After a solid rebound in UK shares, revived trade concerns have brought profit takers back into the ring today with the FTSE100 taking the brunt. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Reckitt Benckiser (RB.) announced that Laxman Narasimhan will take over as chief executive to succeed Rakesh Kapoor. Mr Narasimhan is currently the global chief commercial officer at PepsiCo where he leads the strategy, global category groups, global R&D, and is implementing a more advanced digital capability across the business. He will act as chief executive at Reckitt Benckiser while also directly leading the health business unit. Mr Narasimhan is set to join the company in July, and will take over as chief executive in September. Shares were flat in early trading. Buy.
British American Tobacco (BATS) stated that its new categories, including tobacco heating products and vapour, are on track during the first half to deliver between 30 per cent and 50 per cent revenue growth at constant currency by the full year. The company expects growth to accelerate in the second half thanks to new product launches. Traditional combustible cigarettes are said to “perform strongly” driven by growth in the strategic brands and good pricing, despite that full-year global industry volume sold is expected to fall 3.5 per cent. The ratio of net debt to cash profits is expected to fall by 0.4 times per year. Shares fell 3 per cent in early trading. Buy.
At the end of April, redemption product provider Park Group (PARK) said that a deferral of certain payments would result in reported pre-tax profits marginally below consensus forecasts of £12.9m for the year to March 2019. In the event, pre-tax profits came in 12 per cent below expectations, bucking a steady trend of earnings growth in the last half a decade. As the previous trading update also hinted, momentum appears to be with corporate customers, who billed 8.1 per cent more in the period, partially offsetting lower, more online-savvy individual consumers. Under review.
Wilmslow-headquartered bathroom and kitchen product supplier Norcros (NXR) saw another strong period of revenue and profit growth in the year to March, posting an 18.2 per cent underlying return on capital employed and a 130 basis point increase in the equivalent operating margin to 10.4 per cent. However, power rationing, shutdown of a plant and pricing pressures weighed on the South African business, while the backdrop for the UK segment is described as “challenging”. Management also said “the high level of uncertainty of both the financial and political implications of Brexit make the success of mitigation activities difficult to predict”. Under review.
Door-step lender Morses Club (MCL) has appointed Andrew Hayward as its chief financial officer. He previously held roles at Aim-listed Hurricane Energy and digital payments group eServGlobal, which presumably brought him to the attention of chief executive Paul Smith, who said he expected Mr Hayward to “make a significant contribution to the delivery of our strategic plans as we continue to diversify our product offering”. We are buyers.
Castings (CGS) is lurching back into life, with the iron castings business’s investment in automation to improve efficiencies yielding improvements in margins and product quality. CNC Speedwell, its previously troubled machining business, has boosted output levels to the extent that its substantial levels of extra transport costs ended early in the year, and the loss for the year has lowered. Castings has signalled on a couple of occasions that it would need years to return CNC to its previous levels of turnover and profitability - it appears to finally be on its way, with revenues rising nearly 15 per cent. We still have questions over its cash collection, as its ratio of receivables to sales remains high at around 27 per cent. Under review.
StatPro (SOG) has acquired the environmental, social and governance (ESG) research and index business unit (ECPI) from ECPI Group Srl for a total estimated consideration of €2.9m (£2.6m) in cash. ECPI has annualised recurring revenues of around €0.9m and generated €0.3m of cash profits in 2018. It is expected to enhance StatPro’s adjusted EPS in its first full year following acquisition. Buy.
Shares in Zara’s parent company Inditex (SP: ITX) are up 1 per cent, after the group reported a 61 basis point expanded margin of 59.5 per cent. Net sales increased 5 per cent to €5.9bn (£5.17bn), while income grew 10 per cent to €734m. The group’s directors have also proposed a policy that will see the dividend payout increase to 60 per cent, from 50 per cent. Shareholders will vote on the proposal at the AGM. Buy.
Eckoh’s (ECK) revenues rose 5 per cent to £28.7m over the year to March 2019, with recurring revenues constituting 83 per cent of the total – up from 82 per cent. Deferred revenues rose by 44 per cent to £14.6m, reflecting business wins and the impact of new accounting rules IFRS 15 pertaining to revenue recognition. Adjusted cash profits of £4.3m were down 16 per cent, after a planned rise in headcount, and investment in sales, marketing and IT ahead of the recognition of deferred revenues under IFRS 15. Management notes that its high levels of recurring revenues and new business contracted gives strong revenue visibility. Buy.
KEY STORIES:
Boohoo (BOO) has continued its run of strong growth in the three months to May 2019, with constant currency growth of 39 per cent. However, improving sales came at a cost, and the group saw gross margins dip at both PrettyLittleThing and Nasty Gal, the two brands that enjoyed the largest increases. Overall, this pushed the group gross margin down 20 basis points to 55 per cent. The balance sheet strengthened, however, with net cash of £194m.
Shares in Pendragon (PDG) have cratered 24 per cent this morning after the group announced it would be “significantly loss-making” in the first half of the 2019 financial year. Declining new car registrations have combined with “internal operational challenges” to cause the losses, although management expect the group to return to profitability in the second half, leading to a small loss for the full year. The internal challenges include a significant increase in used car stock in at the end of the 2018 financial year, leading to excess inventories across the business, and new car margins being lower than expected as the group looked to meet volume targets.
Taptica’s (TAP) market value plunged yesterday, after it said Uber had filed a complaint against it and various other companies, “alleging fraudulent concealment, negligence and unfair competition”. But the shares are up this morning, after a further update from Taptica on the lawsuit. In October 2014, Taptica, among other advertising-technology vendors, was retained by Fetch Media Ltd to promote Uber’s mobile app. There was no direct engagement between Uber and Taptica or its subsidiaries. Revenue associated with the Uber campaign directly relating to Taptica doesn’t represent a material portion of its revenues. Taptica says Uber and Fetch’s relationship “has been troubled as evidenced by their litigation history”. Taptica “reiterates that it considers the claims to be without merit” and “will aggressively defend against these claims”.
Shares in De La Rue (DLAR) are up almost 3 per cent this morning after the group announced the sale of its international identity solutions business to HID Global for a cash consideration of £42m. Aiming to become “an asset light and more technology-led business”, the group asserts the transaction will enable them to refocus on identity-related security features, develop technology and customer relations synergies and strengthen the balance sheet for strategic growth investment.
OTHER COMPANY NEWS:
The UK government has announced a new plan to commit to a target of net zero greenhouse gas emissions by 2050. The proposed amendment to the 2008 Climate Change Act (under which the UK is currently targeting an 80 per cent reduction in emissions by 2050) follows the recommendation of the government’s advisory Committee on Climate Change in May. If passed, the UK will become the first G7 nation to legislate for net zero emissions.
A trading update from Anexo (ANX) ahead of today’s AGM indicates the group expects pre-tax profit for 2019 to surpass current market expectations of £18.1m. Becoming operational in December, the integration of the new regional office for the legal services division has progressed faster than anticipated. The group continues to actively recruit new staff to process an increasing volume of cases.
With the Conservative party leadership race now underway, Meggitt (MGGT) non-executive chairman Nigel Rudd is quoted in the Financial Times this morning describing frontrunner Boris Johnson as “someone who possesses not the slightest moral compass”.
