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News & Tips: Telecom Plus, GB Group, BHP & more

Equities in London are largely flat in morning trading
April 17, 2019

News of weak house price growth and lower than expected inflation has failed to move the dial for London equities this morning. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES:

Telecom Plus (TEP) said it saw record revenues, profits and dividend for the year to March 2019. Customer numbers grew by 4 per cent, against 0.5 per cent in FY2018, while service numbers grew by 8.2 per cent, against 2.3 per cent in FY2018. The total dividend was lifted from 50p to 52p. That said, adjusted pre-tax profits are “expected to be towards the lower end of previous guidance at around £56m” – against £54.3m a year earlier – caused partly by a warm winter and the Ofgem price cap, which lowered energy revenues during the fourth quarter. Underlying cash flow was strong, but net debt rose to around £38m from £11.2m, after high working-capital requirements. The shares were down by around 4 per cent this morning. Recommendation under review.

Shares in GB Group (GBG) were up by around a tenth this morning after the identity data intelligence group released a positive trading update for the year to March 2019. It expects to report total revenues of £143m – up by 19.7 per cent and ahead of market consensus. On an underlying constant-currency basis, organic revenues were up by 11.3 per cent. It expects to report adjusted operating profits of around £31.7m, a 20.6 per cent rise year-on-year and also ahead of market consensus. Net debt was £66.3m, against £13.5m net cash, after GB used cash and debt to buy Vix Verify global and a further £86m of debt to help finance its purchase of IDology. Buy.

Shares in Learning Technologies (LTG) were up 6 per cent this morning after the group announced its acquisition of Breezy – a talent acquisition software business serving small-to-medium-sized businesses – for an initial $12m. This will be funded by the group’s existing cash and bank facilities – and will support LTG’s ambition of achieving run-rate operating profits of at least £55m by the end of 2021. Breezy will sit within PeopleFluent as part of LTG’s software and platforms division. Buy.

Dart Group (DTG) expects pre-tax profits before foreign exchange for the year to March 2019 to be “slightly ahead” of current market expectations thanks to a good performance in the leisure travel business. At the interim results in November last year the company took a cautious tone on demand over the medium term due to uncertainties around the UK economic outlook, especially that related to Brexit. Summer 2019 booking “reflect some consumer uncertainty” with “more competitive” pricing for flights and packaged holidays. This might suggest some pressure on ticket yields. Shares were flat in early trading. Sell.

Bunzl (BNZL) has announced that underlying revenue growth slowed to 2.5 per cent on a constant-currency basis in the first quarter of 2019. In North America, a lack of volume growth and product price inflation adversely impacted sales in the grocery and retail sectors. Consequently, underlying growth was just 1 per cent. The group notes “good” growth in the safety, processor, agriculture and convenience store sectors. The recent acquisition of Netherlands-based specialist packaging distributor, Coolpak, is in keeping with the group’s acquisitive growth strategy. With a “promising” pipeline, it expects further acquisitions this year. Shares fell by more than 12 per cent in early London trading. We place our current Buy recommendation under review.

Wizz Air (WIZZ) announced that Andrew Broderick has been appointed to the board as non-independent non-executive director. Mr Broderick has been a director of Indigo Partners, a private equity fund focused on air transportation, since July 2008, and has sat on the board at Frontier Airlines and JetSMART Airlines. Shares were flat in early trading. Buy.

KEY STORIES:

Countryside Properties (CSP) announced that private reservations during the first-half were at the top-end of its target range - although in line with the prior year at a rate of 0.86 - following a strong second quarter. Total completions were up 43 per cent to 2,362 although the average private selling price declined 4 per cent to £377,000. Shares were up 7 per cent in early trading.

Nine months into its financial year, BHP (BHP) is on track to meet its production guidance for petroleum, copper and coal. However, like peer Rio Tinto (RIO), BHP has downgraded its Western Australia iron ore production guidance from 273 to 283 million tonnes to 265 and 270 million tonnes, following the impact of the Tropical Cyclone Veronica. Unit costs have also edged up from “less than $14 per tonne” to “below $15 per tonne” for the iron ore division, and are also up by as much as 19 per cent for the New South Wales energy coal division.

DS Smith (SMDS) has agreed to sell two packaging businesses in North Western France and Portugal to International Paper (US:IP) for €63m, in fulfillment of a commitment made to the European Commission when it sought clearance for its January acquisition of Spanish rival Europac. Shares were flat on the announcement.

Following a 47 per cent fall in market value over the past 12-months, shares in Meditech International (MDC) staged a minor rally in early trading as the private hospital group revealed that full-year cash profits are expected to fall by around 3.5 per cent – a slightly better result than analysts had feared. The impact of regulatory changes in the Swiss healthcare market and further margin pressure in its South African business constrained profitability despite an uptick in revenues.    

OTHER COMPANY NEWS:

The outlook for the rest of 2019 “remains positive” for Hunting (HTG), per a trading update from the oil services group this morning. But the first quarter was nonetheless mixed. While the US has traded ahead of expectations, powered by robust onshore markets, though the North Sea and other offshore contract work remains subdued – or “low in comparison to historical levels”. A further rise in working capital has also caused net cash to dip 27 per cent to $45m.

How much cash is Serica Energy (SQZ) generating, now that its BKR acquisition in the North Sea is complete? There’s not too much to glean from full-year results, which only reflected one month of post-completion income, though a $36.9m increase in cash balances in the first three months of 2019 hints at the current profitability of net daily production of more than 30,000 barrels of oil equivalent. Post-tax profit for 2018 climbed 337 per cent to $74.7m, though this was in large part thanks to a bargain purchase gain of US$52.9 million on the BKR acquisitions.

Dialight (DIA) shares trickled upwards by around 3 per cent in morning trading following an AGM trading update. All but two of its smaller product lines have reached acceptable on-time delivery levels, the lighting specialist claims, and all are expected to be fully recovered by the end of the first half of 2019. Dialight expects to have fully exited its disastrous partnership with manufacturing partner Sanmina by the end of the first half.