Shares in London have built upon their bounce yesterday with further gains today built on dovish comments from the US Fed overnight. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Unilever (ULVR) shares stumbled this morning as final results revealed a disappointing fourth quarter. What’s more, challenging market conditions - which prompted the group to miss final period sales expectations - are expected to persist this year. A 2.9 per cent rise in fourth quarter underlying sales fell short of the 3.5 per cent expected by the market. Nonetheless, new chief executive Alan Jope called 2018 a “solid year” for the company, and reiterated the board’s commitment to “accelerating growth”. However, underlying sales growth is now expected be in the lower half of the group’s multi-year 3 to 5 per cent range, which probably explains the shares lack of momentum this morning. Our recommendation is under review.
For such a closely-followed company, Royal Dutch Shell’s (RDSB) fourth quarter results were unusually strong, arriving 8 per cent above market consensus earnings forecasts on the current cost of supplies basis. Of particular note was $22bn of operating cash flow in the final three months of the year. While this was aided by a $9.1bn positive movement in working capital, investors will likely welcome the 15 per cent drop in net debt to $51.4bn, in sight of the group’s gearing target. Under review.
Dairy Crest (DCG) reported revenue growth of 10 per cent during the third quarter, bringing sales growth for the first nine months of its financial year to 6 per cent. All four key brands – being Cathedral City, Clover, Country Life, and Frylight – all delivered strong revenue growth over the third quarter. Cathedral City cheddar saw volume and revenue growth of 10 per cent, driven by new product launches, while the spreads brands continued to gain market share. Shares were up 1 per cent in early trading. Buy.
Sales at Britvic (BVIC) were up 4.5 per cent during the first quarter to £352m, or a 1.5 per cent increase on an organic constant currency basis and excluding the impact of the soft drinks levy. Chief executive Simon Litherland said the “resilience” of the business means that he expects to make further progress in 2019. Shares were flat in early trading. Buy.
Diageo (DGE) reported net sales growth of 5.8 per cent to £6.9bn during the six months to January with operating profit up 11 per cent to £2.4bn. The company generated £1.3bn in free cash flow, and so has decided to increase the current share buyback scheme by £660m to £3bn for the year ending June 2019. The drinks maker expects to deliver mid-single digit organic net sales growth for the year and to expand operating margins in line with previous guidance of 175bps for the three years ending June 2019. Shares were up 4 per cent in early trading. Buy.
The full distribution of 50 per cent of underlying net income means there will be no special dividend from Polymetal International (POLY) when the precious metals miner announces its full-year results in March. But investors can look forward to a $301m drop in net debt to $1.52bn in the fourth quarter, which was powered by a 23 per cent surge in group production. Full-year output came in at 1.56 million ounces of gold equivalent, thanks to the ramp up at Kyzyl, and which meant production exceeded Polymetal’s original guidance for the seventh year in the row. In 2019, all-in sustaining costs are expected to range between $800 and $850 per gold-equivalent ounce, down from close to $875 per ounce last year. Buy.
BT Group (BT.A) reported third-quarter adjusted revenues of £5.98bn – down 1 per cent year-on-year, and adjusted cash profits of £1.88bn, down 3 per cent year-on-year but above consensus. Growth stemmed from the consumer segment, where revenues rose 4 per cent to £2.8bn and adjusted cash profits rose 15 per cent to £0.64bn. But within consumer, the high-end smartphone market remains challenging and BT faces “aggressive broadband price competition”. It will also endure “headwinds” in the next year – with regulation including increases in spectrum licence fees. Such headwinds help to explain the shares’ almost 4 per cent decline this morning, though BT reiterated its overall outlook – expecting cash profits to be “around the top end of our guidance” for FY2018/19. New chief executive Philip Jansen starts tomorrow. Buy.
Microsoft (US:MSFT) reported its second-quarter results last night after market close. Revenues rose 12 per cent to $32.5bn, while operating profits rose 18 per cent to $10.3bn. But Azure, the group’s cloud product, saw revenues rise 76 per cent – the same rate of growth as seen in the first quarter, and significantly slower than the 98 per cent growth seen one year earlier. Recommendation under review.
