Equities across the board in London have sold off in morning trading. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Rolls-Royce (RR.) has agreed to acquire Siemens’ (Ger: SIE) electric and hybrid-electric aerospace propulsion outfit, eAircraft, for an undisclosed fee. The deal is expected to complete late this year after an employee consultation process. The engineer has pledged to work with the German conglomerate to support the attainment of national and international goals on carbon emissions, as part of the deal. Elsewhere, Rolls-Royce announced that its Trent 7000 engines will power 16 new Airbus A330neo aircraft for Philippine-based low-cost airline Cebu Pacific. Rolls-Royce will also provide aftercare service. The Paris Air Show, which takes place between 17 and 23 June this year, is an opportune time to announce good news, but we remain sellers for now.
Whitbread (WTB) reported a 1.5 per cent decline in UK accommodation sales during the fourth quarter due to weak trading conditions from macro-economic uncertainty. Chief executive Alison Brittain called the performance “resilient”, and added that the company has made good progress with its efficiency programme, which is helping to offset cost inflation across the industry. Expansion in German is on target, with 7,000 rooms open and committed. Overall, UK and international total sales declined by 1 per cent. Whitbread intends to launch a tender offer on 20 June to return up to £2bn, subject to shareholder approval. Shares fell less than 1 per cent in early trading. Buy.
William Hill (WMH) announced that Jane Hanson has been appointed as an independent non-executive director, and will become a member of the board’s nomination and audit and risk management committees. Ms Hanson is currently a non-executive director and chair of the board risk committee of Direct Line Insurance. Shares were up 1 per cent in early trading. Buy.
Barrick Gold (CAN:ABX) and Acacia Mining’s (ACA) spat has continued after the two companies agreed to extend Barrick’s deadline to make a firm offer for the 36 per cent of Acacia it does not own by three weeks. Barrick said its initial 14 per cent premium offer from May was fair because of several major issues at the company, with the most important the Tanzanian government refusing to deal with Acacia interim CEO Peter Geleta or his management team. The Mark Bristow-led major also said Acacia had overstated gold reserves potential at the Bulyanhulu and North Mara mines and had an unrealistic restart scenario plan for the former. Acacia said in a statement it “strongly disagrees with a number of statements made in the announcement”. Barrick is offering Acacia shareholders, who include Odey Asset Management, 0.153 of its shares for each Acacia share owned. Sell.
As expected, ULS Technology (ULS) reported flat revenue and underlying pre-tax profits for 2019, as a decline in housing transaction volumes weighed on second-half trading. The group - which operates an online B2B conveyancing platform - said it maintained a market share of around 3 per cent. Despite sluggish pre-tax profits, management raised the annual dividend by 0.1p to 2.4p a share. We place our buy recommendation under review.
Phoenix Spree Deutschland (PSDL) shares have been marked-down in recent days since the Berlin Senate proposed and subsequently approved a five-year rent freeze in the city. The draft bill is scheduled to be presented at the end of August and, after approval by the Berlin Senate, will enter the legislative process in October. However, it is likely to face legal challenges by property owners, who dispute the constitutionality of the new rent proposals, an area which has typically been determined under federal legislation. We place our buy recommendation under review.
Renold (RNO)’s move to the Alternative Investment Market (Aim) has been in the works since last year. Today the industrial chains specialist applied for a block listing of securities, in respect of 3.4m ordinary shares of 5 pence each, on the junior index. Renold expects the admission to become effective on 21 June 2019. Buy.
Mulberry (MUL) has had a difficult year, with adjusted pre-tax profits falling to just £1m for the 53 weeks to March, one-eight last year’s level. The UK’s widely covered poor retail environment played a role, with the group facing more than £2m in bad debt and expenses from the administration of House of Fraser. The international retail business grew strongly, with the Asian retail estate expanding to 34 stores from 6 previously. However, growth comes at a cost, and management expensed £1.8m in the period relating to the set-up and launch of Mulberry Korea. Despite the challenges, investors clearly expected worse, as the shares rose 5 per cent following the announcement. Sell.
