Equities in London's main indices continues to struggle for any positive momentum. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
After market close yesterday, Barclays (BARC) became the latest bank to announce that it would need to incur additional provisions relating to a higher-than-expected level of payment protection insurance claims in August. The lender expects to increase its provisions during the third quarter by between £1.2bn and £1.6bn, up from the residual provision of £360m at the end of June. However, we remain buyers.
JD Sports Fashion (JD.)still appears to be immune to the current challenges on the UK high street. The group’s share price jumped this morning after another record result in the first half of the year. The athleisure retailer delivered a 37 per cent increase in group cash profits, for an unprecedented £235m in the six months to early August. Buy.
Equipment hire specialist Ashtead (AHT) has seen rental revenue increase by 16 per cent at constant currencies to £1.16bn during the first quarter, with pre-tax profit up 8 per cent to £305m. Growth continues to be driven by the Sunbelt businesses in the US and Canada with rental revenue growth of 18 per cent and 26 per cent respectively offsetting a flat UK performance. Excluding the impact of new accounting standard IFRS, net debt has expanded by 38 per cent to £4.2bn on the back of increased capital expenditure and six bolt-on acquisitions. Shares are down 2 per cent. We remain buyers.
Hilton Food Group (HFG) reported a 5.6 per cent increase in revenue to £912m during the first half, on the back of a 6.8 per cent increase in volumes to more than 193,000 tonnes. This was driven by both the UK meat and Seachill seafood businesses, along with further progress from operations in Australia and from the new vegetarian Dalco and HFR Food Solutions businesses. The cash outflow widened to £57.2m, from £7.1m last year, as the company invested in the new Australian facility, a fresh food factory in central Europe, and UK capacity expansion. Shares were up 1 per cent in early trading. Buy.
Harworth (HWG) said within its half-year results that as at today, 70 per cent of budgeted sales for the full year have been completed, exchanged or agreed. The group has live applications for 1,715 residential plots and around 3.2m sq. ft. of commercial space awaiting determination. However, May’s local elections engendered a change in control in some local authorities, leading to expected delays in the determination of some applications. Net asset value has grown by 1.4 per cent since December 2018. Valuation gains of £11.1m compare to £10.5m in last year’s first half. Trading remains broadly in line with management’s expectations, albeit accepting the aforementioned political challenges. Buy.
Team17’s (TM17) revenues rose by 97 per cent to £30.4m over the six months to June, with the video game group noting that its revenue profile for the whole of 2019 will be more first-half weighted than previous years due to release schedules. Pre-tax profits expanded from £31,000 to £10.4m, thanks to the improved top line, the absence of exceptional items and lower finance costs. Operating cash conversion of 109 per cent compared to 200 per cent in the first half of 2018. Management is comfortable with full-year expectations. Buy.
Regional Reit (RGL) reported a 64 per cent decline in operating profit during the first-half, due to a decline in the fair value of its investment properties. Net rental income was also slightly lower due to property disposals the prior year. The regional commercial landlord completed 39 new lettings, which should bring in annual gross income of £1.6m. We place our buy recommendation under review.
Midwich’s (MIDW) shift towards more technical, higher-margin business areas is continuing to pay off. The audio-visual specialist saw its gross margin continue to improve in the first half of the year, up 40 basis points to 16.6 per cent. Management refused to be drawn on how much higher they might go, but it was enough to send the shares up 2 per cent in early trading. Buy.
KEY STORIES:
In its first half results, intellectual property commercialisation company IP Group (IPO) cited the impact of negative market sentiment towards its sector due to the difficulties experienced by embattled fund manager Neil Woodford, with funds managed by Woodford Investment Management being IP’s second-largest shareholder. WIM-managed funds have holdings in 12 of IP's portfolio companies, which account for 34 per cent of IP's total portfolio value. IP also raised 32 per cent less portfolio capital than it managed in the first half of 2018.
