Shares in London kicked on again with the FTSE100 hitting its highest level in 11 months following on from another record close on Wall Street. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
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Telford Homes (TEF) has recommended a cash takeover offer from CBRE, which values the housebuilder at £267m or 350p a share. That represents an 11 per cent premium to the group’s undisturbed price or a 21 per cent premium to the volume weighted average three-month share price prior to the offer’s announcement. Management said it had “taken account of the likely impact of the reduced short-term profitability of the business” and the “longer-term structural reduction in profit margins” inherent in its shift towards build-to-rent. Move to hold.
Purplebricks (PURP) announced its complete withdrawal from the US alongside its full-year results, which revealed a 88 per cent rise in operating losses. Revenue was up more than half on the prior year but marketing costs were up more than two-thirds and administrative expenses rose almost three-quarters. In the UK - which will be the focus for the online estate agency - revenue was up a fifth and operating profit more than doubled to £5.3m. However, we remain sellers.
Sainsbury’s (SBRY) has reported like-for-likes falling across all of its departments in the 16 weeks to June 2019. Retail sales were down 1.6 per cent like-for-like, while grocery fell by 0.5 per cent, general merchandise was down 3.1 per cent and clothing fell by 4.5 per cent. The group has struggled to rebuild confidence in its strategy since the collapse of its proposed merger with Asda earlier this year, and there is little in this statement to inspire confidence. Sell.
JD Sports Fashion (JD.) has once again generated broker upgrades following the release of its latest trading statement. The activewear retailer’s AGM statement said the group was confident of headline pre-tax profit being “at least equal” to consensus expectations for the full year. Like-for-likes have grown in the UK and internationally, and the group expanded its store estate by 29 stores in the period. House broker Peel Hunt upgraded profit expectations 2.5 per cent following the announcement. However, despite the optimism and rising share price, there have been reports of a potential investor rebellion over executive chairman Peter Cowgill’s £6m cash bonus. Buy.
In an all-cash deal, Arbuthnot Banking Group (ARBB) is to acquire two portfolios of residential mortgages for around £258m, paying between 97p and 98p on the pound for a portfolio with a nominal yield of 3.6 per cent. Arbuthnot said that “in due course”, it would preposition the assets with the Bank of England to act as collateral for the schemes within the Sterling Monetary Framework. Under review.
Shares in LoopUp (LOOP) have plunged by almost a half, after the group warned that revenues and cash profits for 2019 are expected to come in around 7 per cent and 20 per cent below market consensus respectively. This is because of subdued revenues across its long-term customer base, which it believes stems from general macro-economic factors rather than a material change in customer loss rate, and because of more senior ‘pod’ (new business sales) staff than expected being diverted into management and training activities to accommodate the spike in the number of pod staff. LoopUp said it continues to see strong demand for its product; it signed a renewal with law firm Clifford Chance in the first half, and won various new accounts. Under review
Chemicals company Synthomer (SYNT) announced the £654m acquisition of Omnova Solutions, which develops, manufactures and markets polymers, dispersions, elastomers and other speciality chemicals. Management expect pre-tax cost synergies of $29.6m per annum by the end of the third year after completion of the acquisition, believing the target has a “strong strategic fit” with Synthomer. The deal will be financed via a rights issue of up to £204m and accessing new debt facilities. Shares were up nearly 2 per cent in early trading. Buy.
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Unite (UTG) has agreed to buy Liberty Living from the Canada Pension Plan in a deal worth £1.4bn. The portfolio is comprised of 24,021 beds and was valued at £2.2bn as at 31 May 2019. Liberty will have a 20 per cent stake in the enlarged group on completion. The student accommodation group said the deal would be earnings accretive from 2020 onwards and enhance the group’s yield. Just over 80 per cent of Liberty’s portfolio is aligned to high and mid-ranked universities. Unite plans to place 26,353,664 new shares in the hope of raising proceeds of £240m to part fund the deal.
After a tough first half, Topps Tiles (TPT) has announced a strong performance in the third quarter of the year. Like for likes were up 3.8 per cent. Management admitted this was in part due to a soft comparator - like-for-likes were down 2.3 per cent in the same period last year - but its various strategic initiatives are showing good progress. The group launched 25 new ranges in the year and ranges less than a year old accounted for a fifth of sales in the period.
