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News & Tips: AstraZeneca, Debenhams, Chesnara & more

Equities are ending the week on a positive note
March 29, 2019

Shares in London look set to end a week of political upheaval on a positive note. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES:

AstraZeneca (AZN) shares fell more than 4 per cent in early trading after the group announced a $3.5bn (£2.7bn) share placing, which will help fund a new drug development partnership with Japaense pharma group Daiichi Sankyo. The two will work together to turn a new cancer drug - currently known as trastuzumab deruxtecan - into a ‘blockbuster’ treatment, targeting annual sales in the region of $4.5bn. It’s believed the drug could be used to treat multiple forms of cancer, including breast and gastric cancer. The two companies have a history of collaboration, but this marks their largest tie-up to date. Astra will pay a $1.35bn upfront payment with a further $5.6bn contingent on regulatory and sales targets. We remain sellers.

Debenhams (DEB) has secured a £200m refinancing, effectively putting in place new facilities with its lenders. That will help it pay back a £40m emergency loan it took out in February, and allow it to move on with its wider restructuring. This includes store closures, reducing rents and re-evaluating general working capital needs.

Chesnara (CSN) reported a two-thirds rise in cash generation for 2018, which supported a 3 per cent rise in the dividend. However, cash generation was impacted slightly by a fall in the value of bonds within the Scildon portfolio, partly offset by the release of capital from UK with-profits funds. However, a rise in the Solvency II ratios for Movestic and Waard meant the group’s Solvency II ratio rose to 158 per cent from 146 per cent the prior year. Buy.    

Hutchison China Meditech (HCM) bounced on news of a new Chinese clinical trial comparing cancer drug surufatinib with chemotherapy drug capecitabine in patients with advanced biliary tract cancer. The primary endpoint is overall survival, with secondary targets in place around progression free survival rates, duration of response in patients and overall quality of life. We remain buyers.

Yesterday afternoon, Somero Enterprises (SOM) announced that it had been advised by chief executive Jack Cooney of his intention to sell around 800,000 shares at 340p each, representing around 1.42 per cent of Somero’s voting rights, and totalling £2.7m. Following this share sale, Mr Cooney has agreed not to dispose of any of his remaining shareholding for at least 24 months.  Later in the day, we learnt that Mr Cooney’s offloaded ‘placing shares’ had been sold to institutional investors. Somero’s shares dipped in afternoon trading. They are up by around 2 per cent this morning. Buy.

Fuller, Smith & Turner (FSTA) will hold an exceptional meeting for shareholders on 24thApril on the sale of the brewing business to Asahi, and the disposal is then expected to complete on 27thApril. Due to the timing of the sale, Fuller’s will delay its full-year results announcement from June to 25thJuly. Shares were flat in early trading. Buy.

KEY STORIES:

Manx Telecom (MANX) announced this morning that the scheme document, and associated forms of proxy, relating to its acquisition by Basalt Infrastructure Partners is being published today and posted to Manx shareholders. Back on 13 March 2019, Manx announced that it had reached agreement with the bidder on the terms of a recommended cash offer.

Numis (NUM) expects revenue for the first half of the year to be 26 per cent lower than than the same time in 2018, due to a challenging market environment. Equities sales have been lower due to a downturn in sentiment towards the UK and depressed activity levels, management said. However, corporate broking and advisory sales are expected to be in line with the prior year as increased average deal fees have offset the impact of lower deal volumes.

Shares in Tui (TUI) fell around 9 per cent in early trading after the travel company warned about the impact on profits from grounding the 737 Max aircraft. Management expect the aircraft will definitely be grounded until around mid-July, which will cost around €200m (£172m) and mean that full-year operating profit is 17 per cent lower than last year’s €1.18bn. Operating profit had previously been expected to be flat on last year. If the planes have to be grounded through September, this will cost another €100m and mean that full-year operating profit will be 26 per cent lower than the previous year.

OTHER COMPANY NEWS:

RhythmOne (RTHM) announced this morning that it intends to terminate the registration of its shares under the US Securities Exchange Act. Back on 22 March, the group’s shareholders approved its takeover by Taptica (TAP). On 21 March, Taptica’s shareholders did the same. The court hearing to sanction the scheme is scheduled for today. If it becomes effective, RhythmOne’s shares are expected to be suspended from trading on Aim on 1 April 2019 and to be cancelled on 2 April 2019.  

CVS (CVS) shares shot up on the release of half-year numbers this morning, which revealed a much stronger start to second-half trading than investors expected. Specifically, the group has seen an improvement in veterinary and nurse locum rates after employment costs rose 10 per cent during the opening six months of the year. That weighed on profits, which fell nearly 5 per cent to £17.4m on an adjusted basis.

In an AGM statement, Micro Focus (MCRO) reiterated the guidance given within its full-year results on 14 February 2019. This is for “further moderation of revenue decline”, and consequently constant currency revenue for its continuing MFPP business for the year to October 2019 is expected to be between minus 4 per cent to minus 6 per cent against a decline of 7.1 per cent for FY2018. The interim numbers are due in July.