Shares in London are in subdued mood. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Legal and General (LGEN) reported a 10 per cent rise in operating profits to £1.9bn for 2018, driven by a 22 per cent rise in operating profits at its retirement division. The insurer wrote £9.1bn in bulk annuity transactions, up from £3.9bn the prior year. The full year dividend was raised by 7 per cent to 16.42p a share, while the insurer reported a Solvency II coverage ratio of 188 per cent. Buy.
Frontier Developments (FDEV) has signed a major global IP licence to develop and publish a future game. The group anticipates a development cycle for the game of around two years, with the development process expected to start later this calendar year. The agreement means Frontier will be able to develop and publish the game, along with the subsequent paid downloadable content. The shares were up 3 per cent at the time of writing. Buy.
Melrose Industries (MRO) shares were flat following the announcement that the buyer of industrial businesses had sold Walterscheid Powertrain Group, a provider of original equipment and aftermarket parts and services for off-highway powertrain applications, to US private equity group One Equity Partners. Meanwhile, Melrose subsidiary Fokker Aerospace has completed the sale of its minority 43.57 per cent interest in Société Anonyme Belge de Constructions Aéronautiques (SABCA), which manufactures components for aircraft and space launchers, to SABCA's majority shareholder, Dassault Belgique Aviation. The combined net proceeds of the sale are around £200m. Buy.
Shares in Allergy Therapeutics (AGY) bounced up on the release of half-year numbers this morning, as the market waits for important clinical results from the group’s birch allergy treatment before the end of the first quarter of calendar 2019. In the meantime revenues have risen by more than 10 per cent over the last six months, while operating profits - excluding R&D costs - have risen by more than a quarter to £15.7m. Those R&D expenses came in slightly lower at £5m (2018: £5.9m), while the group ended the period by nearly doubling its cash balance to £31.6m. Buy.
Full-year reported numbers for struggling (if ambitious) explorer-producer SOCO International (SIA) were flattered somewhat by a $37.8m reversal of an impairment charge. In turn, this contributed to the lion’s share of the 249 per cent increase in operating profit to $79.9m, which was offset by a surge in the tax expense to $56m. However, events have been given a new complexion by SOCO’s revelation that it tabled an all-share bid for Ophir Energy (OPHR) on 17 January. The move was “unanimously rejected” by Ophir’s board, which has instead accepted a 55p-a-share offer from PT Medco Energi, and SOCO said it has ruled out a further offer, save for a collapse in the Medco deal. Our buy call for SOCO is under review.
In 2018, Seplat Petroleum (SEPL) met production guidance, saw operational cash flow rise to $502m, refinanced its capital base, and recommenced dividend payments. Since the year-end, the Nigeria-based oil and gas group has also paid down all of its revolving credit facility, and sanctioned the ANOG gas project. Under review.
Ultra Electronics (ULE) shares rose 12 per cent in morning trading, as the second most-shorted company on the UK stock market returned to organic revenue growth and delivered a better than expected cash conversion rate of 79 per cent, having lowered its estimated range to between 65 per cent and 75 per cent in December from a previous range of 70 per cent and 75 per cent The aerospace and defence technology group had a difficult 2018 and remains under investigation by the Serious Fraud Office over the conduct of its business in Algeria by the group, its subsidiaries, employees and associated persons. Sell.
FDM’s (FDM) revenues grew by 5 per cent to £245m, with Mountie revenue up by 15 per cent to £239m for the year ending December 2018. The IT consultancy group has been focusing on this higher-margin Mountie business; contractor revenues declined, and the gross margin rose from 45 per cent to 49 per cent. Pre-tax profits climbed by 11 per cent to £48.3m. A final dividend of 15.5p takes the full-year dividend to 30p, up 15 per cent. The shares are down on our tip, but are broadly flat this morning. Under review.
KEY STORIES:
DS Smith (SMDS) has sold its plastics division to private equity group Olympus Partners for $585m (£445m). The sale represents a multiple of 9.9 times cash profits for the 12 months to 31 October 2018, and the packaging specialist expects net cash proceeds after taxation, transaction adjustments and expenses of approximately £400m. The company said that the sale formed part of its progress towards deleveraging the company towards its net debt to cash profits target multiple of two times - in December, finance director Adrian Marsh told us that the sale would not be made on environmental grounds, in response to a global consumer drift from plastics. Shares edged up nearly 4 per cent in morning trading.
