The FTSE 100 edged higher on Tuesday.
IC TIP UPDATES:
Debenhams (DEB) shares fell further in early trading on news of a 5.7 per cent squeeze in like-for-like sales during the the 26 weeks to 2 March 2019. Sales across the UK fell by more than 6 per cent on the same basis, with international revenue also falling 3.5 per cent. The one bright spot was digital sales, which mustered a 4.6 per cent improvement over the period. Overall, gross transaction volumes were down 5.6 per cent, although this decline moderated between the first 18 weeks and the subsequent eight. Following news of an additional £40m bridge facility in February, the group says talks are ongoing to restructure the balance sheet “in order to address…future funding requirements”, although the process could be disruptive to trading in the short term, making a 10 January statement that the group was on track to deliver profits in line with market expectations “is no longer valid”. Sell.
Phoenix Group (PHNX) reported a 2 per cent rise in cash generation during 2018, which together with cash generated during 2017, meant it exceeded its £1-1.2bn target at £1.3bn. A target of between £600m and £700m has been set for 2019, with a long-term target of £3.8bn out to 2023. The final dividend was raised 3.5 per cent to 23.4p, which together with the interim payment 46p. Buy.
Elementis (ELM) shares were flat following full-year results that revealed 5 per cent revenue growth and a 3 per cent rise in adjusted pre-tax profits. There was mixed performance across its businesses, as revenues rose in personal care but fell in the chromium business. Deleveraging is a key objective, moving forward - its net debt to adjusted pro forma cash profits of 2.5 times is high, and Elementis plans to rapidly deleverage the group through organic cash generation and self-help initiatives, aiming to reduce this ratio to 2 times by the end of 2019. The Mondo acquisition forms part of a broader strategy to add significant growth in coatings and personal care, and we remain buyers.
CareTech (CTH) is due to hold its AGM later this morning, but chairman Farouq Sheikh has already confirmed that the group’s performance is in line with expectations. It’s fair to say the group has faced some challenges, not least its high-profile acquisition of rival group Cambian, a subsequent review by the Competition and Markets Authority (CMA) and the sudden passing of finance director Michael Hill. We remain buyers.
In spite of cyclical fears sparking a sharp drop in Ashtead’s (AHT) share price last October, the group has seen a sharp recovery since the start of the year and this morning’s update on trading for the nine months to January is unlikely to derail progress. Strong growth persisted in the US and Canadian markets, pushing rental revenue up 18 per cent in the period. Management said it believes there is still a large structural growth opportunity in North America, which will push capital expenditure to the top end of previous guidance at around £1.6bn. Buy.
Huntsworth’s (HNT) revenues (less pass-through costs) rose 14.1 per cent to £335m in 2018, or 1.4 per cent on a like-for-like basis. Its marketing division saw a like-for-like decline of 3.2 per cent. As previously noted, this segment faced “a more difficult year in 2018 than in recent years” with tough comparatives and other issues including delayed client project expenditure and drug failures. But acquisitions helped marketing’s reported revenues to rise 12 per cent to £82m. Looking ahead, Huntsworth believes marketing is positioned for a return to growth in 2019, while the communications division should see improved profitability. A 10 per cent dividend hike to 1.6p takes the full-year pay-out to 2.3p per share. The shares were down by around 2 per cent this morning. Under review.
Wincanton (WIN) announced a new five-year contract with Aggregate Industries for the distribution of concrete products from a majority of its UK manufacturing sites. Aggregate Industries is the foremost UK brand of global construction materials and solutions company, LafargeHolcim. Wincanton will transport over 40,000 loads per year from 10 factories to customers across the country. Shares were up more than 3 per cent in early trading. Buy.
GVC (GVC) reported a 9 per cent increase in net gaming revenue to £3.57bn during 2018 on a proforma basis, as it Ladbrokes Coral had been wholly owned the whole time, with group revenue up 8 per cent to £5.52bn. Underlying operating profit increased 19 per cent to £610m, but reported an after-tax loss of £56.4m due mainly to the non-cash amortisation of acquired intangible assets. Management called online performance “very strong” with market share gains in all territories, while UK retail sales declined 3 per cent as expected. Integration of the Ladbrokes Coral business is “progressing well” and is on track to deliver £130m cost synergies and £30m capex synergies. Shares were up 3 per cent in early trading. Buy.
