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News & Tips: SDL, Genel Energy, Inmarsat & more

Equities are in more circumspect mood
March 20, 2019

Continued uncertainty over Brexit and fears that US-China trade talks could be stalling have added an air of uncertainty to London trading this morning. Click here for The Trader Nicole Elliott's latest views on the markets. 

IC TIP UPDATES:

SDL’s (SDL) revenues for 2018 rose 12.6 per cent to £323m, or by 4.5 per cent organically at constant currencies. Within the larger language services business, organic gross margins improved slightly. Within the language technologies business, gross margins contracted slightly because of the sales mix. A rise in exceptional costs, and the impact of the equity issue to finance SDL’s acquisition of Donnelley Language Solutions (DLS) last year, led group statutory EPS to decline by 9 per cent to 17.2p. DLS, which was bought to accelerate SDL’s growth in premium regulated industries, has performed to expectations. Group premium services revenues rose 58.4 per cent to £63.5m. Overall, management said “Much of the transformational heavy-lifting has now been completed”. Buy.

Shares in Genel Energy (GENL) are down 5 per cent this morning, after the Iraqi Kurdistan-based  oil producer impaired its balance sheet by $424m, posted a net loss of $284m, and confirmed that capital expenditure would increase to between $150m and $170m this year, up from $115m in 2018. Investors hoping for a dividend will also have to wait until next year, when the group intends to start paying at least $40m a year, subject to a waiver from bondholders. We move to hold.

Given the status of Danakali’s (DNK) Colluli project in Eritrea, there’s little about full-year results which matter – aside from a December cash position of A$9.6m, perhaps. The miner did publish a long to-do list for the coming year, including the appointment of a new company chief executive, finalisation of credit approval from debt financiers, mine contract negotiations and commercial lenders, and funding Colluli to construction. Buy.

Speedy Hire (SDY) has acquired Lifterz Holdings, a powered access group, for £9.6m in cash, assuming £11.9m in net debt on completion. Speedy has invested over £50m in the powered access market since November 2017, as part of its strategy to build a national presence through acquisitions and organic capital expenditure. The group also announced trading in line with expectations for the year to March 2019. Equipment utilisation rates - a key metric for hire companies - have continued to rise, while profits are in line with expectations. Buy.

KEY STORIES:

After market-close yesterday, Inmarsat (ISAT) said its board “notes the recent media speculation regarding a possible offer for Inmarsat” and confirms that on 31 January 2019, it received a non-binding proposal from Apax, Warburg Pincus and the Canada Pension Plan Investment Board regarding a possible cash offer of $7.21 per Inmarsat share for Inmarsat’s entire share capital (totalling $3.3bn based on shares in issue today). This proposal assumed no further dividends would be paid by Inmarsat following the date of the proposal. It was subsequently confirmed that Ontario Teachers’ Pension Plan Board would also be supporting the proposal as part of the consortium. The proposal remains under discussion between the company and the consortium; Inmarsat noted there can be no certainty as to the terms on which an offer would be made, nor is it certain the discussions will lead to a firm offer. Its shares were up 16 per cent this morning.

Kingfisher (KGF) announced alongside its full-year results that chief executive Véronique Laury will step down as chief executive once a successor has been found. Ms Laury has headed the “One Kingfisher” transformation plan, which critics have said has only resulted in falling sales and profits so far. During the year to January like-for-like sales fell 1.6 per cent to £11.7bn, while adjusted pre-tax profits fell 16.1 per cent to £573m. Retail profit increases in the UK and Poland were more than offset by weakness in Castorama France and losses in Russia and Romania. Shares fell 3 per cent in early trading.

Most of the details in full-year results from Eland Oil & Gas (ELA) – including average 2018 production of 8,000 barrels per day, year-end net debt of just $4.3m, revision of a reserves-based lending facility, and a looming maiden dividend – should already be known to investors. The production outlook for 2019 is also unchanged at 14,000-17,000 barrels per day. What are new, however, are problems at two wells linked to the Gbetiokun early production facility, which Eland hopes to remediate in the second quarter.

There will be no change of chairman at Petra Diamonds (PDL), despite a board review of the 22 per cent vote against the re-election of Adonis Pouroulis at last November’s annual general meeting. The diamond miner’s board said it is confident Mr Pouroulis “continues to demonstrate the independence of thought and challenge required for his role, notwithstanding the number of years he has served as a director”. For context, Mr Pouroulis has now exceeded the recommended tenure under UK Corporate Governance Code guidelines by more than a decade.

OTHER COMPANY NEWS:

IQE (IQE) shares were down 4 per cent in morning trading after weak full-year results in which pre-tax profits fell 43 per cent. The semiconductor business experienced disruptions to its supply chain for vertical-cavity surface-emitting lasers in November and substantial VCSEL inventory correction in the first half, along with a higher proportion of low margin wireless revenues. IQE is engaged in an ongoing patent dispute defence, which incurred legal fees of £1.3m.

Curtis Banks (CBP) full-year numbers were marginally ahead of analyst expectations after adding more than 6,000 new SIPPs during the last year. That led to a 6 per cent increase in revenues, while reported operating margins grew from 25.8 per cent to 27.1 per cent year-on-year. Management is still targeting a 30 per cent operating margin in the medium-term, despite ongoing headwinds in the SIPP market, including a slowdown in DB pension transfers. However, it also remains a market ripe for consolidation, leading broker Peel Hunt to highlight “potential” for future M&A work.

Ten Entertainment Group (TEG) reported a 7.5 per cent increase in total sales to £76.4m during 2018, with like-for-like sales up 2.7 per cent and adjusted pre-tax profits up 4 per cent to £13.5m. The entertainment centre operator stated that the four site acquisitions have successfully completed and have been extensively refurbished, and the pipeline for future activity “remains strong”. The ‘Pins & Strings’ bowling technology has been extended to 13 further sites, with 19 completed in total. Shares were up 2 per cent in early trading.

Emis’s (EMIS) revenues rose 6 per cent to £170m in 2018, with recurring revenues up by 5 per cent to £141m. Operating profits came in at £28.7m against £10.6m a year earlier. 2018 included an exceptional £1.7m credit for service level reporting charges, against costs of £11.2m in 2017. The group maintained its progressive dividend policy, hiking the full-year dividend by a tenth to 28.4p. Looking ahead, it said it is “well positioned for future growth”, and is focusing on ensuring that it secures its place on the GP IT Futures framework, and on expanding the private-sector enterprise element of its business. The shares were up by around 7.5 per cent this morning.

Last month, and in bizarre circumstances, BlueJay Mining (JAY) inadvertently let it slip that it was in talks with Rio Tinto regarding its Dundas ilmenite project. In the three weeks since, the shares continued their slide, but are up today after the titanium hopeful told the market “it has no current intention to undertake an equity capital raise”, and that it is sufficiently capitalised for the next year. More encouragingly, talks with Rio Tinto and other parties continue, and shareholders can now expect a pre-feasibility study for Dundas by the end of April.

Listed companies rarely feel the need to comment on small changes in their share register, but in the case of Bacanora Lithium (BCN), it’s probably warranted. This morning, the prospective lithium miner notified the market that Capital Group has reduced its holdings from 6.4 to 4.8 per cent, and that BlackRock’s stake is now too small to be disclosed (i.e. below 3 per cent). According to Bacanora chief executive Peter Secker, the company believes that the sales are “demonstrative of recent changes to [the investors’] strategy which includes divestment of a significant number of its commodity/non-core investments”.  Mr Secker also believes the last sale should remove some volatility in the shares’ trading.