After a strong run in recent days, London's main indices are more mixed this morning. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Shares in Interserve (IRV) have jumped 10 per cent this morning after the group announced details of its deleveraging plan. Under the plan, debt will reduce from around £625m-£650m, as at the December year end, to £280m. But this will require a £480m equity issuance which will severely dilute existing shareholders' interests. The remaining debt will be secured solely against RMD Kwikform, the equipment services division, while the rest of the group will have a pro-forma net cash position of £60m. Alongside this, the largest shareholder, Coltrane Asset Management, has requisitioned a general meeting to propose firing the entire board of directors, with the exception of chief executive Debbie White. Hold.
A second day of regulatory good news for AstraZeneca (AZN). The US Food and Drug Administration (FDA) has granted ‘Orphan Drug Designation’ to Astra’s treatment for hypereosinophilic syndrome (HES). HES is a group of rare - and potentially fatal - disorders which is characterised by high numbers of white blood cells in blood and tissues, which can cause damage to organs. Results from a second phase trial of the drug in the US are due later in 2019. Orphan drug designation recognises potential treatments for very rare diseases, which affect 200,000 or less patients in the US. We remain sellers.
Redrow (RDW) announced an additional cash return to its shareholders at its first half following a 12 per cent boost to its legal completions and nine per cent rise in revenues. Its net cash position rose to £101m from £63m in June 2018. The cash return will be 30p per share through a ‘B share scheme’, amounting to £111m, in addition to an interim dividend of 10 per share. The figures come on the back of recent concerns at the business over Brexit, which “just took hold of everything” over November and December according to John Tutte, who is set to take over from the retiring Steve Morgan as chairman. This meant that “we probably didn’t generate the leads” desired, he added, leaving the housing developer “about 6 per cent down” on its first five weeks of the year. But despite housing transactions sitting pretty flat over the year, particularly outside London, Redrow has continued to grow, and we retain our call. Buy at 595p.
Just Group (JUST) reported a 34 per cent decline in new business sales during the fourth quarter, with defined benefit derisking revenue down by almost half to £233m, with management citing an increasingly selective attitude to writing new business. Guaranteed income for life - individual annuity - sales were also down a quarter over the final three months of 2018 and by 4 per cent over the year, reflecting tighter rules around the capital treatment of equity release mortgages, used to back annuity liabilities. Buy.
Shares in Frontier Developments (FDEV) were marked up this morning on the news that the launch of ‘Jurassic World Evolution’, and the ongoing performance of ‘Elite Dangerous’ and ‘Planet Coaster’, drove a record half-year performance to November 2018. Revenues rose by 241 per cent to £64.7m. And while the gross margin fell from 69 per cent to 61 per cent - reflecting royalty payments and lower-margin physical disc sales - operating profits still soared from £3m to £17.2m. Buy.
KEY STORIES:
Shares in CYBG (CYBG) were up 13 per cent in early trading after the challenger bank beat consensus expectations on loan growth and costs during the first quarter, as well as improving net interest margin guidance to the upper-end of its guided range of between 160 and 170 basis points. Medium-term cost synergies - resulting from its merger with Virgin Money - are also now expected to be £150m by the end of 2021, up from £120m.
A bad start to the financial year for Victrex (VCT), whose first quarter revenues are down 18 per cent on this time last year, at £64.1m. Group sales volume plummeted 22 per cent against the comparable period - the group saw “no volumes supplies” for its large consumer electronics contract. Jakob Sigurdsson, Chief Executive of Victrex, said: "Although Q1 is always the seasonally weakest quarter for Victrex, this quarter has been slightly weaker than anticipated, driven principally by the slowdown in Automotive, the associated impact on Value Added Resellers, and some de-stocking. The polymer specialist has lowered its first half forecasts, but retains its H2 expectations as orders continue to build. Shares were down by as much as 5 per cent in early morning trading.
On the same day as it released preliminary results to the market, a fire broke out at Ocado’s (OCDO) fulfilment centre in Andover. This morning, a company spokesperson said the fire had not been as well contained as previously thought. During the night, part of the roof collapsed, while there is “substantial damage to the majority of the building and its contents”. No staff or member of the public have been injured, but it remains to be seen when the centre will return to operation. The site accounts for roughly 10 per cent of the group’s current capacity, and sales growth will be curtailed as a result, or at least until the company can up capacity elsewhere.
S&U (SUS) reported a 4 per cent increase in net motor receivables for the year to January, even after tightening underwriting standards in an increasingly competitive market place. However, monthly collections exceeded £12m for the first time in January. Slower customer growth at Advantage also meant group borrowing reduced from £118m to £108m during the period.
OTHER COMPANY NEWS:
Electrocomponents (ECM) delivered weak like-for-like revenue growth figures for the four months to 31 January 2019. In a trading update this morning, the electronics distributor said that like-for-like revenue growth came to 6 per cent for the period. On the face of it, it is difficult to compare with the company’s trading update this time last year, which listed underlying revenue growth, instead of growth on a like-for-like basis. which is down from 14 per cent this time last year. But like-for-like revenue growth is in single digits in every region. There was zero revenue growth in emerging markets, and just 2 per cent in the Asia Pacific region, compared with 22 per cent underlying growth in the first four months to 31 January 2019.
Ahead of its annual general meeting, management at Stride Gaming (STR) said the company’s performance had been in line with expectations so far this financial year despite “continued challenging trading conditions”. The gaming company has continued to focus on cutting costs while still encouraging new customers to use its bingo and casino websites. The group reiterated its commitment to pay out half of its net earnings as dividends, and announced an 8p special dividend relating to the earn-out of the QSB Gaming transaction.
