London equities have bounced out of the traps in Monday morning trade, buoyed by a rising oil price. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
With half-year results and a strategy update due on 30 July, Centrica (CNA) is reportedly set to slash its dividend for the second time in four years. RBC Capital Markets anticipates a 7p dividend for FY2019 (down from 12p in 2018) but speculates that lower than anticipated earnings could see the dividend halved. Chief executive Iain Conn could also potentially announce deeper and faster cost cuts, the sale of the group’s 69 per cent stake in Spirit Energy (an oil and gas explorer) and a spin-off of the US business to focus solely on the UK and Ireland. Shares are down over 1 per cent this morning. Sell.
Metro Bank (MTRO) has confirmed speculation that it will sell a loan portfolio, although said there was no certainty a disposal would take place. In May the challenger bank was forced to raise an emergency £350m after it incorrectly categorised some commercial loans. Sell.
A report in The Times has revealed that Capita (CPI) is planning to launch a consultancy arm as part of its shift towards higher margin work. The new business will employ around 1,000 consultants, selling services such as advising manufacturers on how to use artificial intelligence to speed up production lines. We remain sellers.
Shares in Learning Technologies (LTG) were up by around 16 per cent this morning, on the news that management expects full-year adjusted operating profits to be “materially ahead” of current market expectations. For the first half to June, the board expects to report a revenue increase of around 85 per cent to £62.5m, with adjusted operating profits ahead of expectations at no less than £20m – representing an increase of around 125 per cent. It expects the operating margin to rise from 26.3 per cent to around 32 per cent. Around 67 per cent of revenues are from recurring contracts, up from 51 per cent – buoyed by the acquisition of PeopleFluent last May. Buy.
Whitbread (WTB) has completed a £2.5bn share buyback programme. It will return £2bn within this figure to shareholders with a tender offer with the purchase of 40,225,261 ordinary shares at a strike price of 4,972 pence per share, representing around 21 per cent of the hospitality company’s issued ordinary shares. A share buyback programme carried out from 17 January 2019 to 10 May 2019 saw the company repurchase £482m in ordinary shares. Whitbread has no plans to repurchase any more shares. Shares were down nearly 3 per cent in morning trading. Buy.
A pre-close trading statement from Midwich (MIDW) indicates growth across all geographies in the six months ending 30 June, with Continental Europe and Asia Pacific performing particularly well. Overall gross margins have seen a slight improvement. Top line organic growth has been supported by the contribution of recent acquisitions. Four businesses acquired in the year to date have given access to three new markets (Italy, Switzerland and Norway) and strengthened capabilities in the audio and lighting segments. Cash generation is slightly ahead of expectations in the first half, and for the full year is expected to be in line with the group’s long-term average. Full year outlook remains unchanged. Buy.
Half-year results from SThree (STHR) indicate overall net fees are up 9 per cent at constant currencies to £163m with double-digit growth across three out of four operating regions. A strategic focus on ‘contract’ (which accounts for 74 per cent on group net fees) saw strong growth across energy, engineering and technology, boosting contract net fees by 12 per cent year-on-year. Meanwhile, there was a 1 per cent decline in ‘permanent’ as growth in Germany, Austria and Switzerland (DACH) and Japan was offset by weakness in the UK and Ireland. The proportion of net fees earned from the international business has ticked up by 4 percentage points to 86 per cent. Shares are up almost three per cent this morning. Buy.
KEY STORIES:
Shares in Ted Baker (TED) were up by more than a tenth this morning, after media coverage suggested that founder Ray Kelvin was thought to be considering plans to support a private equity buy-out of the company. The Mail on Sunday reported that according to retail market sources, Mr Kelvin would invite his former finance director Lindsay Page to help run the business if he took it private.
OTHER COMPANY NEWS:
Ascential (ASCL) shares crept up around 2 per cent in early trading following the publication of half-year results and the news that the media company will acquire 35 per cent of security software business Avast’s (AVST) marketing analytics subsidiary Jumpshot for $60.8m. A put and call is agreed on a further 16 per cent, with Ascential having the option to take majority ownership no sooner than January 2021. In its six months to 30 June, Ascential saw solid growth in three of its four divisions, with a contraction in organic growth within the sales segment - its cash profits growth decline reflects high levels of investment in the Edge business and a drop in revenue from World Retail Congress and Retail Week, the company says.
A report by the National Audit Office (NAO) indicates that G4S (GFS) made £14.3m gross profit from the scandal-hit Brook House immigration removal centre between 2012 and 2018. Annual gross profits of 18-20 per cent up to 2016 fell to 10 per cent in 2017 after the group started spending more on the contract. Profits rose to 14 per cent last year. Although not considered a breach of contract, the group was fined £2,768 (equivalent to less than 0.5 per cent of the monthly fee) following a Panorama investigation in 2017 that uncovered apparent abuse. But the NAO found that G4S had “broadly delivered to the terms of the contract” which is due to end in May 2020.
Shadow Chancellor John McDonnell has said that key local services such as rubbish collection should be brought back in-house once contracts expire rather than continuing to outsource to private companies. Criticising outsourcing contracts as costly and lacking accountability, Mr. McDonnell announced on Saturday that a Labour “insourcing revolution” would aim to legislate for public sector provision of services as the default within the first parliamentary term.