Provident Financial (PFG) has updated the market on developments in its businesses ahead of its results on 13 March, as it seeks to bat away a hostile approach from Non-Standard Finance (NSF). The sub-prime lender said that it had substantially resolved all material outstanding regulatory issues with the Financial Conduct Authority and has completed the search for a new managing director and a new chairman for Vanquis Bank. It also reiterated that it believed NSF’s offer had “significant flaws and would have long-lasting detrimental consequences”.
Vivo Energy (VVO) chief executive Christian Chammas may well toast 2018 as “a remarkable year”, though the pan-African forecourt retailer and fuel distributor’s first set of preliminary results since going public point to some operational challenges. Chief among these has been a deterioration in the gross cash unit margin to $71 per thousand litres in the second half of 2018, down from $74 for 2017 as a whole. These were put down to market conditions in Morocco, and meant second-half adjusted net income fell 2.4 per cent to $83m. A “more conservative outlook” for the year ahead means gross cash unit margins are expected to be “in the high sixties per thousand litres”, assuming “no further material changes to the operating environment in Morocco”.
Paddy Power Betfair (PPB) is proposing to rename itself “Flutter Entertainment” to reflect the “increased diversity” of its brands and operations. Shareholders will vote on the renaming at the annual general meeting in May. The bookie reported a 9 per cent increase in revenue at constant currency to £1.87bn during 2018, though underlying cash profits fell 3 per cent to £451m due in part to £24m spent on the US sports betting business after legislation banning such betting was overturned in May. Us revenue was up 18 per cent on a proforma basis, compared to a 6 per cent increase in Australia and 5 per cent in online. Shares were up 1 per cent in early trading.
Just Eat (JE.) is planning to increase spending on its delivery service in the UK and Australia to stay competitive with growing rivals like Uber Eats and Deliveroo. Management called a targeted roll-out of delivery in the two countries a “clear route to profitability”. During 2018 revenue was up 43 per cent to £780m, with underlying cash profits up 6 per cent to ££174m. The companies 26m active users drove order growth of 28 per cent to 221m. Shares fell 2 per cent in early trading.
OTHER COMPANY NEWS:
Cambria Automobiles (CAMB) has admitted as part of a pre-close half-year trading update that the UK’s new car market remains under significant pressure, due to a number of factors, but including the recent introduction of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) and the negative impact of as weak pound on the imported price of the cars which has prompted price increases for several manufacturers. In the five-month period the total new car market was down 10.1 per cent, while Cambria has reported a 23.2 per cent fall in new vehicle unit sales. Used cars have performed slightly better, with total used unit sales were down 11.2 per cent, but actually staging an improvement in gross profit per unit.
Following a drilling campaign across its Colombian licences in 2018, Amerisur Resources’ (AMER) proven reserves increased 27.8 per cent to 17.82 million barrels of oil (mmbo), while its proven and probable reserves base lifted 23.6 per cent to 25.59mmbo.
There are several points of note in today’s update from West African gold producer Avesoro Resources (ASO). The first is a pre-feasibility study for the New Liberty gold mine in Liberia, which has seen an 89 per cent increase in proven and probable mineral reserves, and whose mine life can be extended by seven years (in part by extending operations underground) for a total development capital cost of $35.9m. The second is that these additional costs will mean consolidated all-in sustaining costs in 2019 are likely to range between $1,110 and $1,190 per ounce of gold sold.
Hill & Smith (HILS) shares were flat on the news that the manufacturer and supplier of infrastructure products and galvanising services returned to growth in the second half of 2018 after a poor first half. The group has seen robust performance in the US, while the UK government’s pledge to increase investment in roads is promising for Hill & Smith’s roads network business. Revenues finished 9 per cent up for the year, although pre-tax profits were down 15 per cent.
Headlam (HEAD) shares were unmoved following a disappointing year for the group that delivered flat profits, which management blamed on commercial and political uncertainty in the UK. The floorcovering business was in part affected by adverse UK weather conditions in the first half of 2018. Its Domus acquisition underperformed s conversion to firm orders has been slower than hoped. Meanwhile, management change is afoot overseas, as Headlam replaced its French business’s managing director and looks set to appoint an equivalent in Switzerland, where performance was weak in 2018.
TT Electronics (TTG) shares rose 4 per cent following full-year results that revealed a 21 per cent boost to revenues on a constant currency basis. The group continues to thrive in its move away from lower margin automotive work to higher growth medical and internet of things (IoT) work - its acquisition of Stadium in April 2018 contributed £42.8m in revenues over eight months, outperforming expectations, and forms an integral part of its IoT strategy.