4Imprint (FOUR) reported an 18 per cent increase in revenues to $738m for the year to 29 December 2018, all of which was organic. The group – which is a direct marketer of promotional products – is ahead of plan to hit its revenue target of $1bn by 2022. Pre-tax profits rose 9 per cent to $44.2m. The group has brought forward the planned expansion of its distribution centre in Oshkosh, Wisconsin, by one year; this should be finished by mid-year 2019, at a capital cost of around $5m. The project will be financed out of in-year cash flow. The group has proposed a final dividend of 49.20ȼ, taking the full-year total to 70ȼ – up 20 per cent against 2017. Buy.
KEY STORIES:
Shares in Interserve (IRV) are up 17 per cent this morning on news that Coltrane Asset Management – the hedge fund that owns 27 per cent of its issued share capital – has proposed underwriting a £110m rights issue to reduce debt and provide liquidity. Reports say Interserve has confirmed it received an updated proposal from the group “which it is considering”, but has not yet confirmed the details.
OTHER COMPANY NEWS:
Price weakness in the diamond market shows no sign of abating, at least if De Beers’ second sales cycle is an indicator. The Anglo American (AAL)-owned business clocked $490m of sales in its second auction of the year, 13 per cent below the sales value of the second auction this time last year. De Beers chief executive Bruce Cleaver said that while “overall demand for lower value rough diamonds remain subdued, we did see an increase in demand from India as factories begin to restock".
In 2018, Earthport’s (EPO) core payment business revenues – entailing payment transaction revenues and specifically attached foreign exchange revenues – rose 18.8 per cent to £11.9m. Total revenues rose by 4.5 per cent to £16.1m, with foreign exchange business revenues and professional services revenues down year-on-year. Pre-tax losses came in at £8.3m, against losses of £5.1m in 2017. Earthport noted the takeover offers that it has received in recent months. To re-cap, on 27 December 2018, Visa announced a recommended 30p all-cash offer. Then, Mastercard announced a 33p per share offer on 25 January 2019. Earthport’s board withdrew its recommendation of Visa’s offer and recommended Mastercard’s instead. Visa raised its offer price to 37p on 8 February, and Earthport is currently recommending this increased offer.
XP Power (XPP) shares rose nearly 4 per cent after full-year results disclosed record revenue growth for the third year in a row, this time at reaching 17 per cent. All sectors, with the exception of the semiconductor space, are performing well. The company’s outlook for the coming 12 months is positive, with further revenue growth weighted towards the second half of the year, in part thanks to the expected contribution from its new high voltage business, Glassman, which it acquired in May 2018.
Craneware (CRW) shares fell in early trading despite an in-line set of half-year numbers this morning. The healthcare billing software group posted a 15 per cent rise in interim revenues to $35.8m (£27.1m), while adjusted cash profits rose by a fifth to $11.6m. Perhaps it was the group’s cash position - now $38.7m compared to last half year’s $52.2m - which caught investors off guard. But this was actually the result of shareholder returns and investments in the period, while an extra $10m in collected receivables mean analysts at Investec see “no lasting issue here”.
BBA Aviation (BBA) reported a 20 per cent increase in sales to $2.88bn (£2.19bn), with operating profit up 10 per cent to $262m. Signature, the group’s largest division at 85 per cent of underlying operating profit, reported a 2.7 per cent increase in organic revenue with network agreements contributing to outperformance, though operating profit here fell slightly as it absorbed $14m of IT spend. Shares fell 5 per cent in early trading.
Shares in Northgate (NTG) are up 2 per cent this morning after the group signalled further improvements in vehicles on hire in the three months to January 2019. Hire numbers had been in decline until the final quarter of the 2018 financial year, and since then the group has managed to drive double-digit growth each quarter. In the three months to January - the third quarter of the 2019 financial year - total vehicles on hire rose 10.8 per cent to 94,500.
