Shares across the board in London are in positive territory today as signs of a possible concession by Hong Kong's authorities have trumped continued political chaos in Westminster in traders' minds. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Shares in Dunelm (DNLM) fell 3 per cent this morning following release of the group’s full-year results. The group appears to have recovered its stride after a difficult time last year, with free cash flow almost tripling and pre-tax profits up by more than a third. However, management warned that Brexit uncertainty as the peak trading period approaches meant it was cautious about its full-year outlook. Buy.
Frontier Developments (FDEV) saw a 162 per cent rise in revenues for the year to May 2019, reaching £89.7m. Operating profits were up 593 per cent to £19.4m. This performance was buoyed by the successes of Jurassic World Revolution and Frontier’s first self-published titles, Elite Dangerous and Planet Coaster. Its next big release is Planet Zoo – due on 5 November. The group expects revenue during the current year (FY2020) to benefit from this launch, but it is unlikely to drive total revenues as high as those brought in by Jurassic World. Management is happy with the current range of analyst revenue projections (£65-73m). The shares were down by around 6 per cent this morning. Under review.
Somero Enterprises’ (SOM) shares tumbled again this morning – down 18 per cent at the time of writing. In June, the group said that trading for the five months to May had fallen below management’s expectations, largely due to heavy rainfall in the US. The group thus lowered its guidance – anticipating revenues of around $87m. Today, Somero said within its half-year results that financials are tracking broadly in line with this guidance – will full-year revenue expectations of $83m-$87m. The US non-residential construction market remains healthy – but, trading in Europe and the Middle East fell below the prior year, partly due to the timing of some contracts. Broker finnCap has lowered its revenue forecasts for 2019 and 2020 by $3m. Under review.
KEY STORIES:
As expected, Barratt Developments (BDEV) reported a reduction in revenue for the year to June, which was down 2.3 per cent on the prior year, as it grew the proportion of affordable house building. The average sales price declined to £274,400, from £288,900, reflecting that shift as well as the decision to reduce London exposure. However, the operating margin rose slightly to 18.9 per cent thanks to efficiency initiatives.
The payment protection insurance scandal has a final sting in the tail for Royal Bank of Scotland (RBS), which saw a sharp rise in claims ahead of a 29 August deadline. At the end of June, the lender had £400m of unutilised provisions for PPI mis-selling, but now expects to book between £600m and £900m in additional provisions in its third quarter results. Ongoing claims processing, and the unaudited nature of the estimate, mean provisions could be higher or lower than the range suggests.
Premier Asset Management (PAM) is to merge with Miton Group (MGR), creating a group with pro-forma combined assets under management of £11.5bn. The combined entity, which will be known as Premier Miton, will benefit from £7m of annual pre-tax cost synergies and what management of both groups describe as “complementary investment capabilities”. Under the terms of the deal, Miton shareholders will be entitled to receive a 4.9p-per-share special dividend, plus 0.30186 Premier shares for each share they own, giving them a third of the overall company.
OTHER COMPANY NEWS:
Capital is the number one priority for Just Group (JUST) interim chief executive David Richardson, but the retirement products specialist continues to walk a precarious tightrope. At the end of June, Just’s solvency capital requirement coverage ratio stood at 149 per cent, 13 percentage points up on 2018. But this was in large part due to the capital raise at March, which has been “partly offset by new business strain, a fall in house prices and the effects of falling risk-free rates”. In a bid to pre-empt the Prudential Regulation Authority’s consultation on its lifetime mortgage business, the group also reckons around £130m will need to be set aside. Possible refinancing options for the £100m 9.5 per cent notes which are callable annually from March 2020 are also yet to be determined. Meanwhile, retirement income sales, new business operating profit and lifetime mortgage loans all dropped.
With the pound whipsawing to the cacophony of events from Westminster, there’s high demand for the services of Alpha FX (AFX), which helps large companies manage their foreign currency exposure. One need only look at half-year numbers for evidence. Revenue rose 60 per cent, reported operating profit jumped 62 per cent, and the interim dividend has climbed 16 per cent to 2.2p a share.
Kainos (KNOS) expects results for the year to March 2020 to be in line with current market expectations. It said it has delivered a sold digital services performance with good momentum across government, healthcare and commercial clients. Digital transformation made progress within the commercial sector and continued as a key supplier to the UK government’s digital transformation programme – albeit the group notes that it “remains cautious about public sector spending in the current political environment”. Kainos’s half-year numbers are due in November.
After market-close yesterday, it was announced that Sybil Holdings S.à r.l planned to sell around 121m shares in Avast (AVST) representing 12.4 per cent of its issued share capital, through a placing to institutional investors. Today, we learnt that the seller had sold these shares at 367p each, raising £443.7m. Following settlement, the seller won’t hold any shares in the company. Avast won’t receive any proceeds from the placing. Jefferies international Limited acted as sole global coordinator and bookrunner. Avast’s shares were down by around 3 per cent this morning.
Halfords (HFD) has blamed a combination of cooler, wetter weather and lower consumer confidence for a 3.2 per cent drop in like-for-likes in the 20 weeks to 16 August. There were some bright spots, however, with autocentres improving like-for-likes by 1.1 per cent, and an 8.4 per cent improvement in group online sales. Broker Peel Hunt, cut forecasts, saying “there are clear structural issues here and root and branch surgery is required”.
