Political events in the UK are moving apace with Theresa May's latest Brexit concessions from Brussels and the legal reaction to them moving the value of the pound, and equity markets, rapidly. Click here for The Trader Nicole Elliott's latest thoughts on the wider global markets.
IC TIP UPDATES:
Shares in Sirius Minerals (SXX) are up 8 per cent this morning, after the prospective potash miner said it has received “a conditional proposal from a major global financial institution” to answer its $3bn stage two funding needs. The miner said the new proposal from an as-yet unnamed bank would completely replace the multi-tranche structure offered by prospective lenders, and offered greater flexibility to its requirements. As such, discussions with the previous funding group have been paused, in a bid to get an agreement by the end of April. It’s a little hard to know what to make of the news, though working on the basis that this is “a more attractive solution”, as Sirius suggests it is, we remain buyers.
After yesterday’s news of a delay to a key arbitration decision dented shares in Cairn Energy (CNE), the stock is again down today, after full-year results revealed another painful $166m impairment charge, this time to the Kraken field. Add that to the change in accounting treatment of the legacy Cairn India stake, and the reported loss for the year came in at $1.14bn. Under review.
Cairn’s downgrade to its reserve estimate for Kraken has been called into question by field operator EnQuest (ENQ). The highly-leveraged North Sea group today cited an “independent third-party audit” to defend a decision to leave its own reserves estimate unchanged at the end of December, and suggested “different technical approaches” explained the variance. Consequently, EnQuest said it does not intend to impair its valuation for Kraken when it releases full-year results on 21 March. The shares are off 7 per cent, and something does not add up: sell.
Domino’s Pizza (DOM) numbers are largely what the market expected to see this morning, with flat adjusted pre-tax profits of £93.4m in line with January guidance. Broker Numis notes particularly strong profitability in the UK and Ireland, albeit spiralling losses abroad, which have resulted in a £14m impairment charge. As for current trading, investors are mostly in the dark, although analysts note that the group faces a particularly tough first quarter comparative. Our recommendation is under review.
PureCircle (PURE) reported a 5.2 per cent decline in sales to $50.7m during the first half, which management said was due to the phasing of some deliveries to customers compared to the prior year. First half sales include “meaningful contribution” from next generation stevia sweeteners based on Reb M both directly extracted from leaf and via conversion of first generation sweeteners such as Reb A. The stevia company reported a net loss of £22.1m due to a $24.2m inventory writedown. Shares fell less than 1 per cent in early trading. Our buy tip is under review.
KEY STORIES:
Pendragon (PDG) shares struggled to find support this morning on the release of full-year numbers from the motor retailer. New car sales continue to be sluggish across the industry, although Pendragon insists that used vehicles sales have held up amidst poor consumer confidence and what the company calls “macro newsflow”. Chief executive Trevor Finn is due to leave the group at the end of the month, and Mark Herbert is due to replace him. Finance director Tom Holden will also step down, with his successor Mark Willis due to take over the role on 8 April 2019.
Quilter (QLT) reported net inflows of £2.7bn during 2018, but that was offset by negative market movements of £7.8bn. Net client cashflow was £4.7bn, representing 5 per cent of opening assets under management, in line with management’s medium-term target. An improvement in the management fee margin helped boost management fees by 9 per cent, which offset a rise in operating expenses, resulting in an 11 per cent rise in adjusted pre-tax profits.
Staffline (STAF) which has been suspended from trading on AIM since the end of January, resumed this morning and clarified the reasons for its suspension. A third party made allegations to the group’s auditors about its recruitment division’s payroll and invoicing practices, prompting a review. One allegation concerned underpayments to workers under minimum wage regulations, and the group has taken a provision totalling around £7.9m to cover costs. Investors have reacted well to the news, sending the shares up by a quarter in early trading.
The saga of Interserve’s (IRV) deleveraging plan continues with the group last night confirming it had been meeting with Coltrane Asset Management, its largest shareholder, to discuss the terms under which it would support the outsourcer’s deleveraging plan. Sky News reported yesterday shareholders would be offered 7.5 per cent of the issued share capital under the deal - up from five per cent offered currently. The vote on the deleveraging deal will go ahead on Friday.
