News & Tips Fri 19 July
IC TIP UPDATES:
Capita (CPI) has signed a contract worth £525m over 12 years to modernise and support improvement to the operational effectiveness of the Ministry of Defence’s (MOD) fire and rescue service. It was previously announced as the winning tenderer for the MOD’s defence fire and rescue project in June last year. We remain sellers.
WPP’s (WPP) shares were down by around 3 per cent this morning – ostensibly reflecting contagion from Publicis’s 8 per cent share-price decline, following the French advertising group’s half-year results. Publicis lowered its organic net revenue guidance for 2019, now anticipating this to be “broadly stable”; it had previously expected organic growth to be better than 2018. While it expects the second part of the year to deliver “sequential improvement” versus the first half in terms of organic growth, it is taking a “conservative approach” for 2019 “as spending cuts are not gone away”. The group’s US operations have continued to be impacted by ongoing fee reduction on traditional advertising. Liberum has downgraded Publicis from ‘buy’ to ‘hold’. We remain speculatively positive about WPP. Buy.
Shares in Henry Boot (BOOT) are down 2 per cent this morning. The group has announced that James Sykes and Jamie Boot will step down from the audit and risk committee and the remuneration committee with immediate effect. This follows over a fifth of shareholders voting against the re-election of Jamie Sykes at the 2018 AGM. The committees will now compromise solely of independent non-executive directors in line with the recommendations of the UK corporate governance code. Buy.
In a scheduled trading update, Close Brothers (CBG) said that it has continued to deliver a solid performance amidst current mixed trading conditions. The loan book grew by 5.1 per cent year-to-date, reaching £7.6bn as at June 2019. The bad debt ratio remained low, with ongoing strong credit performance across the business. The net interest margin edged down slightly from 8 per cent to 7.8 per cent, after lower fee income and ongoing higher cost of funds. The group said that it remains well-positioned for the long-term, reiterating that “current trading conditions are mixed”. The shares were down 3 per cent this morning. Buy.
Shares in Aston Martin Lagonda (AML) are up almost 4 per cent this morning following the announcement of a firm partial cash offer for 6,840,090 ordinary shares (or approximately 3 per cent of the issued share capital) at £10 per share. The offer comes from a group of independent investment companies managed by Investindustrial. These include Prestige Motor Holdings (PMH) and Preferred Prestige Motor Holdings (PPMH) who currently hold an aggregate 70,614,881 shares (equivalent to a 30.97 per cent stake). With PMH and PPMH confirming they do not intend to accept the partial offer, their combined holdings with the other interested parties will total 33.97 per cent. We remain sellers.
Oil and gas explorer/producer Amerisur Resources (AMER) has put itself up for sale after receiving a non-binding offer, sending its shares up 37 per cent on Friday morning. The Colombia-focused company has started the formal process "after receiving interest in the company and its assets from other industry participants". The company's share price has almost climbed back to its January level of 17p, after falling to 12p at yesterday's close over the course of 2019.
SSP’s (SSPG) revenues rose by 9.2 per cent at constant currencies over the third quarter to June. At actual exchange rates, revenues rose by a tenth. UK like-for-like sales growth was in line with the group’s expectations, with stronger growth in air versus rail. In continental Europe, like-for-like sales were still held back by slower passenger growth in the Nordic countries and airport redevelopment activity. North American like-for-like sales growth was buoyed by higher passenger numbers – although some airports have been hit by the Boeing Max 737 aircraft’s grounding. In the rest of the world, strength inn Egypt and the Middle East was tempered by the cessation of Jet Airways’ operations in India and slower growth in China. The group’s full-year expectations remain unchanged. Buy.
Grainger (GRI) the UK’s largest listed residential landlord – has responded to the Mayor of London’s comments proposing reviews of the London rental market. The proposals are subject to parliamentary support and new legislation. The Mayor calls for incentives and support for the build-to-rent and professional rental market to protect investment in new housing supply and existing high-quality rental homes. Grainger says this aligns to its strategic aims and its position in the market. It notes that the proposals have limited effect on its business. Of its total portfolio, just over a fifth of properties are open-market rented in the wider London area. Buy.
KEY STORIES:
Acacia Mining (ACA) has backed a final bid from Barrick Gold to buy the 36 per cent of the company not already under the Canadian gold major’s control. After weeks of arguing over the quality of Acacia’s assets publicly, the two companies have agreed on 0.168 Barrick shares for each Acacia share, valuing at the company 232p a share or £951m in total. This is a big increase on the original 0.153 for 1 offer from May. Barrick says it would quickly fix relations with the government of Tanzania, which since 2017 has put in a concentrate ban, demanded $190bn (£152bn) in back taxes and penalties, arrested several Acacia employees on corruption charges and most recently said Acacia could no longer use the tailings facility at North Mara from Saturday onwards, effectively crippling production. The deal needs two shareholder votes to go through, with Barrick not taking part in the show of hands.
OTHER COMPANY NEWS:
The Competition and Markets Authority (CMA) has found that food and drinks suppliers could get a worse deal on their packaging if two specialist firms merge. It has been investigating Liqui-Box’s proposed takeover of DS Smith’s (SMDS) rigid and flexible packaging business. As part of its ‘Phase 1’ investigation, the CMA found that Liqui-Box and DS Smith are two of the four main companies in the UK offering a specialist type of packaging called Bag-in-Box to food, wine, dairy and drink suppliers. If the deal proceeds, the CMA is concerned that it might create insufficient competition in the supply of these products. If the merging businesses can’t address the CMA’s concerns, the deal will be referred for an in-depth ‘Phase 2’ investigation.
ITV (ITV) and the BBC have now signed an agreement to launch BritBox in the UK in the fourth quarter of this year. BritBox will be priced at £5.99 per month in HD (high definition) – less than other streaming services. The platform will comprise “the nation’s favourite programmes” and the largest collection of British boxsets. BritBox is also commissioning a range of series made exclusively for its platform. The service will be an ITV-controlled venture, but the BBC will contribute to its development and direction. ITV initially holds 90 per cent, while the BBC holds 10 per cent of equity. The BBC can acquire additional shares over time up to 25 per cent in total. ITV has the ability to bring additional investors on board.
Serco (SRP) has agreed to withdraw its legal challenge against the Ministry of Defence (MOD) over the awarding of the defence fire and rescue project tender to Capita (CPI). In return, the MOD will pay the group £10m. Treated as a material one-time item, the commercial settlement will be excluded from underlying trading profit and will not impact previously stated guidance for 2019.
An AGM trading update from Homeserve (HSV) indicates trading for the period 1 April to 18 July has been in line with guidance. Increased investment in home experts has been offset by strong performance in membership, especially in North America. The planned increased investment in Checkatrade is proceeding well, with positive results from advertising campaigns in North West England. Seeing limited opportunity for membership growth in Italy, the group has agreed to sell its 49 per cent stake in associate Assistenza Casa to its partner Edison. The group expects further strong growth in FY2020 but business remains highly seasonal with trading weighted towards the second half.
In a trading update for the first quarter to June, Big Yellow (BYG) said that like-for-like closing occupancy sat at 85.1 per cent, up by 1.8 percentage points. It saw growth of 125,000 sq. ft. in the quarter, up from 131,000 sq. ft. Like-for-like revenue growth of 4.4 per cent to £30.9m reflected the “more muted occupancy performance” in the final quarter of last year, given heightened uncertainty in the run-up to the UK’s original proposed exit date from the EU (29 March).
