Shares in London are up as the City swelters. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Robert Walters (RWA) saw revenue remain flat at £635m for the six months to 30 June but net fee income has risen by 7 per cent to £205m at constant currencies. Double-digit net fee income growth was achieved in the group’s two largest markets, France and Japan. The international business now accounts for 74 per cent of group net fee income, a 2-percentage point increase. Despite a tumultuous political backdrop impacting candidate and client confidence, UK net fee income was up 1 per cent. Asia Pacific saw net fee income jump by 8 per cent on a constant currency basis although Hong Kong was significantly impacted by political unrest. Shares are up 4 per cent. Buy.
An AGM statement from De La Rue (DLAR) indicates full year outlook remains unchanged. Based on expectations from ‘product authentication and traceability’ and the planned timing of cost cutting initiatives, the group anticipates performance will be heavily weighted towards the second half of the year. The statement makes no mention of the impending showdown with activist investor Crystal Amber Fund, due to occur later today at the AGM. Sell.
KAZ Minerals (KAZ) has upped its overall copper production in the first half year-on-year thanks to the performance of the Aktogay mine, and says it is on track for guidance of 300,000 tonnes of the metal. The Kazakh-focused miner produced 147,600t of copper in concentrate in the first six months of 2019, a 6 per cent increase year-on-year. KAZ will release its interim results on 15 August. Buy.
Shares in Relx (RELX) were down by around 5 per cent this morning on release of its half-year results to June. Revenues rose 6 per cent on a reported basis to £3.9bn, but by a lesser 3 per cent underlying. Reported operating profits were up 8 per cent to £1.0bn. The group’s (largest) scientific, technical and medical business saw revenue growth of 4 per cent to £1.2bn, or 1 per cent underlying. Risk and business analytics grew by 13 per cent to £1.1bn, and 7 per cent underlying. The group completed £400m in buybacks – with £200m lined up for the second half. Net debt sat at £6.6bn, up from £6.2bn. It has left its full-year outlook unchanged. Under review.
There’s nothing specifically in the rule book against a company publishing its results at 5.30pm, but given Metro Bank (MTRO) is apparently keen to “evolve in-line with best practice corporate governance guide lines”, it might be one to consider. At the end of market trading yesterday, the challenger bank confirmed earlier press reports that it will begin the hunt for a non-executive chairman to replace founder Vernon Hill. However, that headline failed to drown out the arrival of a poor set of half-year numbers. Though loan growth grew 25 per cent year-on-year, these now exceed total deposits, after “a limited number of commercial customers” pulled their cash in the first half, causing a net outflow of £2bn. The net interest margin also dropped to 1.62 per cent, while rising costs, including remediation associated with January’s “risk-weighted asset adjustment” pared back the pre-tax profit to just £3.4m. The shares, which fell 4 per cent ahead of yesterday’s results, are down 19 per cent today to a fresh low of 387p. Our sell call is under review.
Given the complex judgement calls in its accounts, litigation finance outfit Burford Capital (BUR) is always liable to spark a market reaction when it publishes statutory numbers. Half-year figures, out today, boast of several records: a 40 per cent surge in income, a 36 per cent leap in post-tax profit, and a 32 per cent internal rate of return for the six months to June. Unsurprisingly, shares in the group are up 6 per cent in early trading. Under review.
PHP Health Properties’ (PHP) acquisition of MedicX Fund earlier this year boosted net rental income 44 per cent during the first-half, although associated exceptional items pushed the GP landlord into a pre-tax loss. Excluding MedicX’s contribution recurring adjusted NAV was up 19 per cent to £20.3m driven by acquisitions in 2018 and rental growth from refurbishments. The interim dividend was boosted 3.7 per cent to 2.8p a share. Buy.
Wealth manager Brewin Dolphin (BRW) saw a 4 per cent uptick in its total funds in the three months to June, thanks to a decent investment performance and a £0.3bn bump in discretionary net flows. The acquisitions of Investec’s Irish business, as well as Epoch Wealth Management, are both on track to complete as planned. Buy.
Spread-betting outfit CMC Markets (CMCX) today said client trading activity in its core derivative trading business has “stabilised”, following last year’s introduction of new rules. As a result, revenue per active client and business-to-business revenues have both increased in the three months to June. And while operating costs for the current financial year will be “marginally higher” than the 12 months to March 2019 (before bonuses, at least), the board reckons it can meet consensus expectations for full-year net operating income and pre-tax profits of £154m and £24.6m, respectively. We are more sceptical.
Vesuvius (VSVS) pre-tax profits fell nearly 11 per cent, citing “challenging steel markets outside of China and light vehicle related markets in Foundry”. The specialist in molten metal flow engineering made £5.8m of restructuring savings and is now targeting an additional £16m in savings by 2021. Its £32.4m CCPI acquisition in March pushed up the group’s leverage ratio, but synergy expectations have significantly increased. Vesuvius does not expect markets to recover in the second half, but nevertheless broadly expects full-year performance to sit in line with expectations. Under review.
