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News & Tips: William Hill, Melrose, Redrow & more

The equity revival has stalled
September 5, 2019

The recovery in FTSE100 and FTSE250 shares has stalled with both indices giving up some recent gains in morning trading. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES: 

William Hill (WMH) announced that its chief executive Philip Bowcock will step down from the position and as a director of the company from 30 September.  Ulrik Bengtsson, previously William Hill's chief digital officer, has been appointed chief executive officer designate and a director of the company with immediate effect, and will assume full chief executive responsibilities once Mr Bowcock steps down. The company stated that this change is part of its succession planning and consistent with the group's strategy of becoming a digitally led and internationally diverse gambling company. Shares fell more than 1 per cent in early trading. Buy.

Shares in Melrose (MRO) were marked up 5 per cent this morning following release of its first-half numbers. Management said [t]hese results show the initial fruits of the 'improve' stage of Melrose's ownership of GKN”. Revenues came in at £5.7bn, up from £2.8bn. Adjusted revenues rose from £3bn to £6bn, while adjusted operating profits stood at £539m – up from £284m. Statutory operating losses narrowed from £325m to £11m. GKN automotive and GKN powder metallurgy have been enduring a global automotive sector downturn, which Melrose says will continue into the second half. Cost-control initiatives are underway.  Net debt of 2.3 times cash profits was “better than expectations”. Buy

Redrow (RDW) boosted legal completions by 13 per cent during the year to June, although the operating margin reduced slightly due to the increased proportion of social housing output, which meant the average selling price fell 2 per cent. Nevertheless, operating profits rose 8 per cent on the prior year, while strong cash generation prompted management to raise the final dividend, giving a full year payout of 30.5p per share, 9 per cent up on last year. However, with the uncertain backdrop for the housing market, we place our buy recommendation under review. 

Shares in Boohoo (BOO) have jumped 13 per cent this morning, after management upped full-year sales guidance from 25-30 per cent to 33-38 per cent. Cash profit margins are expected to be 10 per cent as the group invests in its three recent acquisitions, Miss Pap, Karen Millen and Coast. Buy.

Ahead of its annual general meeting Dart Group (DTG) stated that the trend of later bookings it had previously discussed at its full-year results in July has continued, but that demand for both flight-only and package holidays has strengthened. Pricing for the winter season “will need to remain continually enticing” as forward bookings have not kept up with seat capacity growth. Management “remains optimistic” that it will continue to meet current market expectations. But further ahead, management are “very cautious” in their outlook given cost pressures on the travel industry, weakness in sterling, and Brexit uncertainty. Shares fell 2 per cent in early trading. Sell.

Valeura Energy (VLU) is up 10 per cent this morning on news of a second successful test at the Inanli-1 appraisal well. The dual-listed gas producer and explorer looked at an lower-quality reservoir area than the previous test site, and said the gas flow was encouraging. The unconventional Thrace Basin project in Turkey is part of a farm-out deal with Equinor, which is providing the exploration funding. The next well test is expected to carry over into the next quarter. Speculative buy

Home-collected credit provider Morses Club (MCL) saw credit issuance and the loan book both flatline in the 27 weeks to August, while collections ticked up 5 per cent and customer numbers dipped slightly from 229,000 to 224,000. Management provided little commentary on the market backdrop, other than to say trading conditions were “broadly in line” with expectations. Buy

Porvair (PRV) shares rose 4 per cent in early trading following the announcement of the filtration group’s acquisition of Dutch industrial business Royal Dahlman for €7.75m. Royal Dahlman will be integrated into Porvair's Aerospace & Industrial division. Buy.

KEY STORIES: 

Mining giant BHP (BHP.) has told shareholders to vote down a motion at its London and Sydney annual general meetings in November and October pushing it to quit industry member organisations not aligned with the Paris climate goals. This is targeting the Minerals Council of Australia (MCA), which is supportive of coal mining and coal-fired power plants. BHP said it had worked with the MCA on its climate policies and had already quit the World Coal Association following a 2017 review of industry bodies’ approach to climate change. BHP also said it was developing internal and external (scope 3) emissions reductions strategies. 

