London's blue chip FTSE100 rose strongly in morning trading, adding more than 1 per cent in response to a recent sell off. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Shares in Domino’s Pizza Group (DOM) fell 6 per cent in early trading after the company revealed a 2 per cent decline in international sales to £26.6m during the 13 weeks to end of December. An improvement in UK and Ireland sales helped to offset this at group level, and so group system sales increased 5.5 per cent to £340m. Chief executive David Wild said the group had experienced “growing pains” in the international business, particularly in Norway where Domino’s has faced “business integration challenges”. Domino’s will hold a capital markets day today, where the structure of the franchise agreement will be on the agenda. In December a group if franchisees threatened to “declare war” on Domino’s if they were not given a greater proportion of profits. Sell.
Shares in Royal Mail Group fell 10 per cent in early trading after the postal services group reported an 8 per cent decline in address letter volumes during the nine months to December, or a 6 per cent decline including the impact of elections. Management blamed the impact of GDPR on the decline, and pointed to a relatively strong comparative period last year. Address letter volume for the full year is now expected to decline between 7 per cent to 8 per cent. Management reaffirmed that operating profit before transformation costs is expected to be between £500m and £530m for the full year, compared to £694m last year. Sell.
Caretech (CTH) has raised £32.6m via a ground rent transaction with funds managed by Alpha Real Capital at a net initial yield of 2.85 per cent. It builds on an agreement dating back to February 2016, the freehold interest in 24 CareTech properties will be transferred to Alpha in exchange for a cash sum, and security of tenure with a 150-year lease term will return to CareTech a virtual freehold interest in each property. The properties are located across England and Scotland, and represent less than 8 per cent of the aggregate number of freehold properties owned by the company. Our recommendation is under review.
Keeping the faith with UDG Healthcare (UDG) has been duly rewarded following a better than expected first quarter update from the medical services group. Having “made a good start to the financial year”, the group says pre-tax profits are currently tracking “well ahead” of the prior year, driven by a combination of good underlying growth and contributions from acquisitions in FY2018. Future deals could be on the cards, while the group expects currency-adjusted EPS for the year to 30 September 2019 to grow between 4 per cent and 6 per cent on last year's 45.9¢. We remain buyers.
An encouraging sign for uranium stockpile vehicle Yellow Cake (YCA) this morning. Aura Energy (AURA), an Aim-listed early-stage miner, has signed a seven-year fixed price agreement to supply Curzon Uranium Trading with 800,000 pounds of uranium from its proposed Tiris project, at an average sales price of $44 per pound, and a further 1.8 million pounds of optional volumes “at fixed and market pricing”. Though Tiris is not expected to begin production until at least 2020, the off-take agreement has been struck at a 52 per cent premium to the current uranium spot price, which is encouraging for Yellow Cake, which we consider a buy.
Food and fuel distributor NWF Group (NWF) reported an 11.7 per cent increase in sales to £331m during the first half, with an 8.3 per cent increase in headline operating profit to £2.6m. The company reported growth in operating profit in the food and feeds divisions, but a slight decline in fuel after a warm summer reduced demand for heating oil. NWF acquired Midland Fuel Oil Supplies after the period end. Current trading is in line with expectations for the full year. Buy.
KEY STORIES:
Hargreaves Lansdown (HL.) reported 0.2 per cent reduction in assets under administration during the latter six months of 2018, following £8.2bn in market losses, which offset £2.5bn in net inflows. However, revenue rose 9 per cent to £237m and pre-tax profits were up 4 per cent to £153m. Shares were down 4 per cent in early trading.
Intermediate Capital (ICP) gained €1.9bn in net inflows during its third quarter, around €0.5bn of which was raised for its Strategic Equity III fund. Assets under management were 5 per cent higher by the end of December, compared with the prior quarter. Meanwhile third party fee earning assets under management were 7 per cent higher at €27.9bn. The shares were up 6 per cent in early trading.