Morses Club (MCL) has acquired home credit business Eccles Savings and Loans, which has around 3,000 customers and loan balances of £1.4m. The shares were up 3 per cent in early trading. Buy.
SolGold (SOLG) has tabled an offer to buy out Toronto-listed Cornerstone Capital Resources (CA:CGP), which has a 15 per cent stake in SolGold’s Cascabel project in Ecuador. The bid, which would give SolGold full control of the project, would give Cornerstone investors 0.55 of a SolGold share for every one Cornerstone share tendered, which represents a premium of 20 per cent to Cornerstone’s current trading price. Sweetening its pitch, SolGold has suggested Cornerstone investors would avoid “risk of material dilution and significant loss of investment value”, by eliminating future funding obligations for the project. Buy.
Diversified Gas & Oil (DGOC) has told the market trading in the final weeks of 2018 “remained strong” and that investors should expect full-year results to match guidance issued at the beginning of December. That update suggested trading was “materially ahead of current market expectations”. The shares, up 3 per cent this morning, are under review.
Keywords Studios (KWS) expects to report revenues for the year to December 2018 of at least €250m – up from €151m – and adjusted pre-tax profits of around €37.8m, up from €23m. The tax rate, based on Keywords’ measure of pre-tax profits, continued to fall and is expected to be 19 per cent, down from 20.5 per cent. EPS is thus expected to rise 51 per cent to around 47c. Meanwhile, organic sales grew on a like-for-like basis by 10.1 per cent. Excluding VMC, like-for-like sales would have grown 14.9 per cent. Keywords bought eight businesses, and ended December with €0.2m net debt, against €11.1m net cash in 2017. The shares were up by almost a tenth this morning, but have fallen significantly in recent months; recommendation under review.
Shares in Pennon (PNN), Severn Trent (SVT) and United Utilities (UU.) are all up this morning as the regulator judged each of their plans for the upcoming asset management period “fast track”, which will allow them higher returns than peers. The judgement also means the group will benefit from early draft determinations - in April, rather than July. This is good news for all three companies and may go some way to lifting the cloud that has hung over their share prices in recent years. Pennon and Severn Trent remain on a buy, while United Utilities remains a hold.
KEY STORIES:
Followers of the RPC (RPC) takeover saga will be relieved to know that there may yet be a different ending. Apollo Global Management’s 782p bid made earlier this month looked like the end of the story, but US packaging company Berry Global Group has announced that it is considering a possible cash offer for RPC and has requested due diligence details from the company. Shares in RPC rose 4 per cent on the news - shareholders Aviva and Royal London Asset Management expressed displeasure at Apollo’s bid upon its announcement. RPC and Apollo were not immediately available for comment.
3i (III) reported a total return of 13.9 per cent during the first three quarters, with its net asset value rising 11 per cent to 802p a share. The refinancing of Aspen Pumps, together with the distribution from Audley Travel, returned cash of £74m. Meanwhile around 100m in cash proceeds are expected from the sale of OneMed in Janaury.
Renishaw (RSW) shares bounced nearly 4 per cent in morning trading upon the news that the engineering company had delivered 4 per cent revenue growth at constant exchange rates in its first half, compared with H12017. Renishaw experienced revenue growth in every region with the exception of the Far East, with a 1 per cent contraction unsurprising given the demand-led slowdown in China, something Renishaw’s encoder products have not been immune from. Pre-tax profits are down 7 per cent to £61.6m, but it’s worth considering that the company has raised its capital investment for the period, committing a net engineering expenditure of £47.7m for the half compared with £39.1m last year.
Staffline (STAF) has revealed the reason behind the last-minute delay of its full-year results. Concerns were raised about the invoicing and payroll practices of the group’s recruitment division and the allegations are now being investigated. The board has said it is confident in its policies, saying they have been the subject of prior audits, but acknowledged that if a problem were found it could have a material impact on profitability.