Following yesterday’s surprise revelation from RBS that it has made an additional provision of up to £900m to cover last minute payment protection insurance (PPI) claims, CYBG (CYBG) has put out its own cost estimate. And as today’s 20 per cent share price drop indicates, it’s bad news: following an “unprecedented volume” of information requests, the bank will be forced to set aside between £300m and £450m. This comprises £100m in additional complaints, £100m in information processing costs, and between £100m and £250m in information request complaint costs, which are currently impossible to clarify given the lender’s inability to determine how likely complaints will be upheld. The relatively small size of CYBG’s balance sheet means that on a pro-forma basis, the new provision would have wiped off between 130 and 190 basis points from the group’s common equity tier-one capital ratio.

OTHER COMPANY NEWS: 

McBride (MCB) has continued to struggle against difficult trading conditions, with input costs weighing on margins and a tough competitive enviroment. However, the group managed to grow sales 5 per cent in constant currency. The tumult is expected to continue in the near term, but the group has offloaded its lossmaking personal care division and downsized its aerosol business to streamline.

Dixons Carphone (DC.) has continued to see tough trading in its UK & Ireland mobile phone business, with like-for-like sales down 10 per cent. This as flagged by management in June, and they are working on developing a new customer proposition. Luckily, the electricals business seems to be strengthening, with like-for-likes up 2 per cent in the UK.

Full year results from animal genetics group Genus (GNS) indicate a 4 per cent increase in revenue to £489m whilst statutory pre-tax profit has risen by 27 per cent to £9.9m. Despite the rapid spread of African Swine Fever halving breeding stock sales in China, growth in Latin America and Europe saw porcine adjusted operating profit (including joint ventures) rise by 4 per cent at constant currencies to £101m. With increased uptake of the group’s beef and sexed genetics products, bovine operating profit has jumped by 15 per cent to £30m, with 40 per cent growth in North America. 

Fulfilling the initial joint development agreement signed with Weichai Power in May 2018, Ceres Power (CWR) has announced the completion of its first prototype range extender for Chinese electric buses. The next stage involves field trials in 2020 after which the two companies intend to establish a high-volume fuel cell manufacturing joint venture in Shandong Province. Shares are up 3 per cent this morning.

Go-Ahead Group (GOG) reported a 10 per cent increase in sales to £3.8bn during the year to June, with pre-tax profits down by a third to £97m. Chief executive David Brown was “disappointed” at the Department for Transport’s (DfT) decision to terminate the South Eastern franchise competition after Go-Ahead had operated the franchise for 13 years. Operating profit in rail fell 43 per cent to £25.4m, as expected following the expiry of the London Midland franchise in December 2017. The bus business fared better, with operating profit before exceptional items up5 per cent to £95.7m. 

Self-invested personal pension (SIPP) provider Curtis Banks (CBP) managed to increase adjusted and headline profits in the six months to June, despite a dip in SIPPs administered and what chief executive Will Self described as “some current headwinds in the SIPP industry and wider marketplace”. In a show of confidence, however, the board has agreed to lift the interim dividend by 25 per cent, to 2.5p per share.

At a headline level, vehicle accident management specialists Redde (REDD) put in a resilient performance in the year to June. Though margins fell, growth in credit hire cases increased 9.4 per cent and adjusted pre-tax profit lifted 7.1 per cent to £49.3m. However, the working capital strain which contributed to the sell-off in the group’s shares earlier this year continues to weigh on the balance sheet and cash flow statement. Debtor days rose again to 116, and management has warned it will make “tough decisions to create better, longer-term outcomes” in future dealings with insurers. 

PPHE Hotel Group (PPH) reported a 4.3 per cent increase in reported revenue to £155m during the six months to June, or a 6.3 per cent increase on a like-for-like basis. Revenue per available room was up 9 per cent to £93.40, driven in part by growth in the UK. T completed its multiyear hotel investment programme of more than £1000m aimed at repositioning and upgrading the property portfolio in the UK and Netherlands.