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News & Tips: Tate & Lyle, LondonMetric, Qinetiq & more

Shares are down sharply in London
May 23, 2019

Equities across the board in London are taking a kicking in morning trading as political uncertainty weighs on the pound. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 
 

IC TIP UPDATES:

Full year results from Tate & Lyle (TATE) indicate that statutory pre-tax profit has fallen by 16 per cent to £240m owing to £58m of exceptional costs (including a £43m charge on the sale of the oats ingredients business). Sales in food and beverage solutions increased by 5 per cent with sucralose surging by 13 per cent on a constant currency basis and producing adjusted operating profit growth of 11 per cent. In primary products, adjusted operating profit declined by 11 per cent with inflationary headwinds causing 5 per cent lower profit in sweeteners and starches. Shares were down over 4 per cent this morning. Recommendation under review.

LondonMetric’s (LMP) results for the year to March 2019 were overshadowed by news of a recommended cash and shares offer for A&J Mucklow (MKLW), valuing the target at 655p a share, a 19.7 per cent premium to the closing price the day prior to the offer being announced. The warehouse specialist reported 3.5 per cent rise in net rental income last year, which pushed adjusted earnings up 3.2 per cent to £61m. We place our buy recommendation under review.

Ahead of its AGM today, a statement from StatPro’s (SOG) chairman Rory Curran revealed that current trading remains in line with expectations. Looking ahead, it will focus on improving its cash-profit margins in all areas, and ensuring the success of the integration of the Delta platform. The group has recently announced two significant contract wins – a three-year contract with an EU investment manager with a minimum contract value of €1.2m, and a three-year contract extension with a top 20 fund administrator with a minimum contract value of £2.44m. Buy.

QinetiQ Group (QQ.) said a one-third increase in orders drove its full-year revenue and operational growth, as it predicts "mid-single digit" revenue growth for 2020. Underlying basic earnings per share increased by 2 per cent to 19.7p over the period, benefiting from the higher underlying profit after tax, while adjusted pre-tax profit increased by 2 per cent to £124m. Comparative profit performance took a hit from a £22.7m gain recorded the year prior due to the sale of property and other investments. The defence contractor proposed a 4.5p final dividend, up 7.1 per cent from 4.2p a year earlier. For the full year, the dividend rose 4.8 per cent to 6.6p from 6.3p the year before. Buy.

Young & Co (YNGA) has increased its full-year dividend for the twenty-second year in a row, after an 8.7 per cent increase in the premium pubco’s total revenue fed through to record cash generation of £69.2m. Total investments, including the acquisition of the 15 Redcomb pubs, came in at £67.1m, and caused a dip in group operating margins from 16.8 to 16.0 per cent. Chief executive Patrick Dardis also acknowledged the next two months face some tough comparisons with 2018’s balmy summer and football World Cup. Buy.

Subdued asset flows in the direction of Premier Asset Management (PAM) continued in the six months to March, as adjusted pre-tax profits edged up slightly from £9.03m to £9.26m in the period. Chief executive Mike O’Shea used the results to suggest that the group is well-positioned, “as investor confidence returns”, though a starting point “dominated by political uncertainty and low investor confidence, resulting in record low levels of UK investment industry net retail sales” points to challenges ahead. Under review.

Newriver Reit (NRR) reported an 11 per cent decline in adjusted NAV last year, after the portlio suffered a 6.4 per cent valuation decline. However, net property income rose 3.9 per cent to £90.5m. It also established a joint venture with BRAVO to acquire four retail parks in Aberdeen, Dundee, Inverness, and on the Isle of Wight for £60.5 million. Despite a 13 per cent decline in underlying funds from operations, the annual dividend was raised 3 per cent to 21.6p a share. We place our buy recommendation under review.

A trading update from Henry Boot (BOOT) indicates a strong pipeline of sales opportunities at Hallam Land which are expected to conclude in the remainder of 2019 (although there is some uncertainty regarding the timing of these deals). The group expects to achieve a higher level of activity within construction versus 2018 and is currently bidding for larger contracts to underpin the 2020 and 2021 order books. Slower UK construction activity means plant hire is slightly down on a like-for-like basis, although improved weather conditions have seen some recovery of activity. Barring any changes in underlying UK economic conditions, the group expects FY2019 performance to be in line with expectations. Buy.

After strong trading in the second half of the year, Gateley Holdings (GTLY) expects to report full year revenue of at least £102m (from £86.1m in 2018) and a 15 per cent increase in adjusted cash profits to at least £19m. The group has seen organic and acquisitive growth across all segments and a strong acquisition pipeline seeks additional growth opportunities through complementary professional services. Approaching 1,000 employees, staff numbers are continuing to grow as the group increases the breadth, depth and scale of services on offer. Full-year results are due to be announced on 16 July. Buy.

Following a “challenging” year, Renewi (RWI) has announced that revenue from total operations increased by only 1 per cent to €1.8bn (£1.6bn) for FY2019. With exceptional items totalling €146m (including a €64m write-off on the Derby gasification facility) the group suffered a statutory loss of $98m. The commercial division benefitted from strong price increases for inbound waste (offsetting lower recyclate income and increasing costs) resulting in 3 per cent revenue growth and an 0.9 percentage point margin improvement. However, with the ongoing suspension of the offset of remediated soil in the Netherlands, underlying EBIT plummeted by 65 per cent and margins by 5.3 percentage points. We remain sellers.