OTHER COMPANY NEWS:
In the first half of 2019, Redde (REDD) traded in line with board expectations for both revenue and adjusted operating profits, the accident management and legal services said today. At the end of June, cash balances were flat on the 2018 year-end, while net debt was down from £41.2m to £34.7m. The group also disclosed that a former insurer client had renewed a protocol agreement, after Redde “was able to prove out to the insurer the alternative costs of not being in a protocol”.
ITE’s (ITE) trading for the third quarter to June 2019 was in line with management’s expectations. Revenues for the nine months to June were around £176m, up by around 31 per cent year-over-year, or up 7 per cent on a like-for-like basis. Four top 10 events took place during the quarter, which collectively delivered double-digit revenue growth. MosBuild delivered strong double-digit revenue growth for the second year, after investment. Revenues for the quarter were around £69m, up from £58m. Management is confident about the group meeting full-year expectations.
Serco (SRP) has announced its UK subsidiary Serco Geografix Ltd (SGL) has reached a deferred prosecution agreement (DPA) with the Serious Fraud Office (SFO). This relates to the under-reporting of profitability of the electronic monitoring contract to the Ministry of Justice (MoJ) between 2010 and 2013. Taking responsibility for three offences of fraud and two of false accounting, SGL will pay a £19.2m fine and £3.7m to cover SFO’s investigation costs. Having paid a £70m settlement to the MoJ in 2013, the department is considered to have been fully compensated. No criminal charges have been brought against the group. If the DPA is confirmed in court on 4 July, this would conclude the SFO's investigation into Serco announced in November 2013. Shares are down 1 per cent this morning.
A first quarter trading update from Electrocomponents (ECM) indicates like-for-like revenue growth of 4 per cent, with strong growth in industrial revenue more than offsetting the expected slowdown in electronics. Accounting for 64 per cent of group turnover, EMEA saw like-for-like revenue growth of 5 per cent driven by market share gains, especially in Northern Europe. With a softer market for industrial production, revenue in the Americas was flat. The previously announced programme to broaden the group’s electronic inventory will negatively impact the gross margin in the first half of the year, but this is expected to be broadly stable for FY2020.
Shares in PureCircle (PURE) fell more than 4 per cent after the stevia company stated that it expects to report sales of $125m and cash profits “slightly below” current market expectations for the year to June. Management called it a “transitional year” for the company, as the launch of Reb M, a stevia product that tastes more like sugar, reduced demand for the earlier generations of stevia. Some customers have also delayed product launches, so sales related to these launches are expected to come through in the 2020 financial year rather than the second half of FY19 as previously predicted.
Auto retailer Pendragon (PDG) has sold its Jaguar Land Rover dealership in Mission Viejo, California for £28.2m. The group is in the process of disposing of its US motor group, of which the dealership was a part, as management says it has “concluded that it is economically right to realise its value”. The group completed the first sale of a franchise in the division in 2018, during which the US business generated revenues of £478m. Management expects proceeds of more than £100m before tax from the disposal.
Codemasters (CDM) has delayed the release of the latest game in its award-winning GRID franchise. The racing game was originally slated for release in September, but management has decided to push it back until 11th October to make the most of the “more favourable launch window” during the peak of the release season and, crucially, to release the game closer to the launch of Google’s Stadia game streaming platform, on which GRID is a launch title. The game’s earning expectations for the year are unchanged.
Following the announcement of a secondary placing after market-close yesterday, First Derivatives (FDP) said today that chief executive Brian Conlon has sold 1.4m shares in the group at 3,060p each. Mr Conlon has agreed not to sell his remaining shares for six months. Following the placing, he will hold around 24.5 per cent of voting rights. The shares were down by around 8 per cent this morning. Yesterday, First Derivatives noted that its current trading and outlook remain unchanged since May’s preliminary results. It said that Mr Conlon’s diagnosis and treatment remains unchanged since the announcement on 17 May that he had been diagnosed with cancer. Mr Conlon continues in his role as chief executive during his treatment, which is expected to last a number of months.
