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News & Tips: Lloyds, Glencore, Sainsbury & more

Equities are flat
February 20, 2019

Continuing their mixed week, London shares were flat in mid-morning trading. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES:

Lloyds (LLOY) may have missed consensus adjusted pre-tax profit expectations marginally for 2018, but the shares rose by around 2 per cent in early trading after management unveiled a £1.75bn share buyback and a 5 per cent rise in the annual dividend. That followed 210 basis points of capital generation, which exceeded expectations. The bad news was that the lender took a further £600m in remediation costs, along with £750m for historic mis-selling of payment protection insurance. Buy for income.

In 2018, Hochschild Mining (HOC) can rightly claim to have exceeded operational guidance, though financial results are less impressive. On a post-exceptional items basis, profits from continuing operations fell 88 per cent to $6.7m, while basic earnings per share dropped 38 per cent to 5 cents. Chief among the rise in overheads was a higher tax bill, and a doubling of exploration expenses, which has at least had the effect of extending Hochschild’s resource base. The balance sheet also looks in better shape following the group’s financial restructuring at the beginning of the year, and net debt is now down 25 per cent to $77.4m. Buy.

Castleton Technology (CTP) has acquired Castleton India – previously known as CarbonNV InfoLogic India Private Limited – for £350,000, comprising 200,331 ordinary shares of 2p and £154,678 in cash. Castleton India has offices in Bangalore and Vadodara, India, and has provided additional development capability to Castleton via a service agreement during the current financial year. Buy.

IMImobile (IMO) has appointed Bruce Bales as its North America chief executive. Mr Bales will report to Jay Patel, group chief executive. He has over 20 years of executive experience with public communications technology companies including AT&T, Glenayre Technologies and CLX Communications. He will work alongside Tim Miller, president of IMImobile North America, to help with IMImobile’s expansion across the US and Canada. Shares in IMImobile were up 2 per cent at the time of writing. Buy.

KEY STORIES:

Full-year results for Glencore (GLEN) were overshadowed today by the commodity giant’s decision to cap its output of thermal and coking coal, scotching any expansion of the business. Though the group has no plans to follow Rio Tinto and exit coal altogether, it said that in order “to deliver a strong investment case to our shareholders”, it would prioritise capital investment to “grow production of commodities essential to the energy and mobility transition”. The announcement prompted a 3 per cent rise in the shares this morning, even if 2018 results highlight the fact that coal makes a greater contribution to group cash profits than any other commodity.

The Competition and Markets Authority (CMA) has found “extensive competition concerns” as part of its in-depth investigation of the proposed merger between Sainsbury’s (SBRY) and Asda. The regulator reckons the proposed deal could lead to a “worse experience for in-store and online shoppers” as a result of “higher prices, a poorer shopping experience, and reductions in the range and quality of products offered.” The CMA says there are ways to address these concerns, including “blocking the deal or requiring the merging companies to sell off a significant number of stores and other assets” in an attempt “to recreate the competitive rivalry lost through the merger”. Sainsbury’s shares fell sharply in early trading.

Shares in McBride (MCB) took a dive after the group - which is scheduled to release half-year results tomorrow - revealed full-year pre-tax profits would likely fall short of the prior year by 10 to 15 per cent. That’s down to rising costs, particularly when it comes to raw material prices, which haven’t improved to the extent bosses had hoped for at the start of January. Distribution costs have also risen beyond previous estimates due to “market rates and efficiency challenges” driven by “logistics capacity shortfalls and internal service gaps”.

Gooch & Housego (GHH) shares fell 19 per cent in morning trading following a profit warning that disclosed a downturn in demand for microelectronics laser components, particularly from China. While a fall in Chinese demand had been foreseen, uncertainty has led to excess inventory in the supply chain “may now take longer than expected to normalise”. Management predicts low single digit full-year growth compared to last year.

OTHER COMPANY NEWS:

Having already completed £2.2m of the £3m share buyback programme it announced in November, Eland Oil & Gas (ELA) is to begin paying a dividend. The Nigeria-focused producer-explorer said it would declare a maiden pay-out with next month’s preliminary results, targeting a yield of 2.0-2.5 per cent, rather than an earnings-derived ratio.

Fellow West African oil traveller San Leon Energy (SLE) has today announced a capital return of its own, offering to buy 10 per cent of outstanding shares in a tender offer. At 46p a share, the bid arrives at a 50 per cent premium to yesterday’s closing mid-market price, though completion of the offer is subject to shareholder approval at an extraordinary general meeting on 15 March.

Ahead of its full-year results on Friday, ferroalloy firm Afarak Group (AFRK) has issued a profit warning, after “various plant specific conditions”, including breakdowns, temporary stoppages, weak geological formations all negatively impacted operations at Mogale in South Africa, and ultimately, financial results. Though things stabilised in the fourth quarter, management has decided to impair book value by €6.5m, which will “materially impact the result for the year”.

In an attempt to battle generic competition for its opioid addiction treatment Suboxone Film, Indivior (INDV) has today launched its own authorised generic version of the product for distribution in the US. The company is embroiled in a legal battle to prevent the launch of a cheaper copy of its drug by rival groups, including Indian company Dr Reddy’s. Analysts seem doubtful that the company will be able to prevent a deterioration in market share once the cheaper drugs become widely available.

Flybe (FLYB) has rejected a preliminary offer from an investor group led by Bateleur Capital and Mesa Air Group, with indicative support from former Stobart boss Andrew Tinkler and other un-named institutional shareholders for a capital injection and replacement of funding provided by Connect Airways. The proposal is conditional on the sale of Flybe’s operating business to Connect falling through, which is expected to complete on Friday.

Impellam (IPEL) is demerging subsidiary Carlisle Support Services Group, as part of its push to grow margins and cash profits. Qualifying shareholders will be issued with shares in Carlisle following completion.