Shares in London rose across the board in early trading, although progress was relatively muted. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Ahead of its first quarter results tomorrow, the board of Lloyds Banking Group (LLOY) has determined that its common equity tier-one capital ratio should decline by 50 basis points to 12.5 per cent (plus a 1 per cent management buffer). The decision was made following a revision, by the Prudential Regulation Authority, to the systemic risk buffer applied to Lloyds’ ring-fenced bank. Lloyds “remains strongly capital generative and continues to expect ongoing capital build of 170 to 200 basis points per annum”, suggesting the newly-freed up capital could be used for shareholder returns. Buy.
London Stock Exchange (LSE) saw income rise 5 per cent year-on-year to £546m in the first quarter of 2019, thanks to a steady rise increase in revenues from the information services division, and a 17 per cent surge in income from the LCH clearing house business. LSE said it had seen “no discernible change to customers’ use” of the SwapClear, though post-trade income in Italy fell, and sluggish equity trading volumes reduced capital markets revenues at home. The shares, up 1.6 per cent in early trading, are a buy.
Shares in RPS (RPS) fell by 4 per cent this morning upon announcement that fee income remained flat at £141.9m on a constant currency basis during the first quarter. Segment breakdown indicates good market conditions benefited energy and Norway whilst consulting UK and Ireland met expectations against a backdrop of political and economic uncertainty. Continuing headwinds impacted North American performance with client delays in the commencement of work and a slower start to the environmental due diligence market. The acquisition of Corview has strengthened the group’s position in the Australian transport sector but a related £8.6m net cash outflow pushed group net debt up to £89.6m, a 21 per cent increase from FY2018. For now, our view remains unchanged. Buy.
Avon Rubber (AVON) shares fell as much as 7 per cent in morning trading, as the respiratory systems’ first half was hit by the US government partial shutdown and “challenging dairy market conditions”, the latter of which hurt its milkrite business. Statutory pre-tax profits fell 64 per cent, driven downwards by a decrease in Law Enforcement revenues, although Avon’s revenues from its military work with the rest of the world were strong. The group does not expect stronger second half Law Enforcement performance to offset the weak first half, but “rebounding milk prices and farmer confidence” is helping milkrite.
Spirent Communications (SPT) said first-quarter revenues and earnings grew compared to the same period in 2018, and trading performance is in line with its plan. The order pipeline is “robust” and order intake saw “solid growth” year-over-year. Spirent expects the year to be second-half weighted, as is typical. Management’s outlook hasn’t changed. As previously announced, Eric Updyke became chief executive as at today. The shares were up by around 1 per cent this morning. Buy
Castings (CGS) shares bounced 11 per cent after a pre-close trading update disclosed an improvement in margins during the iron casting and machinery business’ second half, owing to strengthening productivity and a reversal in the time lag in passing on raw material price increases. Initiatives in the embattled machining business are beginning to bear fruit, especially in the final quarter, “although it will still take time for these to be fully realised”, the company says. Management has on a handful of occasions set itself timelines of at least two years to turn machining around - we await more detail on the measures the company is putting in place. Sell.
Tracsis (TRCS) has acquired Bellvedi – a UK-based provider of timetabling optimisation software for the rail industry. For the year to March 2019, Bellvedi saw revenues of £1.6m, pre-tax profits of £0.7m and had net assets of £0.9m. It is debt-free. Tracsis will pay an initial £3.7m in cash for the company, funded out of its cash reserves, and will issue 45,525 new ordinary shares in Tracsis at 648p, valued at £0.3m. An additional payment of around £0.9m will be made on a pound-for-pound basis to reflect the business’s net current asset position at completion. There will also be performance-dependent additional contingent consideration of up to £7.9m. Buy.
Imperial Brands (IMB) has signalled that it is looking to sell its luxury cigars business Premium Cigars, as part of a divestment programme that is expected to generate total proceeds of up to £2bn by May 2020. The group’s rationale for the disposal is that Premium Cigars has “a different consumer base and route to market relative to Imperial's other businesses”. Imperial has thus far made £280m from its disposals. Buy.