Wizz Air (WIZZ) reported a 25.4 per cent increase in revenue during the first quarter to €691m (£617m) with cash profits up 21.9 per cent to €187m. This was driven by improvements in both ticket revenue and ancillary sales. The budget airline carried 10.4m passengers over the period, a 20.1 per cent increase on the same period last year, with load factor 1.7 per cent higher at 93.7 per cent. Total cost increased by a quarter to €599m, including a 9.1 per cent increase in fuel costs. Shares were up nearly 4 per cent in early trading. Buy.
Fuller, Smith & Turner (FSTA) reported like-for-like sales growth of 4.9 per cent in the year to March 2019, prompting a 3 per cent jump in the share price when the results were announced this morning. The group is in the midst of transitioning out of the beer business, having sold its brewing division to Asahi in April, and while disposal costs weighed on the statutory profits in these results, the infusion of £250m following the sale will allow management to invest in improving and expanding the group’s estate of pubs and hotels. Buy.
Morgan Advanced Materials (MGAM) grew revenues and pre-tax profits, reaffirming management expectations ahead of an expected slowing of industrial markets that will likely flatten revenues. Thermal ceramics turnover fell, largely driven by an anaemic automotive market, while molten metals systems revenues grew off the back of good performance in India and South America, offsetting more automotive industry driven demand decline in China, North America and Europe. Buy.
National Express (NEX) reported a 10.5 per cent increase in group revenue to £1.34bn during the first half of its financial year, with statutory operating profit up 15.3 per cent to £113m. This revenue growth was recorded across all divisions, with particularly strong performance in Alsa and North America. Chief executive Dean Finch said the transport group is currently trading ahead of expectations despite the impact of bad weather in North America. Shares were up 3 per cent in early trading. Buy.
Sales at drinks maker Diageo (DGE) were up 58 per cent to £12.9bn during the year to June, with reported operating profit up 9.5 per cent to £4bn. All regions contributed to organic net sales growth of 6.1 per cent, with organic volume up 2.3 per cent. Organic operating profit growth of 9 per cent was driven by an improvement in price/mix and the benefits of cost efficiencies, though this was partially offset by cost inflation and higher spend on marketing. Chief executive Ivan Menezes said the company will expand its plans to return money to shareholders, up to £4.5bn over FY2020 to FY2022. Shares fell 2 per cent in early trading. Buy.
Tyman (TYMN) shares were down 8 per cent in early trading after the door and window component manufacturer reported a like-for-like revenue decline of 1 per cent, reflecting disappointing performance at the North American AmesburyTruth facility. North American markets slowed in the period and UK markets remain relatively subdued, while European markets were broadly flat, resulting in a 7 per cent decline in operating profit. We place our buy recommendation under review.
KEY STORIES:
Yesterday afternoon, shares in Accesso Technology (ACSO) rocketed after the group said that it has decided to put itself up for sale. This decision followed the receipt of approaches from a number of parties regarding a potential sale. Management at accesso has decided that this formal sale process is the most appropriate method “to determine whether or not this high level of inbound interest will translate into an offer or offers on terms which the Board is prepared to recommend to accesso shareholders”.
Capital & Counties (CAPC) confirmed speculation that it would de-merge its Earls Court and Covent Garden assets, launching Covent Garden as a central London focused REIT and said there had been a broad range of interest in Earls Court. The decision is unsurprising judging by the commercial property group’s first-half results - Earls Court declined by 11.5 per cent in valuation, compared with a 0.5 per cent increase for Covent Garden. Overall adjusted NAV declined by 3.3 per cent to 315p a share and the total property valuation remained flat, just like the dividend.
Lancashire’s (LRE) combined ratio rose to 86.6 per cent, from 67.1 per cent, during the first half of the year due to additional losses associated with natural catastrophe events. However, premium income growth of 10 per cent came in ahead of the 3 per cent rate expected by analysts, thanks to signs of improving pricing.
Sage’s (SGE) third-quarter revenues rose 5.3 per cent to £476m, or 5.9 per cent to £1.4bn on a nine-month basis. Recurring revenues increased by a tenth to £1.2bn over nine months, underpinned by software subscription growth of 28.3 per cent to £752m. Software and software related services (SSRS) sales fell 15.5 per cent to £195m, reflecting the focus on subscription, and some underperformances in certain licences and services. Management expects full-year recurring revenue growth to slightly exceed guidance of 8-9 per cent, and the combined decline of SSRS and processing sales to be slightly greater than the first nine months’ decline. It expects the organic operating margin to sit at the lower-end of its 23-25 per cent guided range. The shares were down by around a tenth at the time of writing.