OTHER COMPANY NEWS:
Events at prospective potash miner Danakali (DNK) are starting to gather steam, as today’s operating update from the group suggests. In addition to securing a $200m debt finance mandate and term sheet, the miner saw UN sanctions on Eritrea lifted after almost a decade and rapid diplomatic progress on the Horn of Africa, and hosted a delegation from offtake partner Eritrea in the final quarter of 2018. This quarter, Danakali says it is working towards credit approval with the lead arrangers of its finance package, and hopes to finalise contracts to build the mine, which it describes as “execution ready”.
Struggling oil services outfit Gulf Marine Services (GMS) has received a letter from competitor and 13.7 per cent shareholder Seafox International, in which the latter has proposed a resolution to replace chairman Simon Heale with Andrew Knight, currently chairman of the Times Newspapers group. Seafox has also proposed the appointment of two new non-executive directors, in a bid to “give investors a greater voice” in the company’s strategy and direction, a move which Gulf Marine described as “very disappointing”.
YouGov (YOU) expects its half-year trading to 31 January to be ahead of management’s targets. It thus expects its full-year results to be slightly ahead of market expectations. Its performance was largely buoyed by data products and services. The shares were up just over 1 per cent this morning.
Shares in Knights (KGH) were up by more than a tenth this morning on the news that the legal and professional services group has made its fourth acquisition since its IPO. It has exchanged contracts to acquire BrookStreet des Roches LLP, an independent law firm in Oxfordshire. For the year to March 2018, BrookStreet saw revenues of £7.2m and profits distributable to members of £2.6m. Knights expects the acquisition to contribute a cash profit (EBITDA) margin of over 30 per cent once integrated.
Qinetiq (QQ.) issued its third quarter trading update which confirmed that the group’s performance remains in line with management expectations. Shares rose 3 per cent in morning trading upon positive updates on Qinetiq’s activities with the Ministry of Defence, the US Department of Defense and wider markets, with North America providing a particularly fruitful revenue source for the third quarter.
Shares in Consort Medical (CSRT) bounced back this morning following news that the US Food and Drug Administration (FDA) has approved Wixela Hub, a generic copy of GlaxoSmithKline’s (GSK) respiratory drug Advair, which is made by US-listed pharma group Mylan (US:MYL). This is good news for Consort; it manufactures the device used as part of Mylan’s version of the drug. An exact date for a launch of Wixela Hub has yet to be announced, but analysts at Panmure Gordon believe Consort can “breathe again” - barely two months after a shock profit warning - now that “uncertainty from forecasts” has been removed.
Advanced Medical Solutions (AMS) shares also rose in early trading on news of an acquisition. The wound care specialist is spending $25m (£19m) to buy Sealantis, an Israeli developer of an alginate-based tissue adhesive technology platform. Royalties will be due on any products currently in development until December 2027. The acquisition is expected to strengthens the company's product portfolio for internal sealants and fixation devices, and brings with it two advanced surgical sealant products, Seal-G and Seal G MIST.
PPHE Hotel Group (PPH) reported a 6.7 per cent increase in like-for-like revenue during 2018, with reported room revenue up 5.7 per cent year-on-year. Trading improved across all regions, especially those where renovations were recently completed including Park Plaza Victoria Amsterdam and Park Plaza London Waterloo. Revenue per available room improved 5.3 per cent to £97.70 thanks to strong room rates in Germany and the Netherlands. Shares were up 4 per cent in early trading.
Group like-for-like revenue at Rank Group (RNK) fell 2.4 per cent to £366m during the six months to December 2018, with operating profit before exceptional items down 27.3 per cent to £30.3m. The digital business performed well, with comparable sales up 5.1 per cent to £63.9m. But the larger venues business continued to report tough trading, with sales here down 3.9 per cent to £302m. Management said Grosvenor venues were impacted by reduced contribution from major players, a weather impacted first quarter, and challenging consumer backdrop.
