Click here to read this morning's Market Outlook on the Italian deputy prime minister, a US trade representative and the morning's market movements from The Trader.
IC TIP UPDATES:
Is this the end of the road for Debenhams (DEB)? Shares in the stricken department store chain were suspended this morning after the company failed to reach an agreement with its largest shareholder – Sports Direct (SPD) – to try and secure its financial future. Debenhams rejected a £150m injection from Mike Ashley (pictured) yesterday, and turned down a revised offer of £200m this morning, effectively handing control to the group’s lenders. The remaining portion from a £200m refinancing secured at the end of March could be released to subsidiary companies “upon transfer of those subsidiaries into the ownership of a lender-approved entity”, although this result would mean current shareholders are wiped out. Prior to their suspension, we rated Debenhams’ shares a sell.
Egyptian gold miner Centamin (CEY) faced down a revolt against director pay at yesterday’s annual general meeting, passing a resolution approving last year’s remuneration report with just 66 per cent of votes in favour. However, the board said it was satisfied that revisions to the 2018 annual bonus plan, amended in the new directors’ remuneration policy and performance share plan, had cleared up any outstanding issues – given that both resolutions were backed by 99 per cent of shareholders. We remain buyers.
US regulators have approved GlaxoSmithKline’s (GSK) once-daily, single-tablet HIV drug Dovato following extensive testing of more than 1,400 HIV-positive patients. The drug is also under review by the European Medicines Agency (EMA), as well as regulatory authorities in Canada, Australia, Switzerland, and South Africa.There are several additional submissions planned throughout the remainder of 2019. Buy.
Premier Asset Management (PAM) gained net inflows of just £3m during the first three months of the year, compared with £175m the same time in 2018. However, that represented the 24th consecutive quarter of net inflows. Assets under management were up 6 per cent year-on-year to £6.8bn. However, over the six months to the end of March, assets fell slightly from £6.9bn, following £140m in negative market movements. We place our buy recommendation under review.
City Pub Group (CPC) reported a 22 per cent increase in revenue to £45.7m during 2018, with adjusted cash profits up 28 per cent to £7.9m. The company opened 11 pubs in 2018, bringing the total in operation to 44, and is on track to meet its goal of having between 65 and 70 pubs in its estate by mid-2021. Another six locations have been identified for the current financial year. The pub group raised £6.2m of new equity in October, which management said gives it the ability to act quickly when new sites are identified. Shares were up more than 5 per cent in early trading. Buy.
Sumo Group’s (SUMO) revenues for 2018 came in at £38.7m, up by 35.3 per cent (excluding pass-through revenues), while the gross margin rose from 46.4 per cent to 47.6 per cent. Performance was buoyed by organic growth at Sumo Digital, and the first full year of ownership of Atomhawk – which contributed £2.7m in sales. Pre-tax losses narrowed from £28m to £0.5m. The group won Apple as a client, and now has two own-concept games under development for ‘Apple Arcade’. It also won other new (undisclosed) clients at the end of the year. Sumo now has “an unusually high degree of earnings visibility” with around 88 per cent of Sumo Digital’s forecast 2019 development fees already contracted or nearly contracted. Buy.
Nanoco’s (NANO) revenues for the six months to 31 January 2019 came in at £3.2m, up from £0.2m a year earlier. Billings (including deferred revenues) were £4.3m, up from £0.1m. Adjusted cash losses contracted from £4.2m to £2.5m. Reported pre-tax losses were £3.1m, against £4.8m. Management noted that it hit all key milestones for its undisclosed US customer, “launched a major re-allocation of resources to focus on near term revenue opportunities” and lifted its research and development resources directed at driving the performance of its cadmium-free quantum dots for commercial applications. It added that Nanoco’s contracted orders “fully underpin” its full-year expectations. The shares were down by around 4 per cent at the time of writing. Recommendation under review.
KEY STORIES:
Over the past two years, most announcements from Rio Tinto (RIO) concerning capital allocation have involved the return of cash to shareholders. But with the approval of the $463m development of the Richards Bay Minerals project in South Africa, the commodities giant appears to be re-investing in its portfolio. The expansion of RBM, which produces high-margin zircon and rutile, is expected to begin later this year and conclude by late 2021. It also promises a 24 per cent internal rate of return, higher than the Toliara sands project Base Resources (BSE) is hoping to develop (and which carries an up-front capital cost of $439m). Meanwhile, local media in Western Australia have reported Rio’s Dampier Port facility has experienced another fire, raising the prospect of further disruptions to iron ore supply this year.
OTHER COMPANY NEWS:
In 2018, production from Amerisur Resources’ (AMER) onshore wells in Colombia grew 10 per cent to 5,356 barrels of oil per day (bopd). In the first quarter of 2019, output declined to 4,600bopd, and full-year guidance is notable by its absence. The explorer-producer would rather investors focus on its fully-funded $35m drilling programme, which is targeting gross prospective resources of 145 million barrels of oil across the CPO-5 and the Putumayo fields.
Not wanting to be outdone by rival Gulf Keystone Petroleum (GKP), fellow Iraqi Kurdistan-based explorer-producer Genel Energy (GENL) has brought forward its maiden dividend by a year. Having signalled its intention to start paying a minimum distribution of $40m a year from 2020, Genel has received a waiver from its bondholders to distribute $27.9m to shareholders in respect of the 2018 financial year. If approved at the group’s annual general meeting on 16 May, the 10¢-a-share dividend will be paid out to shareholders on the register at 24 May, and is set to be followed by a 5¢-a-share distribution with interim results.
Has the tide turned in the diamond market? Producers will be hoping that’s the signal from De Beers’ third auction of 2019, which netted the Anglo American (AAL) subsidiary $575m, up some 16 per cent on the most recent sales cycle. The sale, which De Beers chief executive Bruce Cleaver characterised as a “continuation of stable demand for rough diamonds”, was also up 10 per cent on the same auction in 2018.
Luceco (LUCE) shares rose as much as 5 per cent in early trading, despite contractions in revenue and profits for the LED specialist at its full-year results. A weak end to a prior year that was dogged by issues surrounding the valuation of Luceco’s inventories was carried into the first half of 2018. Remedial measures have been taken, while the business experienced revenue growth overseas, with particularly strong expansion in Europe and Asia Pacific. Improved working capital management also helped Luceco improve its cash generation and reduce its net debt.
Shares in Stride Gaming (STR) fell 13 per cent in early trading after the online gambling operator warned that net gaming revenue would be 5 per cent lower expected due to “greater disruption” fiscal and regulatory changes in the second half of the 2018 calendar year. The company does not expect to make up for this revenue shortfall in the second half of the year, but is still working towards moving customers onto its higher margin platform.