Petra Diamonds (PDL) has lost all the value regained after its previous all-time low in April, crashing 40 per cent to 11p per share after Berenberg put a sell rating on the company. Petra has struggled under the weight of its debt (and attached covenants) and the weak diamond market. Berenberg analyst Richard Hatch said the miner would likely need an equity raise on top of a debt refinancing to keep afloat. He took its target price down to 8p. “The issue for equity holders is that, based on a 2030 life of mine for most mines, cash flow returns after debt is repaid are not compelling,” he said.
Cobham (COB) has agreed to be bought by US buyout group Advent International in a £4bn deal. The agreement, announced with the release of the defence outfit’s half-year figures, will see each shareholder paid 165p in cash per share, a 34.4 per cent premium on yesterday’s closing price and a level not seen since 2016. Advent has already received support from shareholders holding around 5.17 per cent of Cobham’s share capital for the deal, including a letter of intent from Artemis Investment Management, which has a 5.13 per cent stake. Cobham recognised in its half-year results a one-off payment of £69.5m to settle a tax dispute with the UK tax authorities. Its order intake fell below the £1bn mark to £970m and the group’s statutory pre-tax profits slumped by 67 per cent to £60.5m.
Yesterday morning, Georgian bank TBC (TBCG) made an ominous announcement: prosecutors in the Caucasian state had charged the lender’s founders – chairman Mamuka Khazaradze and deputy Badri Japaridze – with money laundering, relating to “certain transactions which took place in 2007 and 2008” involving a subsidiary of TBC. Today, both non-executives confirmed they would step down from the board of the London-listed group with immediate effect, plan to refute the allegations, and intend to re-join the board once they have cleared their names. Senior independent director Nikoloz Enukidze has been air-dropped in as chairman, though shares in the group are down 15 per cent so far this week.
Bodycote (BOY) will seek to rectify a compliance issue regarding its 2018 special dividend at its next general shareholders meeting, after the company failed to lodge interim accounts with Companies House to show that the dividend was supported by sufficient reserves. The thermal processing specialist saw profits hit by challenging automotive and industrial markets, although civil aviation revenues grew 21 per cent.
Unilever (ULVR) reported 0.9 per cent decline in sales to €26.1b (£) during the first half of its financial year due to the sale of its spreads business, or a 3.3 per cent improvement on an underlying basis. Home care reported the highest rate of underlying sales growth at 7.4 per cent to €5.4bn, while beauty and personal care saw a 3.3 per cent improvement to €10.7bn. Sales growth of 1.3 per cent in foods and refreshment to €10bn was impacted by poor ice cream sales in Europe. Chief executive Alan Jope said underlying sales growth is expected to be in the lower half of the multi-year 3 per cent to 5 per cent range, and an improvement in underlying operating margin keeps the consumer goods giant on track to meet its 2020 goals.
OTHER COMPANY NEWS:
The Daily Mail & General Trust (DMGT) said that its outlook for the full year is unchanged and in line with market expectations. Revenues over the nine months to June grew 1 per cent on an underlying basis, and declined 2 per cent on a reported basis. Business-to-business (‘B2B’) sales were up 1 per cent underlying – reflecting a “mixed portfolio performance” – and down 6 per cent on a reported basis, reflecting disposals. To the former point, among its various segments, B2B’s property information division saw a 2 per cent underlying sales decline after US growth was more than offset by Europe, because of continued low transaction volumes in the UK property market. Meanwhile, the EdTech segment grew 15 per cent underlying.
Softcat (SCT) has continued to trade well during its fourth and typically largest financial quarter. Consequently, management expects full-year operating profits to exceed its prior expectations. This comes two-or-so months after the group’s third quarter trading update, within which the group also said that full-year results would “now be slightly ahead of previous expectations”. It said at the half-year stage in March that the preliminary numbers would marginally exceed prior expectations. The shares were up by 7 per cent at the time of writing.
GB Group’s (GBG) non-executive chairman David Rasche will say at the group’s AGM today that it has made a good start to the year, with revenue and profit performance in line with management’s expectations. GBG saw good cash conversion and paid down a further £10m of debt during the period. Among other wins, the location business secured business with North American leisure and outdoor clothing companies Patagonia USA and Moosejaw. The identity business’s North American customer wins included financial services company National Life Group. The fraud business has won more business with financial services clients. Management expects “another successful year”.
In a first-quarter trading update, Aveva (AVV) said it has made a good start to the financial year with high-single-digit revenue growth at constant currencies. Reported revenue growth was low-double-digit. Retail and subscription sales grew strongly, helped by the launch of the subscription offering for monitoring and control – Aveva Flex. Each geography grew versus the same quarter last year. Management’s full-year outlook remains unchanged.
