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News & Tips: JD Sports, AstraZeneca, Worldpay & more

Equities have started the week positively
March 18, 2019

Shares in London continued where they left off last week with more solid gains on the back of M&A activity. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES:

JD Sports (JD.) shares were flat this morning despite news that it plans to takeover struggling rival Footasylum (FOOT) for £90m. The larger group bought an 8.3 per cent stake in Footasylum last month, but insisted it was not preparing to make a bid. It said it had acquired the stake “for investment purposes” but was “prepared to acquire an aggregate interest of 29.9 per cent”. A month later, and a formal 82.5p a share takeover is on the table - a whopping 77 per cent premium to the shares last business day closing price prior to the announcement. Footasylum chief executive Claire Nesbitt’s father, David Makin, helped found JD Sports, while its current chairman, Barry Brown, served as chief executive of JD Sports between 2000 and 2014. Ms Nesbitt, her sister Amy and brother Tom all hold more than 7 per cent stakes in Footasylum. Our recommendation is under review.

A disappointing clinical result from Allergy Therapeutics (AGY) knocked the shares down heavily in early trading. A third phase trial of its birch allergy treatment showed no “statistically significant” improvement over placebo when it came to symptoms and medication. While the company will now review the data and consider next steps, it’s not expected that the failure will bear any effect on group revenues in the short term. It could, however, prompt fierce competition in the market while the company decides whether to re-run the third phase trial or try phase two again, albeit with a higher dosage. Our recommendation is under review.

US regulators have granted Orphan Drug Designation (ODD) to AstraZeneca’s (AZN) saracatinib, a potential new medicine for the treatment of idiopathic pulmonary fibrosis (IPF) - a type of lung disease that results in lung scarring. Second phase trials for the new drug have yet to commence, although clinical work has already begun on the treatment, albeit under the oncology portfolio. We remain sellers.

Domino’s Pizza Group (DOM) has denied allegations that it has mislead investors about the state of relations with its franchisees. The Sunday Times published an article this weekend saying that the Domino’s Franchisee Association (DFA) has accused the company of misleading the City at the recent results when they claimed that the current issues could be resolved. The DFA has demanded a greater share of profits to compensate for rising costs, calling the current profits sharing scheme “unacceptable and unsustainable”. Domino’s released a statement this morning saying that it “strongly refutes” that claims that it has been misleading, and said it has been “clear and transparent” with communications regarding franchisees. Shares were up more than 2 per cent in early trading. We’re concerned that this dispute will continue to impact planned store openings. Sell.

Fuller, Smith & Turner (FSTA) has appointed Adam Councell as finance director, and will begin the role in August. Mr Councell is currently finance director for document management and relocation company Restore. Shares fell 1 per cent in early trading. Buy.

KEY STORIES:

Payments giant Worldpay (US: WP; LSE: WPY) and US-based financial services technology group FIS (US: FIS) have entered into a merger agreement. This comes around 14 months after the completion of Worldpay’s combination with Vantiv (January 2018). Under the terms of the FIS agreement, Worldpay shareholders will be entitled to receive 0.9287 FIS shares and $11 in cash for each Worldpay share. On closing, FIS shareholders will own around 53 per cent of the combined company and Worldpay shareholders will own around 47 per cent. The proposed deal gives Worldpay an enterprise value of around $43bn, including the assumption of Worldpay’s debt, which FIS expects to refinance. It is anticipated that the combined group will have approximately $12.3bn in pro-forma 2018 annual revenues. Worldpay’s (London) shares were up by around 11 per cent this morning.   

OTHER COMPANY NEWS:

Serco (SRP) has signed a contract with the South Australian Government to operate the Adelaide Remand Centre. The AU$115m (£61.7m) contract will run for an initial term of seven years, with the option for a five-year extension. The contract will start in August. There have also been reports over the weekend that Serco and Mitie (MTO) have been looking to buy part of Interserve’s business after it entered administration on Friday.