Uncertainty abounds among London investors with the FTSE350 just about in positive territory but small caps selling off mid morning. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Outsourcer Serco (SRP) has attempted to merge with rival Babcock (BAB), the latter confirmed in an announcement today, in a deal that would see a combined value of £4bn. As first reported by the Sunday Times, a preliminary approach was made late last year as Serco chairman, Sir Roy Gardner, approached his Babcock counterpart, Mike Turner – the offer was rebuffed. A more detailed proposal for a nil-premium, all-share merger was tabled in January, suggesting a new defence behemoth be chaired by Gardner and run by Rupert Soames, Serco’s current chief executive, whilst Babcock chief executive Archie Bethel would be ousted. Babcock’s board rejected the proposition and, according to the Sunday Times, Serco’s merger ambitions have since receded. With short interest in Babcock rising to over 9 per cent, we remain sellers.
Shares in Kier (KIE) are down more than 10 per cent this morning with the early announcement of the conclusions of it strategic review. The group intends to focus on regional building, infrastructure, utilities and highways whilst selling or “substantially exiting” non-core activities in Kier living, property, facilities management and environmental services. A fundamental restructure will see headcount reduced by around 1,200 delivering annual cost savings of £55m from FY2021 but also £56m in costs over the next two years. The group has confirmed that some trade credit insurance has been withdrawn. Reported net debt at 30 June will exceed current market expectations whilst average month-end net debt will increase to £420-450m. Dividend payments for FY2019 and FY2020 have been suspended. Sell.
A trading update from Staffline (STAF) has sent shares plummeting by almost 30 per cent this morning. The provision for liabilities relating to national minimum wage regulation breaches has increased from £7.9m to £15.1m, taking total exceptional charges for FY2018 to £32.6m. With headwinds in the training and recruitment divisions, the group is expected to require a waiver of possible future breaches to the leverage covenant in its lending agreements and is considering a share placing to raise £30m to reduce the ratio of FY2019 net debt to underlying cash profits to below 2 times. There will be no final dividend for FY2018. The long-awaited FY2018 results are due to be published on 27 June. We remain sellers.
KEY STORIES:
Yesterday’s completion of the merger of Alawwal bank and Saudi British Bank has provided a £0.4bn gain on disposal for Royal Bank of Scotland (RBS), whose Natwest Markets franchise held a stake in Alawwal. The deal also allows the lender to reduce its risk-weighted assets by £4.7bn, while £0.3bn of legacy liabilities will be extinguished. Taken together, these impacts would have increased RBS’ March-end CET1 capital ratio by 60 basis points.
OTHER COMPANY NEWS:
An AGM statement from Premier Technical Service Group (PTSG) indicates continued sales growth with high contract renewal rates since the beginning of the financial year. A number of significant three to five year contracts and framework agreements have been signed with new and existing customers. Notable business wins include a multi-service contract for BT. Following the group’s substantial growth in size and scale since listing in 2015, the board is currently reviewing internal and corporate governance structures – shareholders will be updated in due course. Shares are up over 3 per cent in early trading.
FairFX’s (FFX) AGM will take place today at 12:30pm. Chairman John Pearson is due to say in a statement that turnover and revenue growth continued to be strong during 2018, and that it has had a strong year to date in 2019 in relation to turnover and improving margins – stemming from rationalisation of its supply chain. Management expects FairFx’s trading performance to meet full-year market expectations.
The price range of Airtel Africa’s IPO has been set at 80p - 100p per share, implying a market capitalisation on admission of between £3bn - £3.6bn. This is expected to comprise around 595.2m – 744m new shares issued by the company, raising gross proceeds of around £595m. 10 per cent of the offer is expected to be made available pursuant to the over-allotment option. Airtel also plans to undertake a listing of its shares on the Nigerian Stock Exchange, subject to the necessary approvals. The final pricing of its London offer is expected on or around 28 June, with conditional dealings in the shares due to start that day.
Challenger banks are “overly-optimistic about the impact of a stress scenario on their business”, according to a confidential review by the Bank of England on the fast-growing sector. A stress-test of 20 non-systemic deposit-taking banks provided the Prudential Regulation Authority with “reassurance about the overall resilience of the sector as a whole”, though risk management practices were found to be mixed, and underwriting standards at some challenger banks were guilty of “weak financial analysis, limited evidence of challenge and high levels of lending outside of policy”.
