3.8bn in negative market movements. However, that was against a 7.9 per cent decline in the MSCI Private Investor Balanced Index. Net inflows were £0.4bn, with the discretionary business gaining £0.5bn in net new business. Buy.

Despite record annual silver production, 2018 was a “challenging year” for Fresnillo (FRES) according to chief executive Octavio Alvídrez, as the precious metals battles with lower than expected ore grades at the Fresnillo and Saucito mines. These factors, together with operational issues, meant fourth quarter silver output actually fell year-on-year, despite the contribution of the expanded San Julián operation. As a result, 2019 guidance has been set at between 58 and 61 million ounces (moz) of silver, a drop of up to 6 per cent on last year’s haul of 61.8moz. More reassuringly, gold output is expected to be flat. Buy.

Fellow South American miner Antofagasta (ANTO) also hit production records in 2018, though the operational outlook for the current year is looking decidedly more positive. The copper miner produced 220,000 tonnes in the last three months of the year, pushing output to 725,300 tonnes, which was at the top end of corporate guidance. At the same time, final quarter net cash costs declined to their lowest level since 2012, and helped to mitigate cost inflation and declining grades for the year. Output in 2019 is now expected to climb by up to 9 per cent, with net cash costs flat on last year. Buy.

Hotel Chocolat (HOTC) shares bounced up in early trading thanks to a good Christmas sales performance. Total revenues rose 15 per cent over the 13 weeks ended 30 December 2018, with retail, digital and wholesale channels all reporting growth. The group opened 15 new stores during the period - which contributed around 5 per cent of the overall top-line growth - bringing the UK total to 117. Since the end of the period, trading has been in line with management’s expectations. We remain buyers.

For the year to December 2018, StatPro (SOG) expects revenues of around £54.7m, up 11 per cent. It expects the adjusted cash profit margin to exceed 16 per cent, up from 13.9 per cent, with adjusted cash profits coming in at around £9m, up 32 per cent. Chief executive Justin Wheatley notes that improving margins remains a focus this year. Meanwhile, annualised recurring revenues (ARR) rose 4 per cent to £55.7m, and the group’s ARR renewal rate rose from 89 per cent to 92 per cent. Net debt increased slightly from £20.2m to £24.6m, reflecting acquisitions and investments. The shares have declined in recent months, but we remain positive. Buy.

Caretech (CTH) has a new interim finance director - Gareth Dufton. Mr Dufton has been involved with the company since 2000, and from 2007 has worked directly with the group in a variety of roles, including acting as associate finance director between 2009 and 2016. Since 2016 Mr Dufton has also served as chief financial officer of Sheikh Holdings, a private family office founded by Farouq and Haroon Sheikh - Caretch’s chairman and chief executive respectively. We remain buyers.

Growing its e-commerce business might be denting retail margins at clothing chain Joules (JOUL), but this shouldn’t distract from what was otherwise a solid set of half-year numbers. Over the 26 weeks ended 25 November 2018, revenues rose by nearly 18 per cent to £113m, helping to lift underlying pre-tax profits by 14.7 per cent to £10.7m. The group also ended the period with £4.3m-worth of net cash, which helped support a 7 per cent hike in the interim dividend. Watchers of the stock will also know that this good momentum continued over the Christmas trading period, with sales up nearly 12 per cent over the seven weeks ended 6 January 2019. Buy.

Shares in Young & Co.’s Brewery (YNGA) were up more than 3 per cent in early trading after the company announced the acquisition of Redcomb Pubs Limited, which owns and operates 15 pubs in prime locations, for £34 million on a cash-free and debt-free basis. The transaction increased Young’s managed estate to 200 pubs, or 270 once the 70 tenanted Ram Pub Company locations are considered. Planned investment in the new pubs, which together generate cash profits of about £4m, could have a short-term impact on profitability of these locations and have a positive impact thereafter. Buy.

