Shares in London started the week with solid gains among the large and mid caps. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
easyJet (EZJ) shares fell nearly 8 per cent in morning trading after a warning on prospects for the second half of the year, prompted a significant downgrade in analyst forecasts. Macroeconomic uncertainty and “many unanswered questions surrounding Brexit” are behind softer demand for flights; the company already expects to post a £275m loss over its first half. With both sides of the Brexit negotiation process having pledged to keep the skies open, easyJet will be airborne come what may after Brexit. So perhaps short-term economic turmoil needn’t dent the investment case for a business which holds “one of strongest balance sheets in aviation,” in the words of chief executive Johan Lundgren. For now, our recommendation is under review.
Joules (JOUL) chief executive Colin Porter has announced his retirement from the board at the end of the FY2020. Mr Porter has spent eight years working for the retailer, the last five of which were spent in the top job. A process to find his successor is underway, while the date of his departure has yet to be confirmed. Buy.
AstraZeneca (AZN) - along with its partner Merck - has been granted breakthrough status by the US Food and Drug Administration (FDA) for a potential new treatment for a rare genetic condition known as neurofibromatosis type 1 (NF1). The name of the treatment is selumetinib, the development of which will now be expedited. We remain sellers.
Iomart (IOM) expects to “ deliver another year of revenue growth with consistent, strong profitability and cash generation”. For the 12 months to March 2019, it anticipates reporting revenues of around £104m – up from £97.7m – with adjusted cash profits around £42.2m, up from £39.8m, and adjusted pre-tax profits of around £25.3m – up from £24m. The group said that it has “reinvigorated” its sales and marketing efforts and the benefits of this were evident in the second half of the year. The shares were broadly flat at the time of writing. Buy.
Circassia (CIR) shares found modest support this morning after US regulators gave its new chronic obstructive pulmonary disease (COPD) drug Duaklir the green light. The treatment should be available to patients within the second half of 2019, and joins Circassia’s slowly evolving portfolio of respiratory medicines. The group has been busy transforming itself from an allergy specialist to follow more traditional therapy areas. Our recommendation is under review.
Smith & Nephew (SN.) shares nudged up on news of another acquisition - this time of Leaf Healthcare, a specialist developer of pressure injury prevention devices. Smith & Nephew has agreed to the deal following a two-year partnership with Leaf as an exclusive distributor and investor in its Leaf Patient Monitoring System - a wearable sensor that wirelessly monitors a patient's position and mobility in hospital. Commercial terms have not been disclosed, but we remain buyers.
Renew Holdings (RNWH) has released a short update on its trading for the half year to the end of March 2019. Its performance has improved on the previous year and been in line with expectations, with strong trading in engineering services and reduced activity in specialist building, “due to our continued approach to contract selectivity”. There aren’t any surprises in the update, and as a result the shares stayed flat on the news. Buy.
Analyst RBC Capital Markets has issued a note upgrading its recommendation on John Laing (JLG). Having previously expected the group to perform in line with its sector, RBC now expects it to outperform. Its raised hopes are due to the fact it is positioned to benefit from “a significant rise in infrastructure spending in the US and APAC regions”. The consequences are marked, with RBC raising the target share price by 95p to 425p. Buy.
The collapse of Interserve may end up having consequences for SThree (STHR). The Times is reporting this morning that Anne Fahy, the chair of the STEM-focused recruiter’s audit committee is coming under pressure from a fund manager-shareholder, due to her having held the same position at the now-defunct outsourcer. Ms Fahy is due to seek reelection at SThree’s AGM later this month. The shares are up two per cent this morning. Buy.
KEY STORIES:
Though its iron ore operations in the Pilbara are resuming, Rio Tinto (RIO) says the passing of Tropical Cyclone Veronica has resulted in damage to the group’s Cape Lambert A port facility. The impact to the site, which also suffered a fire in January, means Pilbara shipments in 2019 are now expected to be “at the lower end of the 338 and 350 million tonnes guidance provided”. Despite this, shares in the group are up 2 per cent this morning on positive manufacturing data from China.
