Shares in London's FTSE100 and FTSE250 are clawing back some ground after a punishing start to the week but a slump in the value of one of its biggest companies has left the Aim market down heavily again. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
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Shares in Burford Capital (BUR) were hit badly in trading yesterday, amid speculation that the litigation financier was the subject of a hotly-trailed report from fabled short seller Muddy Waters. This morning, the report landed, knocking a further chunk off the shares. In it, Muddy Waters says the group “has been egregiously misrepresenting its return on invested capital and internal rates of return, as well as the state of its overall business” through mark-to-model accounting, and is a “poor business masquerading as a great one”.
Prior to the release, Burford issued a statement saying it knew “of no operational or corporate reason for the price movement”, but reassured investors of its liquidity and funding, including $400m of cash and cash equivalents as of this week. The group also highlighted its use of IFRS accounting standards and Ernst & Young as auditor. However, there is likely only so much ground to be gained in the group’s apparent bid to treat what it suspects is a “bear raid” as “actionable misconduct” relating to market manipulation. This could be about to get very messy, and we place our buy call under review.
The half-year pay-out for investors in Standard Life Aberdeen (SLA) has been held at 7.3p. That is perhaps one silver lining to interim figures, which show a further £15.9bn of net outflows, an operating profit of £142m light of consensus estimates, and a 10 basis point drop in the multi-asset revenue margin t0 0.44 per cent. The stock, 5 per cent down in early trading, is a sell.
Half year results from Morgan Sindall (MGNS) indicate flat revenue at £1.42bn for the six months to 30 June but adjusted operating profit has risen by 18 per cent to £37.5m. The adjusted operating margin has improved by 0.4 percentage points to 2.6 per cent. The secured order book has expanded by 19 per cent to £4.2bn and net cash has gone up 18 per cent to £114m. The group expects full year results to be slightly ahead of previous expectations. Under review.
Life and pensions consolidator Phoenix Group (PHNX) is up in early trading, after saying it will likely beat the upper end of its £600-700m cash generation target rage in 2019. In the first half of the year, this cash generation dipped from £349m to £287m, though further savings from the Standard Life Aberdeen business transition, new business contributions, and a leap in assets under administration all bode well. Buy.
While larger banks fret about the potential impact of Brexit uncertainty on their loan books, Secure Trust Bank (STB) says it has positioned its balance sheet as best it can whatever the outcome of negotiations. Based on half-year results, that balance sheet is also positioned to grow earnings at a clip. Despite an improvement in the quality of the loan book, pre-tax profits climbed 20 per cent in the six months to June, while total customer numbers jumped 32 per cent year-on-year to 1.45 million. Buy.
Operating profits at Legal & General (LGEN) broke through the £1bn barrier in the six months to June, as pension risk transfer sales, individual annuity sales, direct investment and assets under management all climbed. The knock-on effect for shareholders has been a 15 per cent rise in earnings per share, and a 7.2 per cent lift in the interim dividend. Under review.
Shanta Gold (SHG) has lined up a $10m (£8.2m) loan for its Singida project in Tanzania, although will only receive the cash if it can raise $15m in a local spinoff IPO. The gold producer says it can build the openpit mine for $16m, and eventually produce around 20,000 ounces of the precious metal a year from the operation. The $10m loan deal is with an unnamed East African “multi-national conglomerate”. Buy.
Avon Rubber (AVON) shares grew 8 per cent after the technology group announced that it had agreed to acquire US conglomerate 3M's ballistic-protection business and the rights to its Ceradyne brand, a manufacturer of advanced ceramics. Avon Rubber would pay $91m in cash, while a further contingent cash consideration of up to $25m may be payable. Buy.
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The Department for Transport (DfT) has extended the current Southeastern franchise operated by Go-Ahead Group (GOG) to 1 April 2020, rather than expiring on 10 November 2019. It also notified Go-Ahead that the competition for the next South Eastern franchise has been terminated. Go-Ahead chief executive David Brown said the group is “disappointed” that its original bid is not being taken forward, but will engage with the DfT regarding next steps.
Flutter Entertainment (FLTR), previously known as Paddy Power Betfair, reported an 18 per cent increase in group revenue to £1.02bn during the six months to June, while pre-tax profits fell 24 per cent to £81m. Revenue growth was driven primarily by the US, as FanDuel continued to lead the New Jersey fantasy sports market and is now live in Pennsylvania. The online business and operations in Australia also performed well. This helped to offset a 4 per cent decline in retail revenue from betting shops, as good growth in sports was not enough to make up for the reduction in machine revenue following the cut in the maximum stakes from £100 to £2 on fixed odds betting terminals.
OTHER COMPANY NEWS:
Half year results from PageGroup (PAGE) indicate a 9.5 per cent constant currency increase in revenue to £821m for the six months to 30 June with a 11.4 per cent rise in operating profit to £75.6m. The conversion rate (operating profit as a percentage of gross profit) has increased by 0.4 percentage points to 17.4 per cent with a strong performance in EMEA partially offset by challenging trading conditions in Asia Pacific. Alongside a 4.9 per cent increase in the interim dividend, the group has also announced a 12.73p special dividend. Shares are up over 3 per cent this morning.
Hill & Smith (HILS) shares rose 8 per cent in early trading on the back of a solid first half in the UK and US, where the infrastructure specialist generates the lion’s share of its revenues. The company holds a cautious outlook for the UK in the second half but nevertheless retains a positive outlook for the period.
Spirax-Sarco (SPX) shares fell 6 per cent on its first half results as the valves and pumps fabricator warned that its sales in steam specialties would more than halve over the second half, as industrial forecasts were revised downwards and “the non-repeat nature” of some first half growth.
Ultra Electronics (ULE) shares were up 7 per cent in morning trading as the aerospace and defence technologies group nearly doubled statutory pre-tax profits, benefitting from a strong global defence spend, particularly in the US. The order book is strong, and the company enters its second half with 93 per cent order cover for the rest of the year.