The takeover talks between Bovis Homes (BVS) and Galliford Try’s (GFRD) housebuilding businesses are back on, after the former said it was in “high level” preliminary discussions with the housebuilder for its Linden Homes and partnerships and regeneration operations, valuing the business at £1.08bn. Bovis would take on Galliford’s £100m in debt, offer Galliford shareholders £300m in cash and issue 0.57406 Bovis Homes shares per Galliford Try share. Bovis made the announcement alongside the release of its first-half results, which revealed a 4 per cent rise in completions and 140 basis point increase in the operating margin.
OTHER COMPANY NEWS:
EKF Diagnostics (EKF) announced a partnership with Mount Sinai Innovation Partners that will present the manufacturer and developer of diagnostics products early access to new commercial opportunities. The first of these is a digital care pathway platform to tackle IBD, a chronic disease. Revenue rose across its diabetes, hematology and central laboratory businesses over its first half. The group intends to pay a first dividend of 1p subject to shareholder approval.
Boku’s (BOKU) revenues rose by 39 per cent to $23.5m over the six months to June. Adjusted cash profits sat at $4.3m, up from $2.5m. The direct carrier billing specialist saw total payment volumes rise 47 per cent to $2.3bn. Management noted that its overall guidance for 2019 as a whole had included $52m in revenues and adjusted cash profit growth of 45-50 per cent. The first half’s numbers represent 45 per cent and 47 per cent respectively of these targets. “There's no question that we need a good second half in order to deliver; we anticipate one and thus leave our guidance unchanged”.
After market-close yesterday, Sage (SGE) noted recent media speculation regarding a possible sale of its Sage Pay business, and confirmed that it is evaluating potential strategic options for this division. These include a sale. It said there can be no certainty that the evaluation will lead to a transaction.
Euromoney (ERM) has announced a strategic review of its asset management businesses, which comprise BCA Research, Ned Davis Research and Institutional Investor. It says that further information will be provided in due course.
Half year results from Anexo (ANX) indicate a 56 per cent increase in revenue to £36.7m for the six months to 30 June with turnover from legal services rising by over a quarter to £13.5m. With a 1.3 percentage point expansion in the margin, adjusted operating profit has surged by 62 per cent to £11.8m. As focus shifts towards legal services to settle more cases and generate cash, the number of senior fee earners has risen to 109. Cash collection has increased by 30 per cent to £36.6m, continuing post-period with July hitting a monthly record. The group remains on track to meet full year market expectations of adjusted pre-tax profit of £23m.
As it focuses on recycling, Renewi (RWI) has announced a binding agreement to sell its industrial cleaning business, Reym, to Remondis for a cash consideration of €50m (£57m). Expected to complete in October (subject to competition clearance) the group will use the proceeds to reduce net debt. The transaction is expected to result in a loss on sale of around €28m for FY2020, of which €23m relates to historic goodwill.
Half year results from Sanne (SNN) indicate a 17.4 per cent constant currency increase in revenue to £78.7m, driven by sales growth in alternatives asset classes in North America and Asia Pacific. But with a 4-percentage point decline in the margin to 26.4 per cent, underlying operating profit for the six months to 30 June has fallen by 3.1 per cent on a like-for-like basis to £20.8m. Although record levels of new business wins have secured annualised fees of around £16m, the European corporate and private client businesses have performed below expectations. Statutory earnings have been weighed down by £13.3m in non-underlying costs.
Nucleus Financial (NUC) has seen assets under management rise by 6.9 per cent to £15.3m during the six months to 30 June. Following substantial investment in the core platform, adjusted cash profits have dropped by 5.8 per cent to £4.6m with a 2.3 percentage point contraction in the margin. Consistent with the wider sector, gross inflow was below expectations with a 30 per cent reduction to £1bn – Shore Capital regards this as a “resilient performance in a tough market”.
Shares in 888 Holdings (888) fell more than 6 per cent in early trading after the online gaming company reported that adjusted pre-tax profits fell to $27.1m (£m) during the first half, compared to $42.5m during the same period last year. This was due in part to higher depreciation and amortisation, as well as higher expenses and gaming taxes and duties. Chief executive Itai Pazner said the group’s business in the UK has “continued its recovery”, with a focus on casual customers and product innovation. Trading so far in the second half are said to be in line with expectations.
