Shares in London's main indices are on good form in morning trading. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Shares in Mitie (MTO) are down eight per cent after the group revealed its order book had dropped by a tenth in the year to March 2019. Management expects revenue growth of 7-8 per cent over the year, with four per cent organic growth. Assuming growth of 7.5 per cent, this would leave sales at £2.18bn, short of analyst Peel Hunt’s forecast of £2.2bn. Adjusted operating profit is expected to be between £84-87m. The announcement will increase scrutiny of the outsourcer. After the collapse of Carillion and Interserve, short positions against both Mitie and Babcock (BAB) remain high. Sell.
Hot on the heels of Avon Rubber’s (AVON) new framework contract with the US Department of Defense, the group has received a $20.2m (£15.4m) order for its M53A1 mask and powered air system. The order will commence in the second half of the year and will contribute to revenues in the 2019 financial year.
The majority of Debenhams’ (DEB) noteholders have consented to amendments sought by the struggling department chain as part of a wide refinancing plan. The consent process doesn’t close until 5pm today, but it could change the course of the company’s future - as well as a potential bid from its largest shareholder, Mike Ashley’s Sports Direct (SPD). In the meantime it has revealed plans to relocate its London headquarters from Regent’s Place to its Oxford Street store in November as part of its drive to cut costs. We remain sellers.
Secure Trust (STB) reported a 39 per cent rise in pre-tax profits for 2018, after the loan book grew more than a quarter and the cost of risk reduced to 1.8 per cent of customer balances from 2.4 per cent the prior year. Consumer lending balances were up more than a fifth to £906m, while business lending grew a quarter to £1.03bn. Buy.
In a pre-close update Fulham Shore (FUL) stated that full-year sales and reported cash profits are expected to be ahead of last year, in line with market expectations, thanks to more customers and recent store openings. Previously the company had incurred some cannibalization of sales as it opened new locations near existing ones, but the company said this has now ended and stores are seeing growth again. The company is considering opening an “increased number of restaurants” across both Franco Manca and The Real Greek brands, and also suggested a dividend may be paid in the current financial year. Our sell tip is under review.
Arbuthnot (ARBB) more than doubled pre-tax profits during 2018, while the average net interest margin rose to 4.7 per cent, from 4.5 per cent. Customer loans increased almost a fifth to £1.23bn, while deposits rose a quarter to £1.7bn. The final dividend per share was also raised by 5 per cent to 20p a share. Buy.
Time Out’s (TMO) revenues rose by a tenth to £48.8m in 2018, and the gross margin improved from 56 per cent to 66 per cent. By division, Time Out media revenues grew 4 per cent to £39.8m while Time Out market revenues – pertaining to its food and culture halls – rose 51 per cent to £9m. Operating losses came in at £11.5m, against losses of £24.6m in 2017, helped by a gain on disposal of the group’s investment in Flyt. Net debt sat at £4.8m at the year-end, and Time Out has secured a new €10m loan. The shares were down 3 per cent this morning. Recommendation under review.
KEY STORIES:
Dignity (DTY) shares are down again this morning after the Competition and Markets Authority (CMA) revealed details of a full scale investigation into the UK funeral sector. A final report from the regulator should be published in September 2020, although an initial statement will be out in early April, detailing which factors currently impact competition and what the possible remedies might be. The primary issue is likely to be pricing thanks to significant inflation in the cost of funerals over the last decade. Larger chains could also find themselves the biggest target of change, as the CMA warned recent price cuts haven’t gone far enough.
The head-spinning acquisition track record of Diversified Gas & Oil (DGOC) continues apace. For an all-cash consideration of $400m, the Appalachia-based producer has agreed to buy 107 unconventional, producing gas wells from HG Energy with a combined net daily output of over 20,000 barrels of oil equivalent. The deal is being funded by the group’s existing KeyBank debt facility, and an accelerated bookbuild which this morning raised $225m net of expenses, at placing price of 117p per share. That was flat on yesterday’s close, and appears to have been well-received by investors this morning, who have pushed up DGO’s shares by 5 per cent in early trading to 122p.