Some worrying signs for diamond miners this morning. Industry leader De Beers, which is majority-owned by Anglo American (AAL), has said its first sales cycle of 2019 came to $505m, some $168m down on the first auction last year. De Beers chief executive Bruce Cleaver said the lower haul reflected “higher than normal sales in the previous cycle and the slow movement of lower value rough diamonds through the pipeline”.
Shares in PZ Cussons (PZC) fell 11 per cent after the consumer goods company reported a 10.4 per cent decline in revenue to £335m during the first half, with operating profit down 20.8 per cent to £29.3m. The interim dividend was maintained at 2.67p. The company reported a good performance in Europe and Asia, but “extremely challenging conditions” in Nigeria. Management is focusing on maintaining market share in Nigeria and minimising downside risk until growth returns to the country.
OTHER COMPANY NEWS:
Any Nostrum Oil & Gas (NOG) investor who thought mechanical completion of the GTU3 gas plant meant imminent cash generation is likely to be disappointed by today’s operational update. Instead, a target for first gas has been set for before June, and “full commissioning of the plant before the end of Q3 2019”. Daily production guidance for 2019 has also been left unchanged at 30,000 barrels of oil equivalent, while investors should expect year-end net debt to come in at $1.01bn. That would be less of a worry had the group used last year’s high prices to hedge forward sales; in the event, it didn’t, and enters a tricky year unhedged.
Idox (IDOX) has extended its existing banking arrangement with the Royal Bank of Scotland (RBS) and Silicon Valley Bank. Its existing banking arrangements, agreed in September 2014, had been extended until 24 February 2019. This new extension runs until 25 February 2020. As at the end of October 2018, Idox had borrowings under the existing arrangement of £25m. As part of the new terms of this extension, is it now subject to additional financial covenants. It will need the lenders’ consent if it wants to propose a dividend.
Following yesterday’s news of a research partnership with Rutgers in the US, Horizon Discovery (HZD) has announced the appointment of a new chief financial officer. Jayesh Pankhania will succeed Richard Vellacott who is stepping down from the role, and will join the board with immediate effect in an interim capacity. The group also released a pre-close trading update, which said it expects to report FY2018 revenues of approximately £58.7m. Investors should also expect to see a significant expansion in gross margins to in excess of 67 per cent from 62 per cent, driven by what the company calls “portfolio optimisation” of both products and services. Cash profits are also expected to beat expectations.
More bad news for vets business CVS (CVSG) this morning, which has warned that cash profits will fall “materially” short of expectations this year. This is largely the fault of a disappointing first half, which saw gross margins contract from 79.5 per cent to 76.2 per cent after a higher proportion of lower margin farm sales during the period. Sales from farm practices now represent 8.9 per cent of group sales compared to 3.2 per cent this time last year. Employment costs are also on the rise as the group remains heavily reliant on locum staff.
Ryanair (RYA) announced that 99 per cent of its cabin crew based in Spain voted in favour of union recognition with SITCPLA and USO. The union is now progressing with a collective labour agreement, which is hoped to be concluded by end of April. Shares were flat in early trading.
Team17 (TM17) expects revenues ahead of expectations and adjusted cash profits at the upper-end of market expectations for the year to December 2018. The developer of video games said its back-catalogue portfolio has continued to perform well. The shares were up 1 per cent in morning trading.
Greencore (GNC) reported a 5.8 per cent increase in revenue on a proforma basis during the first quarter, but fell 5.7 per cent on a reported basis after disposed sites were taken into account. Revenue growth was driven by the food-to-go business. Greencore sold its US business in November last year, and revenue of £172m during the period will be presented as a discontinued operation. Shares were up 1 per cent in early trading.
Next Fifteen Communications (NFC) expects its results for the year ending 31 January 2019 to be in line with management’s expectations. Its net debt is expected to sit at around £5m as at the end of January. The shares were down around 1.5 per cent this morning.
