Shares in London continue to decline on trade war fears and rising geopolitical concerns around Iran. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Imperial Brands (IMB) shares ticked down 4 per cent in morning trading on the release of its half-year results. The tobacco group revealed that profits had increased by more than a third, with performance driven by its vaping brand, blu. Its next generation products have fared particularly well in Europe, Japan and the US, which have secured revenues of £148m, representing a rise of 245 per cent. Buy.
Joules (JOUL) has announced it’s new chief executive. Nick Jones, currently a member of the executive board of Asda, will start before the end of the calendar year. Current chief executive Colin Porter announced his retirement at the beginning of April, and will leave before the fashion retailer’s 2020 financial year end’s next May. Besides Asda, Mr Jones worked at M&S (MKS) for 15 years, joining as a graduate and working his way up to director of home, beauty and gifts. Buy.
A trading update from Morgan Sindall (MGNS) has revealed a “strong start to the year” with all divisions making “positive operational and strategic progress”. Driven by property services, the committed order book has increased by 8 per cent to £3.8bn whilst the regeneration and development pipeline has risen by 2 per cent to £3.2bn. A strong cash position means average net daily cash for the year is expected to exceed £85m. Focusing on contract selectivity and operational delivery, construction and infrastructure is expected to deliver margin improvement. Average capital employed for the year for urban regeneration and partnership housing is anticipated to be around £95m and £150m respectively. With continuing “positive momentum”, we remain buyers.
Keystone Law (KEYS) has announced revenue increased by 35.1 per cent to £42.7m for FY2019. Total fee earners increased by around a fifth to 321 driven by an increase in both principal lawyers and a demand for juniors to support them. The business also benefitted from around £2.2m of revenue from a “significant piece of litigation work”. With a lower proportion of “central office owned clients”, the gross profit margin slipped slightly to 27.1 per cent (from 27.6 per cent in 2018), however this was largely offset by an increased contribution from higher margin lawyers employed by central office. Operating cash conversion stands at 91 per cent and net cash has improved by 75 per cent to £6.3m. Buy.
London investors have reacted with a shrug to SolGold’s (SOLG) announcement about a new porphyry discovery in northern Ecuador. The copper and gold developer said its Chical project, near the Colombian border, looked similar in geological makeup to its major Alpala deposit and several other SolGold prospects, according to copper contained in rock chip samples. The company’s exploration manager Jason Ward said there was also “potential for early high-grade gold resources”. SolGold currently has three drill rigs working on upgrading the Alpala resource, which stands at 8.4 million tonnes of copper and 19.4 million ounces of gold. Buy.
KEY STORIES:
ITV’s (ITV) first-quarter performance was “as expected”. Total external revenues declined 4 per cent to £743m, with growth in ITV studios revenue and video-on-demand revenues tempered by a decline in spot advertising, “impacted by the timing of Easter and economic and political uncertainty”. Total ITV studios revenues edged up by 1 per cent to £385m. ITV broadcast and online revenues were down 7 per cent to £489m. As guided, the first half will be affected by ongoing economic and political uncertainty (and the impact on the demand for advertising), no Football World Cup, planned investments, the pre-launch costs of ‘BritBox’ and the timing of ITV studios deliveries. ITV expects full-year double-digit online revenue growth and “good organic revenue growth” in ITV Studios. The shares were down by around 3 per cent this morning.
BHP (BHP) says it will fight a $5bn (£3.84bn) compensation claim filed in a Liverpool court on behalf of 235,000 people hit by the 2015 Samarco tailings dam disaster. The legal filing says the major miner built up the iron ore operation’s dam against the advice of engineers in order to keep increasing production. BHP, which has a month to respond to the 125-page statement of claim, said it would defend the claim. There are also ongoing court cases in Brazil and Australian shareholders have launched a class-action suit in relation to Samarco. BHP’s share price was flat on the news in London and Australia, with the prospect of a major UK lawsuit already priced in.
Direct Line (DLG) reirated guidance for a combined operating ratio of between 93 and 95 per cent for 2019. The motor market remained competitive, with gross written premiums declining 4.2 per cent during the first quarter, with claims inflation at the upper-end of the long-term expectations of 3-5 per cent, primarily due to the continuation of higher motor third-party property damage costs.
Like-for-like sales at Travis Perkins (TPK) were up 7.3 per cent during the first quarter, with Toolstation growing sales almost a fifth while it also continued to expand the store network. Retail sales rebounded from last year’s like-for-like decline, with Wickes posting 10.5 per cent growth.
OTHER COMPANY NEWS:
Telit Communications (TCM) has announced the resolution of a dispute with the Italian tax authorities regarding the merits of VAT assessments for the 2004-2007 tax years (as described in an earlier announcement from Telit on 12 Jan 2018). Telit’s Italian subsidiary has agreed to pay around €0.4m without any admission of liability, to close the matter and “to avoid associated costs and distraction”. The group said it “continues to vigorously defend its position with regard to tax penalty deeds separately issued against Telit in August 2015 which was announced on 19 March 2018”. It “has been advised that its position in this matter remains strong”.
At the Emis (EMIS) AGM being held later today, the group chairman will say that trading for the year to date is in line with management’s expectations. It is focused on the execution of its strategy as set out at its capital markets day last November, with the recent disposal of its non-core specialist and care business representing an important step towards focusing the group on its medium-term growth plan. The group “is deploying improved internal systems, which are expected to drive greater efficiencies during 2019 and beyond”.
The automotive retail sector is a difficult place to be. And yet, even as profits fall, Vertu Motors (VTU) has managed to deliver results ahead of expectations. The group reported adjusted pre-tax profits of £23.7m in the year to February, down from £286m on last year’s level. Cash conversion improved, with free cash flow almost doubling to £21.2m in the year. However, the use of car stocking loans pushed the group into a debt position - albeit just £300,000 - from net cash of £12.8m last year.
In a first step into the Nordic region, Midwich (MIDW) has announced the acquisition of AV Partner AS, a Norwegian value-added distributor of audio visual products. Expanding the group’s European footprint, this latest addition marks the third new country for Midwich in 2019 following the acquisitions of Prase (Italy) and MobilePro (Switzerland).
A trading update from refractory manufacturer RHI Magnesita (RHIM) revealed trading performance consistent with management expectations, with particular success in the industrial division, which has been driven by higher sales in its cement business in China and South America. The company remains wary, however, of the macroeconomic outlook and uncertainties in customer end markets, particularly in terms of plant volumes and production costs. Steel division revenues were flat in the first quarter against last year’s comparable period, with growth in North America and Asia offsetting a slowdown in deliveries in Europe and South America.
Residential repair materials distributor Grafton (GFTU) reported a 6.1 per cent rise in group revenue for its first quarter to £962m, driven by “a positive trading performance and more favourable weather” compared to last year’s first quarter. But chief executive officer Gavin Slark said that “underlying demand in the UK RMI market remains relatively subdued”.
Shares in Manx Telecom (MANX) have been suspended from trading on Aim this morning - as outlined by the group last Friday, when it announced that the scheme of arrangement enabling the acquisition of Manx by Basalt Infrastructure Partners had been sanctioned by the court. At the time, the group said that - subject to the scheme becoming effective - it is expected that the admission of Manx’s shares to trading on Aim will be cancelled at 7am on 10 May 2019.
