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News & Tips: Tesco, Persimmon, Vodafone & more

Equities in London are a mixed bag this morning
June 13, 2019

Shares in London are struggling for direction in morning trading with the FTSE100 blue chips up marginally but other indices in the red. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES:

Tesco (TSCO) has updated on its trading for the 13 weeks to the 25th of May. The group saw like for likes grow just 0.8 per cent in the UK and Ireland, and just 0.2 per cent across the group as a whole. Still, management characterised its trading as “outperformance in a subdued UK market”, with chief executive Dave Lewis praising the growth in the “Exclusively at Tesco” range, which saw sales grow by a tenth across the range. The trend towards multi-channel retailing has continued, with click-and-collect growing to over 10 per cent of orders. Buy.

Shares in Persimmon (PSN) were down 4 per cent in early trading after a National Audit Office report found that the government’s help-to-buy scheme had exposed it to “significant market risk” and that some buyers could be left with negative equity if house prices fall. Under the scheme, launched by former chancellor George Osborne in 2013, buyers could put down a deposit of as little as 5 per cent of the value of a home up to £600,000 and receive an equity loan from the government of up to 40 per cent in London and 20 per cent elsewhere. We remain sellers of Persimmon, with half of the housebuilder’s customers using the scheme last year.   

Everest Alliance, a 4.55 per cent shareholder in Russian gold miner Petropavlovsk (POG), has today disclosed that it and fellow investors Kenges Rakishev and Slevin have been subject to a year-long investigation by the Takeover Panel, specifically into the circumstances surrounding the previous board’s removal in 2018. The shareholder said the watchdog has “apparently not come up with any evidence of violations of the city code”, without saying how it knew this, and argues that the investigation “is now hampering the business, with no indication given of when it will end”. Under review.

KEY STORIES:

The results of the German 5G auction are in, and Vodafone (VOD) has acquired spectrum for a total cost of €1.88bn. It has secured 90MHz in the 3.6GHz band, and 40MHz of 2100 MHz spectrum. The group said its German business has achieved its auction objectives and secured additional spectrum up to the year 2040. Chief executive Nick Read added “we believe it is important to have a balance between the price paid for spectrum and our strong desire to create an inclusive society through investment in mobile network coverage”.

PZ Cussons (PZC) announced that chief financial officer Brandon Leigh has resigned with immediate effect after over 22 years with the business. Commercial finance director Alan Bergin will take over his responsibilities until a new CFO is appointed. The announcement came alongside a trading update for the year to May, where performance in Africa “continued to be disappointing”, while Europe and Asia were “resilient”. Group profit before tax and exceptional items is expected to be around £70m. Shares fell more than 4 per cent in early trading.

WM Morrison (MRW) has announced it is expanding its store on Amazon (US: AMZN) Prime Now, allowing for same day delivery of groceries to more cities in the UK. The service is available in London, Leeds, Manchester, Birmingham and parts of the home counties at present, but under the expansion it will be rolled out to Glasgow, Newcastle, Liverpool, Sheffield and Portsmouth. The move underpins the increasing trend for online grocery shopping, and could revive speculation that the US tech giant could one day buy the UK supermarket.

Shares in Just Group (JUST) are up 14 per cent this morning, after the struggling retirement product specialist posted a string of bullish updates ahead of today’s annual general meeting. Despite a sharp contraction in profitability in the last year, the group said its market opportunities “remain attractive”, and that adaption of its intellectual property-led model was already underway. The group has also appointed a new CFO after months of hunting, while chairman Chris Gibson Smith is “expediting the CEO appointment process”. Finally, all directors have been in the market buying shares in the past week, to demonstrate “their confidence in the group’s ability to execute on its plan, and their belief that the current market price bears no relation to the fundamental value”.

OTHER COMPANY NEWS:

DS Smith (SMDS) lifted its medium term return on sales target from 8-10 per cent to 10-12 per cent, after a sustained focus on operational efficiencies yielded improvement on this metric at its full-year results. The packaging group, which expects to complete the disposal of its plastics business by the end of 2019, has also listed its cost synergy target, claiming a successful integration of its Spanish rival Europac, which it acquired in January for €1.7bn. Earnings per share fell 8 per cent on a statutory basis largely owing to a July 2018 rights issue, which raised around £1bn for the Europac deal.

Volex (VLX), like many industrial businesses with Chinese operations, has been forced to deal with the impact of US tariffs on Chinese goods. The power and data cabling provider has previously mooted moving power cords production outside of China, and has now done so - its Batam facility in Indonesia received additional investment, and has been earmarked as the likely principal location for power cords production growth beyond China, with some PVC production lines transferring across. Production will not move to India though, as other industrial competitors have done, after Volex closed its facility here. Power cord revenues fell owing to falling revenues from Volex’s largest customer. This trend from this customer is expected to continue, which has contributed to the decision to carry out a restructure at Volex’s Shenzhen facility in China.

Go-Ahead Group (GOG) announced that its operation of the Southeastern rail franchise has been extended to 10 November 2019, with a further option to extend to 1 April 2020. This extension allows the Government to take more time to decide the next operator of the South Eastern franchise (different spelling intentional). During the extension Go-Ahead intends to introduce an improved delay compensation scheme as part of a number of efforts to improve the passenger experience. Go-Ahead operates the franchise via Govia, its joint venture with Keolis, and is shortlisted to run the next franchise. Shares fell 1 per cent in early trading.

Accesso Technology (ACSO) has agreed a new three-year partnership agreement with The New York Botanical Garden, which will use the accesso Passport eCommerce platform, the accesso Siriusware software product and its Ingresso distribution offering.  

Taptica (TAP) issued an AGM statement this morning. Trading for the first five months of the year “has remained mixed” – with performance-based advertising activities continuing to experience lower revenues than the previous year. Its brand advertising business has continued to trade well. Notwithstanding performance’s weakness, management reckons it is on track to meet market profit expectations. The integration of RhythmOne is also progressing well. The group now expects to deliver around $20m of cost savings and “synergy benefits” this financial year, on an annualised basis. The group is currently considering a further share buyback programme.

Cineworld (CINE) announced the sale and leaseback of 18 US-based cinemas, by which it will sell the locations to a subsidiary of EPR Properties for $270m (£213m) and then lease them back under 15 year terms. The cinemas sold had a book value of $230m at the end of 2018. In May the company underwent a similar transaction with 17 cinemas to raise $556m, the proceeds from which were used to reduce debt and will fund a special dividend. Shares fell more than 2 per cent in early trading.

TBC Bank (TBCG) has issued a $300m, five-year unsecured bond. According to the FTSE 250 group, the six per cent coupon represents the “lowest ever yield achieved by a Georgian issuer in international debt capital markets”. The note will be listed on the regulated market of Euronext Dublin and will be rated sub-investments grade by both Moody's and Fitch.