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News & Tips: Sports Direct, Pennon, Inmarsat & more

Equities are flat
March 25, 2019

After the sell off at the end of last week, shares in London are flat in morning trading today. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES:

Mike Ashley’s Sports Direct (SPD) isn’t letting its bid for full control of ailing department store chain Debenhams (DEB) go without a fight. Having offered to acquire Debenhams’ Danish business Magasin on Friday - an offer Debenahms’ board rejected almost immediately - Sports Direct has this now said it believes the offer represents “excess of fair value and addresses Debenhams' immediate liquidity concerns”. Sports Direct offered £100m for the target company - perhaps a way of refinancing the retailer via acquisition instead of an emergency loan. The offer was conditional, however, on Mr Ashley assuming the role of chief executive at Debenhams - a position he has long lobbied for. Sports Direct has accused the Debenhams board of not actively engaging in negotiations. As the conflict continues, we remain sellers of Debenhams shares.

Pennon (PNN) has traded in line with expectations in the year to March 2019, and remains on track for a cumulative return on regulated equity of 11.8 per cent. The group’s business plan for the upcoming regulatory cycle - AMP7 - was fast-tracked by regulator Ofwat, and the group’s three energy recovery facilities have performed well. The one black cloud over the year has been Interserve entering administration. Management has recognised a £72m receivable from Interserve, and at the half-year took an £8m provision to take account of credit risk. That provision has now been increased to £16m. This may change further, and management will update again in May. Buy.

Danakali (DNK) has appointed Niels Wage, a former vice president in BHP’s (BHP) potash division, as its chief executive. The prospective miner, which is looking to raise money to fund its Colluli project in Eritrea, said Mr Wage won the role “due to his extensive and relevant industry experience, clear leadership capabilities, and passion” for Colluli. Buy.

Middle East-focused jack-up drilling rig firm ADES International (ADES) posted a 51 per cent rise in earnings per share in 2018, despite an acquisition-heavy trading period. In addition to deals with Nabors and Weatherford, ADES managed to extend or renew a raft of contracts in Egypt, and had almost tripled its backlog to $1.2bn by the year-end. The price of this expansion has been a near five-fold rise in net debt, to $424m, though for a group with a “commitment to keep our backlog at least 2 times’ net debt”, this should come as little surprise. Under review.

Petropavlovsk (POG) is in receipt $57 million as a full repayment of two bridge loans the Russia-focused gold miner advanced to IRC during 2018. Chief executive Pavel Maslovskiy said the refinancing had now reached a “successful conclusion”, save for payment of a $6m guarantee fee, and that operations have substantially improved at IRC’s K&S iron ore mine. We rate Petropavlovsk a buy.

Sandra Turner will join the board of Greene King (GNK) as a non-executive director from May. Ms Turner has experience in the consumer goods and retail sectors, including for Wilkinson Sword, Unilever and Tesco, where she was commercial director of Tesco Ireland. Buy.

Domino’s Pizza Group (DOM) announced that Ian Bull will join the board in April as a non-executive director. Mr Bull has held senior finance roles within the BT Group and has previously been group finance director of Greene King plc, chief financial officer of Ladbrokes plc and most recently was chief financial officer of Parkdean Resorts until 2018. The pizza company is still facing backlash from its franchisees over the profit sharing structure. Sell.

KEY STORIES:

The board of Inmarsat (ISAT) has reached agreement on the terms of a recommended cash offer with ‘Triton Bidco’ (a consortium comprising Apax, Warburg Pincus, Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan). This follows the announcement on 19 March 2019 regarding a proposal received by Inmarsat’s board. Under the acquisition terms, Inmarsat shareholders who are entitled to receive the group’s final dividend will receive $7.21 in cash per Inmarsat share, including the previously-announced $0.12 final dividend. Those shareholders not entitled to receive the dividend will receive the cash consideration only. The cash value of the deal is around $3.4bn (£2.6bn at the announcement exchange rate). Inmarsat’s shares were up by around 8 per cent this morning.

Provident Financial (PFG) has announced the appointment of Neil Chandler as managing director of Vanquis Bank, formerly chief executive of Shop Direct Financial services and Sainsbury’s Bank. Mr Chandler will take up his role on 15 April. The sub-prime lender has also appointed Robert East as non-executive director of Provident Financial and chair of Vanquis Bank. Mr East is currently chairman of Skipton Building Society. The board also reiterated “its belief that NSF's nil-premium Offer is not in the best interests of all Provident shareholders” and that is “strategically and financially flawed”. In response, Non-Standard Finance (NSF) said its target was “still searching for the coherent strategy that they have consistently failed to develop”.

Majestic Wine (WINE) shares fell heavily in early trading after the alcohol merchant announced a group-wide restructuring, which will include a slew of store closures, a full rebranding exercise and a £10m charge. A full plan is due to be announced in June, but the basic strategy includes growing the Naked Wines business - soon to be the name of the entire group - with capital released from the core Majestic Wines division. Management warns that there could be further restructuring charges from FY2020, and that the dividend will also be placed under review in June.

OTHER COMPANY NEWS:

Shares in Wood Group (WG.) are off 5 per cent this morning, after the oil services group announced the sale of its Terra Nova Technologies division for $38m. The “conveying and material handling systems solutions business” contributed $7.3m to Wood’s earnings before interest, tax and amortisation last year, meaning Wood has sold part of its company at a lower trading multiple than the group, raising questions of the long-term benefits of the group’s targeted $200-300m disposal programme.

Quixant’s (QXT) revenues grew by 5 per cent to $115m in 2018. Sales for its gaming business rose 9 per cent to $77.6m – buoyed by gaming platforms growth, but dampened by a decline in gaming monitors. The latter reflects the group’s strategy to reduce lower-margin gaming monitors business. In January, Quixant revealed that full-year sales and adjusted pre-tax profits would come in “slightly lower” than market expectations at the time. In the event, adjusted pre-tax profits were up 3 per cent at $18.2m, while statutory pre-tax profits were down 5 per cent at $14.3m including $3m of restructuring costs. Year-end net cash was $9.7m, up from $4.5m, and Quixant has proposed a 19 per cent dividend hike to 3.1p. The shares were down by around 6 per cent this morning.