Shares in London dipped in morning trading as momentum wanes. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Melrose Industries (MRO) outperformed board expectations over its full year, delivering adjusted pre-tax profits of £703m. The turnaround specialist saw its losses grow, largely due to costs and charges relating to its £8bn hostile acquisition of GKN in April. The North America aerostructures business is approaching its break-even point, while its automotive business is weathering a difficult backdrop. Shares nevertheless ticked up 6 per cent in morning trading. Buy.
Aviva (AV.) reported a 7 per cent rise in operating earnings per share, in line with consensus expectations for 2018. The annual dividend was raised to 30p a share, while the Solvency II ratio remained robust at 204 per cent. However, as suspected, newly-appointed chief executive Maurice Tulloch will shift the strategy for how excess capital is used. Instead of being diverted back into shareholders pockets via share buybacks and special dividends, it will instead be used to pay down debt. The dividend policy will also move to a progressive one, based on the group’s performance, rather than a rigid 55-60 per cent payout of earnings. We place our buy recommendation under review.
Schroders (SDR) reported net outflows of £9.5bn for 2018, compared with net inflows of £9.6bn the prior year. Together with £19.6bn of negative investment returns, that meant assets under management and administration declined by 6 per cent. While net income was up 3 per cent, pre-tax profits before exceptional items declined 5 per cent after an accounting change in the treatment of deferred compensation and lower performance fees. We place our buy recommendation under review.
Shares in C&C Group (CCR) were up 2 per cent in early trading after the drinks maker announced that full year operating profit to February 2019 is expected to be at the high end of expectations with EPS growth of around 20 per cent. Net debt is also expected to be below market estimates, and fall somewhere in the range of €305m (£263m) to €312m. The company’s Irish cider brands Magners and Bulmers will sponsor next week’s Cheltenham Gold Cup. Recent acquisitions Matthew Clark and Bibendum are said to have made good progress with synergies identified. Buy.
Funding Circle (FCH) grew revenue by half during 2018, although a 47 per cent rise in operating expenses meant the pre-tax loss also grew by 40 per cent to £50.7m. Loans under management grew by 55 per cent, excluding property, to £3.15bn, while originations were 40 per cent higher at £2.29bn. Sell.
Informa’s (INF) revenues rose 34.9 per cent to £2.37bn in 2018 (including six months of UBM’s contribution), or by 3.7 per cent rise on an underlying basis – buoyed by underlying growth across all of its operating divisions. Group operating profits climbed by 5 per cent to £363m. While free cash flow grew by around a quarter to £503m, net debt was up 95.3 per cent to £2.68bn – following the aforementioned UBM acquisition. The dividend has been lifted 7.1 per cent to 21.90p. Informa’s shares were up by around 2 per cent this morning. Buy.
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Institutional Shareholder Services has thrown its weight behind Interserve’s (IRV) deleveraging plan, striking a blow against major shareholder Coltrane Asset Management’s plan to underwrite a £110m rights issue. Interserve’s management has made clear it needs shareholders to approve its deleveraging plan to avoid default, but doing so would leave current shareholders collectively holding just five per cent of the issued share capital. It’s an unappealing prospect either way, but things are developing quickly and shareholders will vote on the deleveraging plan next week.
Which financial metric is most likely to lead to a re-rating in Premier Oil (PMO)? Look at the explorer-producer’s shares over the last year, and you’d most likely say the price of Brent crude; otherwise it’s unclear. Full-year numbers missed consensus earnings forecasts, while average production and the reduction in year-end net debt were already well known. Still, the shares are up today, along with Rockhopper Exploration (RKH), the latter likely because of a comment from Premier that it will make a formal loan application for the Sea Lion project in the second quarter of this year, despite a downgrade in reserves.
Shares in Alfa Financial Software (ALFA) were up by around a fifth this morning following release of its full-year results for 2018. The year had been “challenging” for Alfa – a provider of software for the asset finance industry – after the delay of a significant software implementation and slower-than-expected conversion of its sales pipeline. But it is now in contractual discussions with a new European customer and planning an implementation for an existing multinational customer. Revenues were down 19 per cent to £71m over the 12 months, with operating profits down 34 per cent to £22.4m. Net cash came in at £44.9m, up by 43 per cent. Management expects Alfa to perform in line with its expectations in 2019.
In spite of, or perhaps due to, the ire of Piers Morgan, Greggs’s (GRG) vegan sausage roll has gone down a storm with the public, helping push the food retailer’s like for like sales up 9.6 per cent in the seven weeks from its launch to 16 February 2019. This is a sharp acceleration on the 2.9 per cent growth seen in 2018, but it is unclear how long this will last once the hype dies down.
OTHER COMPANY NEWS:
Cobham (COB) shares were flat following that full-year revenues dropped 11 per cent, while order intake was flat. The group’s businesses diverged in performance - Mission Systems delivered profit growth, but Advanced Electronic Systems underperformed, and a $20m (£15.2m) cost reduction plan has now been drawn up.
Spirax-Sarco Engineering (SPX) shares were unmoved as statutory pre-tax profits jumped 50 per cent to £299m. Steam specialist Gestra and electrical process heating and temperature management specialist Chromalox, acquired in 2017, have performed in line with management expectations.
IMI (IMI) has announced the appointment of Jackie Hu, president of IMI’s Asia Pacific critical engineering division, as managing director of the group’s critical engineering business. Mr Hu commenced his role today.
Inmarsat (ISAT) saw revenues rise 5 per cent to $1.47bn in 2018, and by 7.6 per cent in the fourth quarter to $379m. Group pre-tax profits for the full year declined by 28 per cent to $168m. Management “remains confident about the future prospects and outlook” for Inmarsat, and has provided new guidance for revenues of $1.3bn to $1.4bn in 2019 (excluding Ligado business). While it continues to expect cash capital expenditure of$500-600m per year for 2019 and 2020, it believes capital expenditure will “meaningfully moderate” thereafter 2020, falling to within a range of $450-550m in 2021. The shares were up 3 per cent this morning.
Order intake for Spirent Communications’ (SPT) continuing businesses rose 6 per cent to $470m in 2018, with revenues up by the same proportion to $477m. The group benefited from US government expenditure for positioning GPS simulators – a project worth around $10m which isn’t expected to repeat – and demand for 400G high-speed Ethernet. Meanwhile, 5G development is “gathering pace”. Total group pre-tax profits rose 31 per cent to $61.2m. Free cash flow dropped from $56.4m to $50.9m, after higher fourth-quarter activity levels lifted trade receivables. The dividend has been hiked by a tenth; Spirent’s shares were up 3 per cent this morning.
National Grid (NG.) has agreed to pay at least $100m (£76m) to acquire clean energy developer Geronimo Energy. It will potentially make further payments based on the successful development of the group’s projects. National Grid is also working on an agreement to acquire a 51 per cent share in 378MW of Geronimo’s solar and wind generation projects.