Sports Direct (SPD) claims it has been contacted by “a number of other [Debenhams] shareholders in regard to Mike Ashley’s possible appointment to the board of the struggling department store chain. The retail group says shareholders are concerned with protecting their interests amidst the chain’s broader restructuring, following the approval of a refinancing plan by its lenders last week. Sports Direct has made a copy of a template letter available on its website should investors wish to use it to appeal directly to Debenhams board.
Payments company Network International has announced the price range for its IPO. This has been set at 395p to 465p per share, implying a market capitalisation upon admission of between £1.98bn and £2.33bn. The offer will entail the secondary sale of shares by Emirates NBD Bank PJSC and WP/GA Dubai IV B.V. The expected institutional offer size comprises at least 125m shares, assuming no exercise of the over-allotment option granted to Citigroup Global Markets Limited and excluding Mastercard’s $300m cornerstone investment – resulting in a free-float of at least 25 per cent at the time of admission. The company’s prospectus is expected to be published later today.
RedT Energy (RED) shares surged nearly 9 per cent after the energy storage company announced that it had raised the necessary funds through an open offer announced last month to proceed with a strategic review and a more comprehensive fundraising round to proceed. A number of institutional shareholders have taken up open offer entitlements and will apply for additional open offer shares, raising at least £560,000. This, added to the £940,000 it raised via last month’s share placing, means that the company has raised the £1.5m it needs to proceed with its plans.
OTHER COMPANY NEWS:
Bacanora Lithium (BCN) has today announced that “it remains in active discussions with the State General Reserve Fund of Oman” to conclude a proposed $65m strategic investment agreement to fund the miner’s Sonora project. The original strategic investment agreement with the sovereign wealth fund expired last July. Shares in Bacanora, which continues to target completion of its funding package this quarter, are down in early trading.
Last Friday afternoon, Micro Focus (MCRO) announced that it had received majority shareholder support for all resolutions proposed at its AGM expect for the resolution to approve its remuneration report – which received a 50.4 per cent vote against. Chair of the remuneration committee Amanda Brown said “We acknowledge and respect the concerns of our shareholders and have already committed to undertake a thorough review of our reward strategy this year with the objective of putting a new policy to shareholders at the 2020 AGM […]”. Separately, this morning, Micro Focus announced a “proposed return of value” of $1.8bn to shareholders, further to the completion of the sale of its SUSE business. It also plans to effect a share capital consolidation. The return and consolidation require shareholder approval. A general meeting has been scheduled for 29 April 2019.
Codemasters’ (CDM) trading through the second half has “continued to be strong”. It expects to report revenues for the year ending March 2019 of around £71m, with adjusted cash profits of around £18.5m and gross cash of around £18.4m. The adjusted cash profits are ahead of market expectations. They follow Codemasters’ joint development agreement with Netease, which was announced on 8 January 2019, and the launch of ‘DiRT Rally 2.0 in February. The shares were up 4 per cent this morning.
WANdisco (WAND) has won a $2.15m contract with a global provider of ICT infrastructure and smart devices in China. The client has bought a limited perpetual license to use WANdisco’s Fusion platform. The shares were up by around 6 per cent this morning.
Johnson Matthey (JMAT) will see Dr Xiaozhi Liu join its board tomorrow as a non-executive director, bringing a wealth of automotive experience in China and Europe to the specialty chemicals company. Meanwhile, current non-executive director Odile Desforges will step down from the board in July 2019, after six years on the board.
PPHE Hotels (PPH) has received planning consent from Hackney Council for the final phase of development of its art'otel London Hoxton site, which will total 32.246 square feet over 27 floors with 343 rooms Work on the site will begin in April, and it's expected to open in 2023. Shares were up nearly 1 per cent in early trading.
Serco (SRP) has won an extension to its Dubai Metro contract, and will operate and maintain the service until 2021. The contract constitutes a two-year extension to its existing deal with the Road and Transport Authority, and will include overseeing the “Red Line” expansion, which is currently under construction. The extension is worth £140m, and will support the growing view that Serco is setting itself apart from its troubled peers in the outsourcing sector.
