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News & Tips: Debenhams, Cineworld, DFS & more

Equities are up, despite the political chaos in Westminster
March 14, 2019

Further confusion over Brexit is not worrying equity investors in London this morning with the FTSE100 and FTSE350 in positive territory. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES:

Last night, Debenhams (DEB) responded to accusations from its major shareholder Mike Ashley of Sports Direct (SPD), that the department store chain has misled investors. A letter from Mr Ashley said a January trading update was particularly misleading, as it referenced the ability of the business to continue generating cash before the group announced an emergency £40m injection just weeks later. Initially, Debenhams fired back, saying it rejected “these unfounded and self-serving complaints”. But now, Mr Ashley has offered the group the £150m it is seeking from its lenders, in exchange for his original demands, which include ousting most of the remaining board and installing Mr Ashley as the retailer’s new chief executive. While Debenhams says it will consider the proposal, it warns that any such arrangement would require the consent of of its lenders, noteholders and still necessitate “material amendments” to its existing debt facilities. We remain sellers.

KEY STORIES:

A better-than-expected set of annual figures from cinema operator Cineworld (CINE) pushed the stock up more than 6 per cent in early trading. Following its acquisition of US group Regal Entertainment last year, the group says it is now on track to deliver $150m-worth of cost synergies in 2019, compared to an original estimate of just $100m. The accelerated integration of the deal also meant cash profits landed 4 per cent ahead of broker Numis’ forecast, which could prompt a 10 per cent upgrade to 2019 EPS forecasts.

OTHER COMPANY NEWS:

Ahead of its full-year results next Wednesday, Eland Oil & Gas (ELA) has reported an 8 per cent increase in proven reserves at its OML 40 licence, and a 634 per cent increase in proven reserves at Ubima, where it has a 40 per cent working interest. All told, the uplifts mean Eland's share of 2P reserves in the two fields stands at around $600m, assuming a flat long-term oil price of $71 a barrel. Following the review of its reserves, Eland’s lending facility has also been increased.

After disappointing the market with dividend-free results, Gem Diamonds (GEMD) is out with better news today. In a tender auction held yesterday, the 13.33 carat pink diamond recovered at Gem’s Letšeng mine in February was sold for $8.75m, which represents a record dollar-per-carat price of $656,933.

A tightly-held shareholder register precludes us from writing much about Avesoro Resources (ASO), but full-year numbers from the West African gold miner, out today, bear mentioning. That’s because gold production almost tripled in 2018 without a marked increase in net debt. Cash profit revenues also climbed from 18 to 27 per cent, while operating cash flow jumped 571 per cent to $73.1m. Still, consolidated operating cash costs came in at $774 per ounce sold, while fourth quarter all-in sustaining costs were a breakeven-testing $1,226 per ounce.

DFS Furniture (DFS) shares held firm after half-year results that revealed a 29 per cent rise in group revenues since its 2018 full-year end and like-for-like sales growth across all of its brands. Statutory pre-tax profits more than doubled to £14.1m, with the group’s ratio of net debt to cash profits falling to a multiple of 1.9 from 2.1. DFS has identified consumer confidence and border delays associated with Brexit as primary risks, and says that mitigating actions are underway.

Oxford Biomedica (OXB) moved up slightly on the release of preliminary results this morning, after the drug developer beat broker Peel Hunt’s operating profit and cash forecasts. Gross income rose 72 per cent on higher licensing income and higher bioprocessing activity, which helped to deliver revenues of £66.8m - in with market expectations. But, even better, the group swung into an positive operating profit position of £13.9m thanks to lower research and development (R&D) costs, while cash profits of £13.4m also beat Peel Hunt’s £12.7m forecast.

Kin + Carta (KCT) – formerly St Ives – reported a 5 per cent decline in revenues to £87.2m for the half-year ending 31 January 2019. Pre-tax losses came in at £1.6m, against losses of £19.3m for the six months to 2 February 2018. The group said that it had made good progress in accessing the rapidly-growing digital transformation market. Its innovation business saw sales rise by 18 per cent on a like-for-like basis, buoyed by new client wins and improving demand from existing clients. This was set “against a strong comparable period” – the first half of 2018 saw 63 per cent growth year-on-year. The group proposed a flat interim dividend of 0.65p. Its shares were down 8 per cent in morning trading.  

Dubai-based Networks International, a pan-regional provider of payment services in the Middle East and Africa, has announced its intention to publish a registration document and its potential intention to float on the London Stock Exchange.  Management believes the group is “well-positioned to benefit from the rapid and transformational structural global shift from cash towards digital payments”. The group noted that it has leading market positions in both merchant solutions and issuer solutions. Its revenues rose by a compound annual growth rate of 13 per cent from $235m in 2016 to $298m in 2018.Underlying cash profits (EBITDA) were $152m in 2018. The group’s incoming chairman is Ron Kalifa, formerly chief executive (and now an executive director) of Worldpay.  Networks intends to have a free-float of at least 25 per cent if it proceeds with an IPO.