Indices in London are in the red as the recent equity rally continues to fade. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
A second quarter trading update from Robert Walters (RWA) indicates performance is in line with expectations with group net fee income up 5 per cent at constant currencies. As Brexit and political uncertainty continues, UK net fee income declined by 8 per cent, although there have been “pockets of buoyancy” across financial services, technology and the regions. The proportion of net fee income derived from overseas business has increased to 76 per cent (from 73 per cent). With a blend of permanent, contract and interim recruitment revenue streams, Continental European net fee income has increased by 13 per cent. Net cash has increased to £53.2m versus £22.9m at the same point last year. Buy.
Ahead of its annual general meeting, pub group Young & Co (YNGA) reported a 2.1 per cent decline in like-for-like sales in the first quarter, though total sales from managed house were up 4.4 per cent. Management said it had been a “tough start” to the year due to poor weather compared to the same period last year, but are confident that last year’s acquisitions, particularly the Redcomb group of pubs, will benefit the company later in the year. Shares fell 1 per cent in early trading. Buy.
Renold (RNO) will postpone its annual general meeting as it has identified historical accounting issues over the three financial years for 2017, 2018 and 2019. Asset values and profit relating to the Gears business unit have been overstated by around £1.8m - by £0.5m for the year to March 2017, by £0.4m for the year to March 2018 and by £0.9m for the year to March 2019. Past financial statements will be revised and the company will be subject to an audit by Deloitte. This shortfall has undermined progress in the Gears unit for the current financial year, and so expectations for Gears for the year to March 2020 have been cut by £1.1m. Shares fell 22 per cent in early trading. Our recommendation is under review.
Impellam (IPEL) has announced the acquisition of artificial intelligence powered staffing platform Flexy for a cash consideration of £3m. Additional payments to the vendors may arise subject to the achievement of future performance conditions. Generating revenue of £0.63m for FY2019, Flexy provides data-driven analysis to streamline the casual labour market, connecting companies looking for flexible labour and individuals looking for flexible work. The acquisition aims to increase Impellam’s efficiency and digital capabilities. We remain sellers.
Empiric Student Property (ESP) confirmed that it remains on track to deliver an operating margin above 67 per cent, administration costs of around £10m and dividend cover in the region of 85 per cent in 2019. Buy.
Grainger (GRI) has agreed to forward fund a 146-home build-to-rent development, with around 12,500 sqft commercial space, in the Hallsville Quarter Development at Canning Town, London for around £62m. The scheme, which has detailed planning consent, is located within phase 3 of the Hallsville Quarter development, a joint venture between Linkcity and the London Borough of Newham. Management expects this investment to generate a gross yield on cost of 5.5 per cent once stabilised, with completion anticipated in late 2022. Buy.
RM’s (RM) revenues rose by 1 per cent to £95.5m over the half-year to May 2019, thanks to growth within the results business and the beneficial impact of new accounting rules pertaining to revenue recognition – IFRS 15. Together, these helped to mitigate the effects of a challenging UK schools market. International revenues grew by a third, offsetting a 3 per cent decline in the UK. Statutory operating profits were up 14 per cent to £8.8m. Trading remains in line with management’s FY2019 expectations – albeit the adoption of IFRS 15 is anticipated to have a negative impact on sales and profits for the full 12 months. Recommendation under review.
With expectations riding high following a strong May trading update, full-year results for Begbies Traynor (BEG) didn’t disappoint. Powered by good performance in each of its business lines, the insolvency practitioners posted a 15 per cent rise in the top-line in the 12 months to April, leading to a 69 per cent jump in basic earnings per share. The group has proposed a final dividend of 1.8p, which brings the total pay-out to 2.6p a share, 8 per cent up on FY2018. We remain buyers.
KEY STORIES:
Bovis Homes (BVS) unveiled a 15 per cent increase in its average weekly private sales rate per site during the first half. Completions were 4 per cent ahead, driven by affordable homes, although management expects the proportion of affordable homes for the full year to be the same as 2018. An improved geographical spread also meant the average sales price increased 3 per cent to £270,000.