Shares in B&M (BME) dipped 4 per cent after the retailer unveiled its numbers for the year to March. UK store fascia like-for-like sales growth was weak at 0.9 per cent (last year the figure was 4.7 per cent). However, this accelerated to 5.8 per cent in the fourth quarter. Profits from Jawoll dipped 81 per cent to £1.1m, but management said the new leadership team was using B&M’s supply chain, and that customers were responding positively to the German retailer’s new products. We are reviewing our buy recommendation.

KEY STORIES:

Helical’s (HLCL) reported a 41 per cent rise in pre-tax profits during the year to March and an 18 per cent increase in the total property return. Net rents were down a third to £25.2m after disposals. The London and Manchester office landlord also incurred £4.4m in development losses following the collapse of Carillion at Barts Square, London EC1.

Investment platform provider AJ Bell (AJB) sounded a confident note in its first set of financial results since its December IPO, as chief executive Andy Bell suggested the listing would help to boost brand awareness “over the long term”. On recent form, despite choppy equity markets, growth seems all-but assured. Revenues as a percentage of assets under management crept up from 20.7 to 22 basis points in the six months to March, which together with a four per cent increase in assets under management fed through to a 32 per cent jump in operating profits. The shares, however, look toppy on 57 times’ Numis forecast earnings for the year to September.

Shares in Merlin Entertainments (MERL) are up 6 per cent this morning after activist shareholder ValueAct (which owns 9 per cent of the theme park group) published a letter to the chairman in which it advocated taking the group private. It said doing so would be possible at a “mid-£4GBP/share” price - a steep premium to the current share price. Presumably, the reason for making such a letter public is to put pressure on management, but Merlin has responded that it “remain in the best interests of all its shareholders to continue to pursue its current strategy”.

Serco (SRP) has announced the $225m (£178m) acquisition of the Naval Systems Business Unit (NSBU), a leading provider of ship and submarine design and engineering services to the US Navy, US Army and Royal Canadian Navy. NSBU has an order book of around $600m and a new business pipeline of over $2bn. It is expected to contribute around $370m of revenue and $27m of EBITDA in 2020, the first full year of ownership. The group’s net debt for FY2019 is now expected to increase to £250m (versus the £200n previously anticipated) and leverage to around 1.5 times on a pro forma basis. Shares were up almost 9 per cent in early trading.

A first quarter trading update from Intertek (ITRK) indicates that group revenue has increased by 5.3 per cent to £924.3m on a constant currency basis driven by broad-based organic growth of 3.3 per cent. The trade segment produced 6.5 per cent revenue growth with existing and new contracts fuelling double-digit organic revenue growth in government and trade services. Resources continues to benefit from investments in exploration and production of oil and minerals whilst the products division is benefitting from recent acquisitions made in high growth and high margin sectors. The group believes it is on track to deliver its 2019 targets of good organic revenue growth at constant rates, moderate margin expansion and strong cash conversion.

OTHER COMPANY NEWS:

Gas distribution network company Cadent has been handed a £44m penalty following an intervention from regulator Ofgem. It has agreed to pay £24m to address past failures and establish a £20m community fund. The company was found to have increasingly left residents living in blocks of flats without gas for longer than necessary when carrying out works, failed to pay required compensation and neglected to keep records of gas pipes in 775 high rise blocks of flats in its London network. National Grid (NG.) has a 39 per cent stake in the business, the sale of which is due to be completed next month.

S&U (SUS) has seen clients of its motor finance business surpass 60,000 for the first time, the specialist lender will tell investors at its AGM later today. Impairments and transaction volumes are also improving, while Aspen Finance, S&U’s property bridging lender, has increased its loan book from £18m to £22m since its year end.

PayPoint (PAY) has had success in rolling out its “PayPoint One” platform. It reached 12,881 sites in the year to March, ahead of its target of 12,400. It has also been expanding in its parcel business, signing up four new partnerships in the period, bringing the total to five overall. However, the closure of the Department for Work and Pensions’ Simple Payments Service weighed on revenues, pushing them down 0.9 per cent.

Shares in Inchcape (INCH) are up 2 per cent this morning after the group announced like-for-like sales growth of 3 per cent in the first four months of the year. Management has been working to optimise the retail portfolio in recent times and announced the disposal of its Honda and Mitsubishi sites in Australia. Cash flow was strong in the period, and management remains committed to its capital allocation policy, today commencing a new £100m share buyback.

Ahead of its AGM later today, Coats (COA) has released a trading update for the four months to April 2019 – revealing organic sales growth of 2 per cent year-over-year at constant currencies. This was driven by a 2 per cent improvement in apparel and footwear, and a 4 per cent rise in performance materials. That said, reported sales dipped 3 per cent – stemming from anticipated currency-translation headwinds. The negative impact of exchange rates is expected to be first-half weighted. The group said that it remains “cautious” about macroeconomic uncertainties – but still believes full-year results will be in line with management’s expectations.