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News & Tips: Games Workshop, Keywords Studios, Metro Bank & more

London equities are up, but only marginally
September 18, 2019

Shares in London started the day on a positive note but gains in the main indices were modest in mid-morning trading. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES: 

Shares in Games Workshop (GAW) are up by more than 2 per cent this morning, following a positive trading update. The Group is trading in line with expectations and has announced a dividend of 35p per share, bringing the total payment this year so far to 65p. Buy.

Shares in Keywords Studios (KWS) are down 4 per cent this morning, in spite of a 17.3 per cent growth in like-for-like sales. Gross margins were down 130 basis points to 36.1 per cent as a result of investments in recruitment and training. Broker Peel Hunt cut its profit forecasts for the full year by €3m (2.6m) to €43m and we are reviewing our buy recommendation

Shares in Metro Bank (MTRO) are down 4 per cent this morning, after the lender used a bond prospectus to disclose that the Financial Conduct Authority is investigating senior members of management over their role in regulatory disclosures for the period between June 2017 and February this year. As part of the probe, which was extended to include senior personnel last month, the watchdog is looking at “systems, controls and governance” to ensure compliance and disclosure obligations, and the “timing and content of announcements” related to the group’s risk-weighted assets scandal. Sell

Wealth-management firm AFH Financial (AFHP) has followed its acquisitions of Mulberry IFAs and AE Garment with the purchase of Wirral-based Broadleaf Financial in a deal worth up to £3.2m. As a result, AFH’s funds under management will increase by £140m, and bolsters AFH’s geographical footprint in the North West of the UK. We remain buyers.

Cello Health (CLL) has seen net revenue increase by 6.8 per cent to £54.5m in the first half of 2019 with a 12.3 per cent rise in adjusted operating profit to £5.9m. The margin has improved by 0.5 percentage points to 10.9 per cent. In the Health business, a 12 per cent increase in net revenue has been driven by growth in communications and consulting as existing US and UK clients spent more and the group won a number of large biotech projects. The segment now derives almost half of its net revenue from the US. Shares are up over 2 per cent this morning. We remain buyers

Filtration and environmental technology group Porvair (PRV) reported a 15 per cent increase in revenue over the nine months to August, or 11 per cent at constant currency, with pre-tax profits in line with management’s expectations. Order books were said to be “healthy” with strong order intake in the third quarter, especially in aerospace & industrial. Porvair’s net cash balance is now at £0.1m after it spent £6.2m in acquisitions and capital expenditure over the period, and in the third quarter made its final earnout payment of £2.4m for the acquisition of JG Finneran. Shares fell 3 per cent in early trading. Buy.

Eckoh (ECK) has said that trading is in line with expectations for the full year, reflecting good revenue growth in the UK and US. It pointed to an encouraging level of business contracted. As announced in July, Eckoh won a three-year contract to provide its agent desktop product Coral, expanding its relationship with a Fortune 100 telecoms group. The contract is worth at least $3.8m. Buy.

KEY STORIES: 

Pendragon’s (PDG) share price has fallen by a tenth this morning following a “material decline” in its profitability in the first half of 2019. The group swung to a £32.2m loss in the period, compared to a profit of £28.4m last year. What’s more, non-executive chairman Chris Chambers will leave the board on the 1st of October. Non-executive director Bill Berman will step up to the newly created role of executive chairman on an interim basis, where he will be responsible for running the group while it recruits a new chief executive. 

South Africa-focused gold miner Pan African Resources (PAF) has entered its new financial year “with confidence, a firm grasp on our cost base, and in a good position to benefit from the current gold price environment”, having reduced all-in sustaining costs by 27 per cent in the year to June. Optimism has been underpinned by the re-instatement of the dividend, though production guidance of 185,000 ounces for the current 12-month period looks a big ask.

Production from fellow excavator of that barbarous relic Anglo-Asian Mining (AAZ) was stable in the first half of 2019, though all-in sustaining costs picked up from $543 to $603 per ounce. As previously announced, the group’s exploration programme has so far produced promising results at several sites in Azerbaijan.

Liberum has downgraded its target price on broking client Sirius Minerals (SXX) to just 9p, following yesterday’s admission by the miner that a second stage financing solution is on the ropes. Analyst Richard Knights said a new solution would need “an improved risk profile for debt”, though “plausible” solutions exist that could boost Sirius’ net present value to 40p to 50p per share.

Kingfisher (KGF) reported a 1.4 per cent decline in sales to just under £6m during the six months to July, while pre-tax profits fell 12.5 per cent to £245m. As usual, like-for-like sales growth at Screwfix, Poland and Romania was offset by poor performance by B&Q and France. This will be the last set of results reported under chief executive Véronique Laury, as she will be replaced by Thierry Garnier next week. Chairman Andy Cosslett said Mr Garnier will “bring a fresh perspective” to the company. Shares fell nearly 2 per cent in early trading. 

Although shareholders have overwhelmingly approved the takeover of Cobham (COB) by US private equity group Advent, a deal is not certain yet. The Competition and Markets Authority must complete an investigation and report back to the UK Government by 29 October. Business secretary Andrea Leadsom cited national security concerns as the reason for the intervention. 

Shares in Accesso Technology (ACSO) were down by a tenth this morning following release of its half-year results to June. Group revenues came in below management’s expectations at $50.7m, down 6.8 per cent. Losses before tax of $5m compared to a pre-tax profit of $1.4m in the comparative period. Accesso noted that there had been slower than expected scaling within distribution, and that the prior year’s first half had benefited from non-recurring revenue items totalling $6.2m. Repeat revenues increased to $35.7m, up from $34.8m. The formal sale process announced on 24 July is continuing.