Shares in Ocado (OCDO) have jumped 5 per cent this morning following the release of the group’s half-year results. A fire at the group’s Andover distribution centre removed a tenth of the group's capacity, but the group has managed to trade in line with expectations, generating retail revenue growth of 9.7 per cent. The group is heavily focused on growing its solutions business, where it shares its expertise in online grocery and robotic infrastructure with external partners, and has seen fees invoiced from this part of the business rise by 36 per cent.
Sports Direct (SPD) has support from 15.8 per cent of Game Digital’s (GAME) shareholders, making for a total of 54.3 per cent once the sports retailer’s 38.5 per cent share is taken into account. The group has declared the offer unconditional, and shareholders who want to accept must do so before the 30th July 2019.
OTHER COMPANY NEWS:
Micro Focus (MCRO) delivered revenues for the half-year to April 2019 in line with guidance. It has maintained its full-year guidance of minus 4 per cent to minus 6 per cent at constant currencies. For the six months, reported revenues came in at $1.66bn – down 7 per cent. Pre-tax losses sat at $99.6m, against losses of $101m. The separation and disposal of its SUSE business has been delivered in line with the group’s timetable, leading to a $1.7bn profit on disposal and $1.8bn returned to shareholders. The group said its transformation programme remains on target for completion in 2020.
At 5pm yesterday, Humber Bidco – a wholly-owned indirect subsidiary of Universities Superannuation Scheme Limited (USSL) – announced an increased cash offer for KCOM (KCOM). It is now offering 108.5p for each KCOM share, valuing the company at £566m in total. To re-cap, on 4 July 2019, the Takeover Panel announced that an auction process would begin between rival bidders Humber Bidco and MEIF 6 Fibre – a wholly-owned indirect subsidiary of Macquarie European Infrastructure Fund 6 SCSp – on 8 July. This auction is due to end on Friday 12 July. MEIF’s latest offer, prior to the start of the auction process, was for 108p per share.
Maiden full-year results from Knights Group Holdings (KGH) indicate a 51 per cent increase in revenue to £52.7m for the period ending 30 April. Underlying cash profits have also surged by 51 per cent with the margin maintained at 21.5 per cent. Recruiting 46 fee earners during the year, average fees per fee earner have increased by 22 per cent to £131,000, driving 15 per cent organic revenue growth. The group has made four acquisitions since its IPO in June 2018, including Manchester-based Turner Parkinson, one of the top corporate law firms by deal volume in the North-West. Cash conversion has come in at 115 per cent (up from 71 per cent in 2018) whilst net debt of £14.1m was £3m lower than expected. Shares are up almost 7 per cent this morning.
Costain (COST) has been appointed to deliver the £150m redevelopment of Gatwick Airport Station by Network Rail Southern Region. Having previously led the scheme through its planning and design stages, the group will now undertake the improvement works. Work is expected to begin in early 2020 and be completed during 2022. Shares were down almost 4 per cent in early trading.
A trading update from Ceres Power Holdings (CWR) indicates that FY2019 results will be ahead of market expectations. Driven by strong progress across existing contracts with commercial partners, revenue for the period ending 30 June will be approximately £16.5m (versus the anticipated £15m), reflecting a 135 per cent increase from 2018. Operating loss and cash outflows from operating activities have reduced significantly due to high margin license revenue. Full year results are due in early October. Shares are up 2 per cent.
Shares in Eddie Stobart Logistics (ESL) fell more than 2 per cent after the company announced that prior year’s financial statements will be adjusted after chief financial officer Anoop Kang, who took up the role in April, discovered errors around lease accounting. Adjusted operating profit for the year to November 2018 is expected to decrease by around “2m, and retained earnings for the 2017 financial year will be £11.5m lower. Group revenue in the current financial year has increased by a quarter versus the comparable period last year, or up 8 per cent on a like-for-like basis. Adjusted operating profit for the year is expected to be towards the lower end of management expectations.
Wincanton (WIN) announced that James Wroath will begin his role as chief executive from 2 September. Adrian Coleman will step down from the role as of the same date, but will remain accessible to the board until the end of October to ensure a smooth transition.