Three years ago, few would have expected Gulf Keystone Petroleum (GKP) to ever be in a position to pay a dividend. But a strong 2018, during which the Iraqi Kurdistan-based producer refinanced its $100m bond, nearly doubled its cash balance to $296m, and posted a post-tax profit of $79.9m, has paved the way for a maiden distribution. If approved at its annual general meeting in June, GKP has committed to paying out a $25m ordinary dividend, followed by a $25m supplemental award at half-year results. The group’s shares are up 4 per cent.
Volex (VLX) shares rose by as much as 10 per cent in morning trading following a trading update that revealed plans to reinstate the power cords supplier’s dividend for the 2019/20 financial year. Full-year sales are expected to exceed $365m, ahead of market expectations and the prior year level of $322m. Volex’s three acquisitions made during the year have contributed according to plan, while the company notes the challenges posed by cost inflation across labour and raw materials over the year.
OTHER COMPANY NEWS:
Investors in Hurricane Energy (HUR) are probably less concerned with full-year results today than they are with any news on the progress at the Greater Lancaster Area discovery. On that front, chief executive Robert Trice used these numbers to assure the faithful that the explorer-producer “will soon be generating the long-term production data” to plan for full field development, and that initial production, net of anticipated downtime, is expected to hit 17,000 barrels of oil per day. At a $60-a-barrel crude price, that would equate to $200m in annual operating cash flow. The shares are up 1 per cent this morning.
After a long wait, Premier Oil (PMO) has received the full $65.6m payment for the sale of its Pakistan business to Al-Haj Energy. The final payment includes deposits and completion payments paid by the buyer, and “net cash flows collected by Premier since the economic date of the transaction”.
The London Stock Exchange this morning welcomed vanadium miner Ferro Alloy Resources (FAR), in a rare listing for the resources sector. The Kazakhstan-based group has raised £5.2m in institutional money to develop and expand pilot production at Balasausqandiq, its flagship asset which the company believes should be worth more than $2bn once it completes a full-scale plant to process up to 23,000 tonnes vanadium pentoxide a year.
Johnson Matthey (JMAT) has secured a site in Poland for the construction of its first commercial plant for its elNO battery material. The prospective plant will have the potential capacity for up to 10,000 metric tonnes per annum. The speciality chemicals company has also secured the ten-year supply of lithium-containing raw materials via a long term supply agreement with Nemaska Lithium. Shares were flat on the announcements.
Meggitt (MGGT) has been awarded a $37m contract by military vehicles manufacturer General Dynamics Land Systems to provide system provides both auxiliary cooling and exportable power to the Abrams tank with its main turbine engine shut down.
Legal and professional service group Knights (KGH) has agreed a new extended revolving credit facility with Allied Irish Bank. This provides total committed funding of £27m until June 2023, and replaces Knights’ existing £18m facility with AIB (GB) on improved terms. The shares were up by around 5 per cent this morning.
Mercia Technologies’ (MERC) portfolio company Oxford Genetics has received £6.5m of new investment in a syndicated round including Canaccord Genuity, Invesco Asset Management and Mercia. Mercia invested £0.4m as part of the funding round, which values Oxford Genetics at an undiluted, post-money valuation of £30.5m. Mercia’s direct equity stake in the business has reduced from 40.5 per cent to 33.3 per cent. The group’s shares were down 6 per cent this morning.
Eddie Stobart Logistics (ESL) reported a 35.1 per cent increase in sales to £843m during the year to November 2018, with operating profit before exceptional items up 21 per cent to £37.5m. This growth was driven by new contract wins, organic growth from existing customers, and contributions from recently acquired businesses. Management called the reported financial year a “major milestone” in the company’s strategy of becoming a full end-to-end solution provider for logistics. Chief executive Alex Laffey said the company’s “unique operating model” should provide the flexibility to respond to changing market conditions, given the political and economic uncertainty. Shares were up 1 per cent in early trading.