KEY STORIES:
Provident Financial (PFG) stepped up its attack on potential acquirer Non-Standard Finance (NSF) today, in a series of statements to the market. Arguing NSF’s hostile bid should be rejected, the sub-prime lender says a recent extension in the offer until 15 May would still fail to provide shareholders with certainty that the deal would be approved by regulators. Given the all-share nature of the offer, Provident also said the decline in NSF’s share price since the February bid also undervalues the target. Third, Provident drew attention to NSF’s handling of its “unlawful dividend payments and share buy-backs” since its initial public offering, and again questioned the post-acquisition strategy. The war of words follows a last-minute pitch for Provident shareholder backing from NSF chief executive John van Kuffeler, though the would-be acquirer is currently far short of the 90 per cent of acceptances needed to clear the deal.
Persimmon (PSN) reported a £100m decline in total forward sales during the first quarter at £2.7bn, following management plans to hold-back sales releases on a number of sites and improve the quality of homes. Active sales outlets declined to 350, from 375, and the weekly private sales rate was 5 per cent lower than last year. Management expects flat sales reservations during the first-half on the prior year.
Following last week’s disappointment when the Competition and Markets Authority blocked the proposed merger between J Sainsbury (SBRY) and Asda, investors have been waiting to learn what comes next. This morning, Sainsbury announced its full-year results, complete with a renewed commitment to the strategy it first laid out in 2014; namely improvements to customer service and good products at fair prices, however, it has added commitments to reduce debt by £600m over the next three years, while investing in its store network and digital offering.
OTHER COMPANY NEWS:
IWG (IWG) has announced that group revenue increased by 10.6 per cent on a constant currency basis during the first quarter to £658m. With net growth capital investment of £43.3m, 55 new locations were added taking the total to 3,311. The group has visibility on net growth capital expenditure for 2019 of around £230m and 220 locations. Net debt has increased to £534.1m (from £460.8m) but this excludes the £320m of gross proceeds from the divestment of Japanese operations which are expected this month. The “landmark” agreement with TKP reflects the group’s focus on franchising as a key growth driver and with “strong momentum in this strategy” they anticipate further deals in the future.
Sales at Next (NXT) have come in 4.5 per cent above last year, 1.3 per cent above management expectations. This was due in large part to unusually warm weather over the Easter break, leading to increased visitors to retail stores. However, management warned the strong start had no bearing on the expected performance for the rest of the year. It maintained pre-tax profit guidance of £715m for the year, down 1.1 per cent on last year. The group warned that EPS growth was expected to be 3.4 per cent, versus previous guidance of 3.6 per cent, as the recent share price rise weighs on the planned £300m buyback.
Following the announcement of a recovery strategy in January, Connect Group (CNCT) reports that “progress is on track in all key areas”. However, a “challenging first half” has seen adjusted pre-tax profit decline by 34.4 per cent to £9.9m. A 4 per cent decline in revenue at Smiths News was offset by ongoing cost efficiencies and the division saw accelerated renewal of publishing contracts secure 98 per cent of magazine revenues and 65 per cent of total revenues. With adjusted operating loss increasing from £0.2m to £8.6m, Tuffnells continues to show weakness hindered by the carry-over of customer losses and lower consignment volumes. As they continue to address underlying issues, management aims to deliver “tangible benefits in the second half”.
Inmarsat’s (ISAT) first-quarter revenues rose by 0.4 per cent year-on-year to $346.9m. Excluding Ligado, the increase was 10.7 per cent. By division, government sales increased by 28.6 per cent to £101m, and aviation sales rose 53.4 per cent to £85.9m. Maritime sales declined by 9.5 per cent to £129m – reflecting double-digit growth within its VSAT segment, alongside challenges in the mid-market. Enterprise sales declined 13.8 per cent to £28.2m. Post-tax losses of £272m (from £53.6m in profits) came after a change in the unrealised conversion liability on the group’s 2023 convertible bond of $298m. There were also costs relating to the recommended offer for the group by a private-equity consortium (announced in March 2019). This offer is subject to a shareholders’ vote on 10 May and regulatory approvals.
Vanadium producer Bushveld Minerals (BMN) will spend $68m (£52m) on a new plant in South Africa, plus a further $45m on refurbishment over five years that will eventually add 4,000 tonnes of vanadium per annum to its output. The miner said it was negotiating loans but would largely fund the acquisition from cash reserves. Bushveld was up 15 per cent on the news, to 28.7p.
Visa International Service Association’s offer for Earthport (EPO) has become unconditional as to acceptances. The offer will remain open until further notice, and the bidder said Earthport shareholders “who have not yet accepted the Offer are urged to do so as soon as possible” in accordance with procedures that it has outlined.