OTHER COMPANY NEWS:
Bacanora Lithium (BCN) this morning said it is unaware of any corporate developments that explain yesterday’s 25 per cent drop in its share price, and that (unreferenced) “unsubstantiated social media speculation should be treated as such”. The mining group continues to seek financing for its Sonora project, after an attempt to do so in 2018 failed.
Prospects for its Fortuna project may have vanished last year, but Ophir Energy (OPHR) certainly appeared to get one thing right in 2018. That was the acquisition of Santos’ southeast Asian production licences for $205m, which contributed $117m in cash flow on a pro-forma basis during the year. In further signs of Ophir’s operational focus, the group minimised its exposure to frontier exploration by withdrawing from Myanmar, Malaysia, Aru Trough in Indonesia and Equatorial Guinea. According to Panmure Gordon analyst Colin Smith, these results “probably enhances the prospect” that Ophir’s ongoing takeover by Medco will complete.
Mothercare (MTC) shares bounced on news that the beleaguered baby chain is making headway with its turnaround plan, which includes disposing of the Early Learning Centre to TEAL brands for £13.5m. Of this, £6m is due on completion of the disposal, with up to £5.5m in respect of inventory due within a few months thereafter and a further £2m in earn out fees over the next two years.The group says the deal will help it move closer to becoming debt free. So far, Mothercare has closed a slew of stores - a number which could reach 137 by May - aiming to leave an estate of just 80.
Amino Technologies (AMO) has won a contract with US telecommunications provider Waverly Utilities. This will entail Amino supplying ‘Multimedia over Coax Alliance’ (‘MoCa’)-enabled internet protocol TV (IPTV) devices and Amino software, allowing Waverly to provide an improved pay-TV video experience. Amino said that this deal “demonstrates progress on the transformation programme announced in February”. The shares were up by around 3 per cent this morning.
Mercia Technologies’ (MERC) portfolio company, Aim-listed Concepta (CPT), has won a commercial partnership with Walgreens Boots Alliance for the supply of its women’s fertility and hormone testing product myLotus. Mercia holds an 18.2 per cent direct equity stake in Concepta.
888 Holdings (888) reported a 2 per cent decline in revenue to $530m during 2018, as improvements in sales at B2C casinos and sport did not compensate for declines in poker and bingo. The group has continued to focus on regulated markets, and when excluding the UK sales from regular markets improved by 14 per cent. 888 is also focusing on the US, with the launch of 888Sport in New Jersey in September and sponsorship of the New York Jets by 888.com. It also acquired the remaining 53 per cent interest in All American Poker Network for $28.5m.
Computacenter’s (CCC) revenues rose 14.7 per cent to £4.35bn in 2018 – exceeding the £4bn mark for the first time. Adjusted pre-tax profits were up 11.3 per cent at £118m, but their statutory equivalent dipped 3.2 per cent to £108m – largely reflected the impact of the acquisition of FusinStorm last October. Performance overall was buoyed by a 20.5 per cent rise in technology sourcing revenues to £3.18bn. By comparison, services revenues grew by just 1.5 per cent to £1.18bn, dampened partly by challenges in the UK. Management noted that despite substantial investments, the group ended the year with a robust balance sheet and a “cash surplus, which underpins our confidence in the future”. The shares were up by around 6 per cent this morning.
Gamma Communications (GAMA) saw an 18 per cent rise in revenues to £285m over the course of 2018, with pre-tax profits up 30 per cent to £34.5m. During the year, the group expanded into the Netherlands via the acquisition of DX Groep. And post-reporting period, in February 2019, Gamma bought Nimsys – a provider of internet, cloud telephony and associated IT services for operators and corporate clients of premium multi-tenant office buildings across the Netherlands. Looking ahead, management notes it has a business model with a “very high percentage of recurring revenues” – giving it more certainty over short-to-medium term performance, notwithstanding the potential for adverse macro-economic factors.
