London's main equity indices are off colour in morning trading. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
WPP’s (WPP) reported revenues for the first quarter were up 0.9 per cent, with like-for-like revenues less pass-through costs down 2.8 per cent. Chief executive Mark Read noted that “We continue to make good progress in implementing our three-year strategy to return WPP to sustainable growth” – though, as anticipated, this trading update “reflects the impact of certain significant client losses in 2018, in particular in the United States”. While “we face a challenging year, especially in the first half”, full-year expectations remain unchanged. Average net debt reduced from £4.88bn in the first quarter of 2018 to £4.16bn in the first quarter of 2019, after the disposal of non-core assets and subsidiaries. Recommendation under review.
AstraZeneca (AZN) reported a 14 per cent rise in product sales at constant currencies during the first quarter, boosted by a 59 per cent increase in global oncology sales. An improvement in operating margins meant core operating profit jumped by more than two-thirds to £$1.65bn. However, management said this year’s cash performance is expected to be adversely impacted by a number of one-off payments relating to prior business-development transactions, most of which were made during the first quarter. However, core operating profit is expected to be ahead of 2018 by a mid-teens percentage. Sell.
Shares in Stagecoach (SGC) were up more than 8 per cent after the transport company announced a share buyback programme of up to £60m. The company stated that the exclusion from the three rail contracts it had bid for, along with the sale of the North American business, meant that this was an appropriate use of the cash. The buyback aims to reduce Stagecoach’s share capital and will take place over the next 12 months. We’re still wary of the UK bus business that’s left over. Sell.
KEY STORIES:
Glencore (GLEN) has announced another US agency is looking into possible corruption in its trading division. The United States Commodity Futures Trading Commission (CFTC) will investigate a similar area to the Department of Justice, which has been looking into the company’s trading activities in Nigeria, Venezuela and the Democratic Republic of Congo since July last year. The CFTC can only bring civil penalties or ask for individuals to be banned from certain jobs. In a statement, Glencore said its investigations committee, headed by chairman Tony Hayward, would cooperate with the CFTC. Following the news, the Swiss mining and trading company was down 3.3 per cent to 310p.
Despite beating first quarter earnings forecasts, Royal Bank of Scotland (RBS) shares are down 5 per cent in early trading today after the bank suggested “the ongoing impact of Brexit uncertainty on the economy, and associated delay in business borrowing decisions” would hamper near-term income growth. The return on tangible equity more than doubled quarter-on-quarter to 8.3 per cent, while the common equity tier one ratio climbed 30 basis points in the period to 16.2 per cent.
Van Elle (VANL) said that uncertainty in its markets, particularly in the infrastructure sector, led to contract delays last year. That means that sales are expected to fall short of levels previously expected by around 3 per cent and adjusted pre-tax profits will fall slightly below the lower end of the market consensus range. However, operational weaknesses in the Piling Division are being addressed, with the margins improving during the fourth quarter.
Shares in Computacenter (CCC) were up by more than a tenth this morning following release of its first-quarter trading update. Revenues and profits were ahead year-over-year on a like-for-like basis, before the positive impact of acquisitions; this is above the group’s original expectations, as the first half “presents us with a challenging comparison”. The UK saw revenue growth, notwithstanding the large one-off software licence deal seen in the first quarter of 2018. Meanwhile, as indicated at the time of its full-year numbers, one of the group’s largest German customers slowed down their cloud infrastructure demand – but business with other German customers “more than compensated for this”. The group says it remains “firmly on track” to deliver on its full-year expectations.
Shares in FairFX (FFX) are up 11 per cent this morning following release of the group’s full year results. The e-banking and payments group’s sales rose 39 per cent on a like-for-like basis to £26.1m, while adjusted cash profits rose more than sixfold to £7.51m.
OTHER COMPANY NEWS:
In a first quarter trading update, Rotork (ROR), manufacturer of flow control and instrumentation systems, announced an improvement in order intake on the fourth quarter of 2018, caveated by an anticipated drop in a number large greenfield orders, mainly from the downstream oil and gas end user market. Rotork’s net cash position has risen to £46.5m from £43.6m at the close of Q42018. The company expects lower year-on-year sales for the first half, owing to a strong comparator period, while full-year margins should grow.
In a first-quarter trading update, Pearson (PSON) said underlying revenues grew by 2 per cent. Revenues grew 2 per cent in North America, 4 per cent in its core business and were flat in its growth division. The group is on track to deliver its annualised cost savings of more than £330m exiting 2019. Guidance for 2019, after adjusting for accounting rules IFRS 16 (pertaining to leases) and the disposal of its US K12 courseware business, remains unchanged. It expects to see adjusted operating profits within a range of £590-640m. Net debt for the respective three months declined year-over-year to £0.5bn from £0.6bn, on a pre-IFRS 16 basis. Post IFRS 16, first-quarter net debt was around £1.2bn.
Shares in Princess Private Equity (PEY) are up this morning, after posting a three per cent rise in its net asset value to €11.51 per share in March. The bulk of the gains came from portfolio developments, as it received €11.8m of distributions, and invested a further €9.8m in the month, while a further €3.2m was banked from the partial divestment of shares in software provider Ceridian, which listed in New York last year.
Insurance provider Hastings Group (HSTG) saw gross written premiums climb 4 per cent year-on-year to £235.5m in the first quarter of 2019, though a competitive market, lower earn-through premiums and lower reinsurance income cause net revenue to dip on per cent to £183m. In response, shares are down 11 per cent in early trading. Separately, the group announced that incoming chief financial officer John Worth will be formally appointed as a director on 10 May, and will take over from Richard Hoskins.
With cash burn accelerating in the past year, intellectual property investor Allied Minds (ALM) has taken the radical step of pausing all investments into new companies, while further reducing annual central costs to $5-6m. That’s a sharp pivot from 2018, when an aggregate $84.9m was invested into new and existing portfolio companies, as full-year results today outline. At the end of the period, net cash and investments stood at $97.7m, down from 42 per cent owing to delays at the group’s life sciences companies.
AJ Bell (AJB) can boast a strong start to life on public markets since it listed last December. A second-quarter update from the investment platform provider again showed strong momentum, as total customer numbers increased 5 per cent, and assets under administration leapt 8 per cent to £47.7bn. The number of defined-benefit pension transfers to the advised platform declined, though still added to inflows during the period. As a result, analysts at Numis increased their earnings forecasts by 4 per cent for the year to September, 9.5 per cent for the FY2020, and 14 per cent for the following year.
PPHE Hotel Group (PPH) announced that Arena Hospitality Group, of which it is a controlling shareholder, has acquired 88 Rooms Hotel in Serbia for HRK 47m (£5.5m). This acquisition is being done through Arena’s subsidiary Sugarhill Investments. The deal is expected to complete by the end of 2019. Shares were flat in early trading.
