IC TIP UPDATES:
Xaar (XAR) shares vaulted 23 per cent in morning trading after the inkjet technology specialist announced that it had agreed to sell 20 per cent of its holding in its 3D business to Stratasys for $10m, which currently holds 15 per cent. Stratasys has also been given the option to buy the remaining 55 per cent that it does not already own for at least $33m, which is exercisable over three years. Stratasys, an American 3D printing outfit, was granted the option to take its stake up to 30 per cent following the acquisition of its initial stake in 2018 - it will take its stake up to 25 per cent in exchange for $4m and cancel the remaining unexercised part of this option. Xaar has much to do in its strategic review of its thin film business, and we retain our rating. Sell.
Ricardo (RCDO) shares fell 6 per cent in early trading following the release of its full-year results, as pre-tax profits dropped by 2 per cent and the engineer’s order intake tailed off by 7 per cent. A “very turbulent backdrop” in the automotive market was noted by management, which nevertheless pointed to improvements in Ricardo’s performance products and energy and environment arms. We remain buyers.
Babcock International (BAB) has been chosen by the UK’s Ministry of Defence (MOD) as its preferred bidder to provide a new fleet of warships. The Type 31 general-purpose frigate programme will provide the UK with a fleet of five ships, and will carry an average production cost of £250m per ship. Babcock’s shares are beginning to show signs of a return to growth, so we place our rating under review.
Focusrite (TUNE) has said that revenues for the year to August 2019 are expected to be ahead of market expectations, at around £84m – up from £75.1m last financial year. This growth entails around 10 per cent for the existing business, and approximately six weeks of revenues for ADAM Audio, a German studio monitor company, which was bought in July for £16.2m. Margins have remained the same as the prior year. Cash profits are thus also expected to be ahead of market expectations. The shares were up 5 per cent at the time of writing. Buy.
British American Tobacco (BATS) is aiming to “simplify its business and create a more efficient, agile and focused” business by cutting 2,300 jobs by January 2020, with a fifth of this coming from management roles. Chief executive Jack Bowles said his “goal is to oversee a step change in new category growth and significantly simplify our current ways of working and business processes”, adding that this will make BAT better placed to meet its target of generating £5bn of revenues from new categories by 2023/24. Shares were up more than 2 per cent in early trading. Buy.
N Brown (BWNG) experienced a surge in PPI information requests and complaints in the run-up to the end-of-August deadline, receiving more than 10 times the average volume in the month before. As a result, it will have to make an additional provision of £20-30m to account for the costs, pushing the end-of-year net debt range to £460m-490m from £440m-460m previously.
Haynes Publishing (HYNS) saw revenues rise by 7 per cent to £36.2m for the year to May 2019, with adjusted cash profits up 11 per cent to £12.8m. Statutory pre-tax profits narrowed from £3.6m to £1.9m – stemming from a gain on disposal of property in the prior year’s first half, and higher administrative expenses in the period under review. Haynes is now debt-free, for the first time since 2013. Net cash was up by 96 per cent, sitting at £4.9m. Buy.
KEY STORIES:
Brooks Macdonald (BRK) reported £409m net inflows for the year to June, equivalent to 3.3 per cent of opening funds under management. That is behind the double-digit growth historically enjoyed by the wealth manager but reflects increased macroeconomic uncertainty and circumspection among retail investors. Market movements contributed £430m, which took total funds under management up 6.8 per cent.
Helios Towers – a sub-Saharan independent tower company – has announced its intention to publish a registration document, and its potential intention to float in London. Helios provides network services, flexible infrastructure services and power supply to mobile network operators in the countries in which it operates. Revenues rose by 7 per cent year over year to $191m for the six months to June 2019, with adjusted cash profits up 15 per cent to $99m. If the IPO goes ahead, Helios anticipates the allotment and issuance of new shares to raise gross proceeds of $125m, and the sale of existing shares by current shareholders. Helios previously announced its intention to float back in March 2018, before saying that it had decided not to proceed later that month.
Shares in WM Morrison Supermarkets (MRW) are up four per cent in early trading this morning after the group’s half year results delivered profits ahead of expectations and the announcement of yet another special dividend payment. Like-for-likes were up just 0.2 per cent, owing to the favourable conditions in the first half of last year.
OTHER COMPANY NEWS:
Mitie (MTO) has secured an extension to its contract to provide integrated facilities management to Lloyds Banking Group (LLOY) until 2024. The extended contract represents a change from an input-based service model to an output-based arrangement where payments are determined by the results delivered. Already factored into FY2020 guidance, it is expected to generate annual revenues of around £170m.
Half year results from Medica (MGP) indicate an 18 per cent increase in revenue to £22m with turnover from its out-of-hours Nighthawk service rising by 12 per cent to £10.4m. The gross profit margin has dipped 1.3 percentage points as pricing reviews impact contract renewals and contracts shift to new framework agreements. This is expected to continue to edge down although the group hopes it can be offset by volume increases. Adding net 28 reporters (and a further 24 post-period) the total number of contracted radiologists, radiographers and rheumatologists stands at 414.
Diversified Gas and Oil (DGOC) will move from AIM to the main market next year. The Appalachian basin shale producer listed in 2017 and has continued expanding aggressively through acquisition and its share price double its float price of 56p. DGO said it would complete the main board shift after its full year results are released in the first quarter of 2020.
Hurricane Energy (HUR) has followed quickly on from its confirmation of flaring at the Lincoln Crestal well on Monday with a release of the test well data. Lincoln Crestal had a natural flow rate of 4,682 barrels per day, and will now be suspended before a planned tie back to the floating production, storage and offloading (FPSO) ship Hurricane has in the area next year. The company’s shares were up 7 per cent on the news to 48.4p, bringing this week’s gains to around 15 per cent.
Shares in Trainline (TRN) were up more than 6 per cent in early trading after it reported a 29 per cent increase in revenue to £129m in a first half update, driven by both UK and international sales growth. Net ticket sales were up 15 per cent in the UK and by 52 per cent internationally, bringing the company’s total increase of 19 per cent to £1.84bn. As a result, management raised guidance for full year revenue growth, now expected to be in the low to mid 20 per cent range, driven by a strong performance in UK consumer.
Silence Therapeutics (SLN) reported a loss after tax of £8.2m during the first half, with operating costs driven by increasing R&D spend. Chief executive David Horn Solomon called the first half “transformational” with the “game-changing” RNAi collaboration with Mallinckrodt announced in July, following months of business development work. This deal provided the company with a significant cash injection and provides “significant development and commercial milestones”. The SLN124 clinical trial application, for the treatment of β-thalassemia and myelodysplastic syndrome (MDS), was filed in the first quarter, with first patient dosed expected before year end.