An AGM update from VP (VP.) indicates that amidst an uncertain wider economic outlook, trading has been broadly in line with expectations. Although the core UK infrastructure, construction and housebuilding markets are described as “supportive”, the group says there has been some geographical variation in demand. In particular, conditions in London and the South East have been more subdued. The international division is said to have had a satisfactory start to the year.
Half year results from Goco Group (GOCO) indicate revenue has remained flat at £76m for the six months to 30 June, whilst adjusted operating profit has plummeted by 40.4 per cent to £12.5m. This comes on the back of £8m of investment in growing the group’s AutoSave proposition, “weflip”. Excluding this investment, adjusted operating profit fell by 3 per cent to £21m. Customer interactions are down 12.2 per cent to 13.1m although average revenue per interaction has increased by 8.1 per cent to £5.2m. Meanwhile, savings made by customers has declined by 14 per cent to £471m. Building its capabilities in energy savings, the group has acquired Look After My Bills for a maximum potential consideration of £12.5m. Shares are down over 5 per cent this morning.
Despite setting a high bar for itself, investment platform provider AJ Bell (AJB) continues to grow. In the three months to June, the group boosted its total customer numbers by 5 per cent, while total assets under administration climbed 6 per cent in the period to hit £50.7bn, boosted by a mix of net inflows, defined benefit pension transfers and favourable market movements of £1.6bn.
Specialist asset manager Intermediate Capital (ICG) grew its total assets pile by 4 per cent in the three months to June, including €0.8bn for its new Europe Mid-Market fund and €0.6bn of segregated mandates in its senior debt strategy. Third-party fee-earning assets under management climbed at a slightly higher pace, and now stands at €31bn, and chief executive Benoit Durteste says good progress has been made with its infrastructure equity and “sale and leaseback” strategies.
Mortgage Advice Bureau (MAB1) saw its revenues rise 5 per cent in the six months to June, though its transactions took longer to complete and adviser numbers ended the period up by 7 per cent. The advisory group also reports delays to filling vacancies within its advisory network, though most of the groups it works with have “strong growth plans for 2019 and 2020”, presumably backed by a recent uptick in conversions.
Compass Group (CPG) expects to deliver full year organic revenue growth at the top end of the 4 per cent to 6 per cent range, thanks in part to recent strong performance in North America, with margin expected to be flat on the previous year. Organic revenue growth was 6.3 per cent in the third quarter, and 6.5 per cent over the nine months to June. Better than expected margin improvement in the rest of world and growth in North America have offset the “more difficult volume environment” in Europe. Shares were up more than 3 per cent in early trading.
NCC’s (NCC) continuing revenues rose by 7.6 per cent to £251m over the year to May 2019. Assurance revenues rose by 9.6 per cent – with good growth in North America and Europe and the rest of the world, and a small decline in the UK. Escrow revenues fell by 2.8 per cent to £38m with North America up by just over a tenth, tempered by a 6.5 per cent decline in the UK. Pre-tax profits rose by just over a half to £17.8m. Net debt declined from £27.8m to £20.2m, and cash conversion improved from 58 per cent at the half-year end to 109.6 per cent. The group expects the next year’s trading to be in line with its expectations.
Howden Joinery (HWDN) has seen revenue increase by 5.4 per cent to £653m during the first half of the year, with pre-tax profit jumping by 13.5 per cent to £78.1m. UK revenue increased by 3.4 per cent on a same depot basis to £625m whilst Continental European revenue has dipped by 1 per cent reflecting the closure of operations in the Netherlands and Germany in January. With a £37m benefit from a price increase in January and more disciplined balance between volumes and price achieved in depots, the gross margin has improved by 0.6 percentage points to 61.9 per cent. Net cash has fallen by 6 per cent to £231m owing to £24.1m of capital expenditure and £46.3m returned to shareholders through the buyback programme. Shares are up 6 per cent this morning.
Ahead of its annual general meeting, FirstGroup (FGP) announced that trading in the first quarter has been in line, with no changes expected to expectations for the current financial year. The transport group still intends to continue with its portfolio rationalisation plans announced in May, with future emphasis on the North American business. Wolfhart Hauser will step down from the board and as chairman following the meeting today. Shares were up 1 per cent in early trading.
Profits slipped 3.3 per cent in the first half of the year for Inchcape (INCH) following challenges in Australasia and Ethiopia. The group has disposed of ten of its retail sites in the Uk and Australia, as part of its plans to cut the fat from its portfolio. Management said it expects performance to be “resilient” for the full year, with UK retail performance expected to be broadly flat on last year.
Findel (FDL) has released a short trading statement ahead of its annual general meeting later today. The Studio division grew 3 per cent in the 16 weeks to 19 July 2019, and the education business has made a good start to the “back to school” season, with increases in online ordering. Expectations for the full year are unchanged.