Wizz Air (WIZZ) intends to purchase 20 Airbus A321XLR aircraft, which will be delivered over the course of three years starting in 2023. Chief executive József Váradi said the model is the “most cost efficient aircraft of is type” and represents a “significant opportunity” for Wizz Air to further expand its network. Shares fell more than 1 per cent in early trading. Buy.
KEY STORIES:
Capital and Counties (CAPC) managing director and chief investment officer Gary Yardley will step down from the board and leave the company on 30 June. Mr Yardley’s departure comes ahead of the potential demerger of the property development group’s Earls Court scheme. Mike Hood, group development director, will lead the group’s Earl’s Court investments.
Following its merger last year, CYBG (CYBG) is disposing of the Clydesdale and Yorkshire Bank brands, and will be known only as Virgin Money. The corporate name change will come into effect in late 2019, while the entire business will be using the Virgin Money brand by the end of 2021. That’s not the only thing that is being unveiled at today’s capital markets day. In a bid to increase its market share by 40 per cent, the group is to launch a personal current account later this year, followed by a business current account in 2020. Full-year guidance has also been reaffirmed, while an extra £50m of annual net cost savings has been identified, and will bring the post-merger savings to £200m by the end of 2022. Shares are up 4 per cent in early trading.
OTHER COMPANY NEWS:
Severfield (SFR) full-year results brought little surprise, given a trading update published last month that announced that the structural steelwork specialist had agreed a settlement with stakeholders in the Cheesegrater project, which needed remedial work when bolts started shearing off shortly after it was opened. The UK market has proven soft, with year-on-year sales flat here, but Severfield has fared well in Ireland and India, taking the decision to expand capacity in its India Bellary facility by 50 per cent. Net working capital rose by £7.9m, the main driver in pushing down Severfield’s cash conversion level of 50 per cent, below its 85 per cent target.
Saga’s (SAGA) shares have lost a tenth of their value this morning after a trading update reported “challenging headwinds” in travel and insurance, the group’s two primary markets. Political uncertainty has made the travel business tougher, leading revenues down 4 per cent as of 15th June and weakening revenues. However, the group’s Possibilities membership programme has seen strong take up, with a 15 per cent jump in engaged users since April this year.
A brief AGM statement from Inspired Energy (INSE) indicates a strong first half of 2019, in line with expectations. The integration of Inprova Finance (acquired in December) is progressing as planned. The group moves into the second half with “good visibility and confidence of further progress”. Shares are up almost 2 per cent this morning.
In the 12 months to April, high-end property developer Berkeley Group (BKG) beat consensus forecasts for pre-tax profit, and ended the period with net cash of £975m and net asset value per share 19 per cent higher. But most investor eyes will have jumped straight to forward guidance, which provided another sign of the shifting (or deteriorating) expectations for the London property market. This year, pre-tax profit is expected to fall by around a third from the £775m recorded in FY2019.
Shares in Quartix (QTX) were up by around a tenth this morning on the back of a positive trading update. Management expects to report revenues, adjusted cash profits and free cash flow for the first half to June 2019 of around £12.6m, £3.5m and £m respectively – notwithstanding its increased investment in sales and marketing. Management now expects full-year revenues to be at least £25m, with adjusted cash profits and free cash flow “at least” meeting market expectations.
Blue Prism (PRSM) reported revenues of £40.4m (under new accounting rules pertaining to revenue recognition) for the half-year to April 2019 - up by 76 per cent year-over-year. Recurring licence revenues climbed from 93 per cent to 97 per cent. Total customers at the period-end rocketed by 91 per cent to 1,337. Adjusted cash losses widened from £31m to £34m, while - on a reported basis - pre-tax losses expanded from £5.5m to £34.4m, reflecting a significant uptick in operating expenses. The group also announced today that it has entered into an agreement to buy Thoughtonomy - a software-as-a-service (SaaS) product and cloud-services business - for up to £80m. The shares were down by around a tenth this morning.
