Shares in London were selling off across the board in mid-morning trading as the pound weakened on news that talks over a Brexit compromise between the main Westminster parties were close to collapse. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Shares in Easyjet (EZJ) are up 4 per cent this morning after the group reported a strong start to the year. Passenger numbers were up 13.3 per cent to 41.6m in the six months to March, while capacity was up 14.5 per cent. However, revenue per seat is now expected to fall in the second half of the year, due to Brexit uncertainty and the wider macroeconomic slowdown in Europe. Buy.
As markets closed last night, Metro Bank (MTRO) announced the terms of its hotly-anticipated equity placing: a sale of 70 million shares at £5 a pop, some 5.2 per cent adrift of the stock’s five-day average closing price but more than three-quarters down on a January high. In the event, strong demand saw the sale expand to 75 million shares, raising £375m, which will be put towards growing loan balances and risk-weighted assets, “while investing in the expansion of stores and new technologies”. Assuming approvals are given at next month’s annual general meeting, the new shares will begin trading two days after, on 5 June. On a pro-forma basis (assuming none of the proceeds are immediately invested in the branch expansion programme), that would give Metro a common equity tier one (CET1) capital ratio of 15.6 per cent, five percentage points above its minimum regulatory level. News of the funding has pushed the stock up 19 per cent at 640p. Following the share dilution and cash injection, the book value is likely to be around 900p, though it’s hard to argue that this year’s debacle should award Metro a valuation as racy as the other challenger banks, or if its expensive business model is a wise place for investor capital. Sell.
Half-year results for financial adviser platform provider IntegraFin (IPH) filled in the gaps left out of last month’s trading update: a 25 per cent increase in earnings to 5.5p per share, a period-end cash pile of £111.8m, and a seven per cent increase in the top-line – despite a two basis point dip in the annual commission yield. The interim dividend has also been raised 8.5 per cent to 6.4p. Buy.
KEY STORIES:
Shares in Staffline (STAF) plummeted by over 50 per cent this morning as the group announced it expects to deliver adjusted EBIT in the range of £23m-£28m for the full year, far below analyst estimates of around £43m. Brexit uncertainty is spurring a number of customers to transfer a significant volume of their temporary workforce into permanent employment, notably in the higher margin driving sector. Additionally, reduced demand in the automotive sector and associated supply chain has been greater than expected. With lingering questions over the group’s historical compliance with national minimum wage regulations, the delayed publication of FY2018 results has also driven a slowdown in new contract momentum.
Shares in Just Eat (JE.) are down 7 per cent this morning after Amazon (US:AMZN) led a $575m (£444m) funding round for food delivery company Deliveroo. Just Eat has been under increasing pressure from Deliveroo and Uber Eats, who have been competing to corner the food delivery market. In spite of this, the group reported strong growth in its recent trading update, with orders up 21 per cent and sales up 28 per cent in constant currency terms.
OTHER COMPANY NEWS:
An AGM statement from John Menzies (MNZS) notes a positive start to the year with key contracts renewed and good visibility on summer schedules. Following a “poor start”, cargo volumes have improved but are still tracking behind last year. An efficiency programme is expected to reduce the ongoing cost base by over £10m, delivering incremental benefits in 2020. Staff turnover in the Americas remains higher than acceptable at major ports although the region continues to win and renew key contracts. In the UK, the Airline Services acquisition recently secured cabin cleaning contracts with British Airways and EasyJet. The process to appoint a chief executive is “progressing as planned” and the board expects this to conclude in early June.
Though ratings agencies Moody’s and Fitch have boosted the average credit rating of International Personal Finance (IPF) debt in recent weeks, the home and consumer credit provider hasn’t managed to improve its coupon in its latest bond offering. Last night, the group exchanged its notes due 2020, which carried a 6.125 per cent interest rate, for new fixed rate bonds, maturing December 2023 and carried a 7.75 per cent coupon.
Sage’s (SGE) organic revenues rose 6.2 per cent to £941m over the half-year to March 2019, with recurring revenues up 10.2 per cent to £779m. This was helped by 27.7 per cent software subscription growth, but tempered by an 11.8 per cent decline in SSRS (software and software-related services) – stemming from the ongoing transition to subscription. The organic operating margin edged down from 24.8 per cent to 23.2 per cent, after increased investment “to accelerate strategic execution” and a rise in colleague variable compensation. Sage expects full-year organic recurring revenue growth to be at the top-end or slightly exceed the guided range of 8-9 per cent, and SSRS and processing revenue to be at the lower-end or below the guided range of flat-to-mid-single-digit decline.