No surprises at WH Smith (SMWH) this morning. Over the 20 weeks ended 19 January 2019, sales at the group’s thriving travel business rose by 16 per cent, with like-for-like sales up 3 per cent. As for the high street business, sales here fell 2 per cent on an underlying basis and by 1 per cent on a total basis. The group says its on-track to cut £9m-worth of costs from this side of the business this year, with 20 new travel units planned for the UK. We remain buyers.

Agricultural products supplier Wynnstay Group (WYNN) announced an 18.4 per cent increase in revenue to £463m from continuing operations during the year to October, of which £28.8m came from recent acquisitions. Pre-tax profits were up nearly a quarter to £9.53m. Chief executive Gareth Davies said the results reflected the continued recovery in farmer spending with the improvement in farmgate price, along with the “unusually long dry summer”, which boosted feed, fertiliser and seed sales in the second half of the year. Shares were up more than 1 per cent in early trading. Buy.

KEY STORIES:

After months of competing bids and extended deadlines for suitors to make an offer for RPC (RPC), the plastic products design and engineering company announced that Apollo Global Management has finally submitted an offer. The private equity group has offered shareholders 782 pence in cash per share, while shareholders will also receive RPC’s most recently agreed interim dividend of 8.1 pence per share, to be paid on 25 January 2019. Shares rose nearly five per cent in morning trading. RPC directors are recommending unanimously that shareholders accept the offer; Eminence Capital, a significant shareholder in the company, has already stated its intention to accept.

Shares in Sanne (SNN) were down 13 per cent in early trading after the asset management consultancy announced chief executive Dean Godwin would be retiring, to be replaced by previous chief commercial officer Martin Schnaier with immediate effect. The group also announced it expects results for 2018 to be in line with expectations, with alternatives and corporate businesses more than offsetting continued headwinds impacting the South African hedge platform and the private client business.

AJ Bell (AJB) reported a 4 per cent decline in assets under administration during the final three months of 2018, after £2.7bn in negative market movements. However, it gained £1.2bn in underlying platform inflows, up on £1bn the same time the prior year, and recorded a 4 per cent rise in customer numbers.  

Shares in G4S (GFS) have fallen 5 per cent this morning, after the group announced in a late-afternoon announcement yesterday it will settle a class action lawsuit with employees in California for $100-130m (£77-100m). The suit relates to claims for meal and rest breaks from roughly 13,500 employees over the period from 2001-2010, and is the third such suit the group has settled. The first two suits were of similar nature and size, but were settled for a total of £7.6m. The settlement will go through in the second half of 2019.

Last night Patisserie Holdings (CAKE) announced that it was going into administration after it was unable to renew its bank facilities, meaning it does not have sufficient funding to meet its liabilities. This is a result of “significant fraud” where £28m in cash turned out to be misrepresenting £9.8m in net debt with “thousands of false entries” in its ledgers. Shares have been suspended at 429.5p since October.

OTHER COMPANY NEWS:

Petropavlovsk (POG) believes it can increase gold production by between 7 and 18 per cent this year, depending on the ability of its newly-commissioned POX plant to successfully ramp up. The Russia-based precious metals group is also in the process of de-risking an onerous guarantee it provided to IRC, which – if completed – the group thinks should pave the way “to generate steady cash flows” in 2019.

Shares in Computacenter (CCC) were up 4 per cent at the time of writing, after the company said it has materially outperformed the expectations it held at the start of 2018, with record revenues and adjusted profitability for the 12 months to December. One year ago, it had anticipated “a year of stable profitability”. Adjusted pre-tax profits for 2018 are expected to be “marginally ahead” of management’s expectations, as upgraded within its July trading update and maintained at the half-year and third-quarter reporting stages. The group anticipates “financial progress” in 2019, though it notes that 2018’s first-half performance constitutes a tough comparison. Acquisitions made during the second half will also offer a full-year contribution.

Sales at JD Wetherspoon (JDW) were up 8.3 per cent during the second quarter, or 7.2 per cent on a like-for-like basis. Over the financial year to date, like-for-like sales increased by 6.3 per cent and total sales by 7.2 per cent. The pub group has agreed a new £875m five-year revolving credit facility (previous £820m) on “attractive financial terms”, maturing in January 2024. Shares fell 1 per cent in early trading.