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News & Tips: Schroders, Bellway, Woodford & more

Equities are mixed again
October 15, 2019

The main indices in London were mixed in mid-morning trading with the FTSE100 and FTSE250 relatively flat and the smaller Aim market off a little as uncertainty continues to reign with the announced winding up of Neil Woodford's flagship Equity Income fund adding to investor concerns today. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES: 

Including wealth management mandates, Schroders’ (SDR) assets under management climbed to £450.8bn by the end of September – an increase of 1.4 per cent on the half-year total. The investment giant provided no commentary on flows, though it has previously said that some £45bn of assets from its controversial Lloyds Banking Group mandate are due in the six months to December. Buy.

After rocketing last week on the prospects of a Brexit deal, shares in residential property developer Bellway (BWY) are off by 3 per cent in early trading today. That’s despite posting a record period for housing completions and a doubling in net cash to £201m in the 12 months to 31 July. The operating profit margin declined 110 basis points to 21 per cent, “towards a more normalised level”, though management has shown its confidence in lifting the final dividend by 5.3 per cent to 100p a share. Under review.

Vesuvius (VSVS) shares fell by 12 per cent in early trading after the engineering group issued a profit warning. In a third-quarter trading update, Vesuvius revised full-year trading profit expectations down from a consensus of £205m to between £180m and £190m. “In EMEA, both our Steel and Foundry divisions have been impacted by a continuing weakening in their key end markets,” the company said. Under review.

On the back of strong organic growth, the acquisition of Alpha Translations Canada in January and favourable currency movements, RWS (RWS) expects revenue for the year ending 30 September to be at least £355m, a 16 per cent increase from 2018. Adjusted pre-tax profit is said to have “increased significantly” versus last year and will be marginally ahead of expectations – Numis has upgraded its forecast to £73.6m. Moravia has achieved record revenue and remains focused on driving growth from existing customers and expanding the client base. Net debt is expected to fall by over two-fifths to £37m. We remain buyers

Dotdigital (DOTD) reported revenue growth of 19 per cent to £51.3m over the year to June, with organic revenue growth of 15 per cent to £42.5m. Recurring revenues constituted 86 per cent of the top line, up from 85 per cent. By geography, the Europe, Middle East and Africa region saw double-digit sales growth despite the ongoing impact of data privacy rules introduced last year (GDPR). The US saw 27 per cent growth, and the Asia-Pacific region saw 83 per cent growth (albeit from a lower base). Management is confident in its expectations for 2020. Buy.

Renishaw (RSW) shares tumbled 13 per cent after a first quarter update revealed the toll of the “challenging global macroeconomic environment”, with revenues down to £124.6m compared with £154m in the first quarter of its last financial year. The specialist in metrology systems has not seen a repeat of a number of large APAC orders witnessed in the first quarter of 2019. But its balance sheet remains strong with a net cash position of £98.5m. Despite the market turmoil, we remain buyers.

Shares in Marston’s (MARS) fell more than 7 per cent in early trading after it released what analysts called a soft trading update. Group turnover is expected to be up 3 per cent to £1.2bn over the year to September, with cash profits broadly flat year-on-year. Total pub sales were up 3 per cent, or up 0.8 per cent on a like-for-like basis. This has improved over the most recent 10 weeks, with comparable sales up 1.9 per cent. In 2020, the 53rd weeks of trading is expected to offset the impact of the step-up in securitised interest, and the company has taken the decision to accelerate its debt reduction target of £200m by 2023.Underlying pre-tax profit for 2020 is expected to be at a similar level to 2019. Our buy tip is under review. 

KEY STORIES: 

Shares in Hargreaves Lansdown (HL.) are unmoved today on the news that Neil Woodford’s Equity Income fund is to be shut down, months after trading in the stock-picker’s marquee investment vehicle was suspended to prevent rising redemptions. Until the start of this year, Hargreaves Lansdown had been a big backer of Mr Woodford’s, and had included the Equity Income fund in its ‘Wealth 50’ index. Almost 300,000 users of Hargreaves’ platform have been affected by the debacle.

Shares in Accesso Technology (ACSO) were down by around 15 per cent this morning, after the group gave an update on its formal sale process under the City Code on Takeovers and Mergers, announced on 24 July 2019. Accesso and its advisers have interacted with various interested parties. The interested parties were asked to submit refreshed indications of interest by the end of September 2019, but none of these are at a level that the board believes offers sufficient value to shareholders. The board and its advisers continue their discussions with certain parties to see if a more attractive offer can be delivered. If the formal sales process doesn’t lead to an acceptable offer, management is prepared to continue implementing its strategic plan.

Sports Direct’s (SPD) “elevation strategy” relies on getting major sports brands such as Nike and Adidas to buy in, providing top-end product in order to attract customers to its higher-quality stores. Judging by the retailer’s statement yesterday, it doesn’t seem to be going well. Sports Direct said that “must-have” brands “use their market power to implement market wide practices aimed at controlling the supply and, ultimately, the pricing of their products”, and called for a “wide market review” in both the UK and Europe.

The Financial Conduct Authority has announced plans to change the way motor finance brokers and car retailers receive commission. The FCA aims to prevent the use of commissions linked to the interest rates paid by customers - a move it says would save them £165m a year. It is also proposing to make changes to the way customers are told about the commission they are paying, ensuring they receive more relevant information. 

OTHER COMPANY NEWS: 

Southern England-focused brownfield-site developer Inland Homes (INL) has posted a trading update for the 15 months (yes, fifteen) to September, a period characterised by the group as one of “significant progress”. While the number of open market completions and land plot sales dropped, total land bank plots and forward sales both rose. Heavy investment in new developments has also resulted in a near-doubling in net debt to £155m, and a near-doubling in houses with planning permission.

Hays (HAS) has seen group net fees remain flat on a like-for-like basis for the first quarter ending 30 September. Net fees from the UK and Ireland declined by 4 per cent, with 6 per cent growth in the public sector more than offset by a 7 per cent decline in the private sector amid weaker business and client confidence. In Germany, the group’s largest market, flat net fees were driven by increased client control, especially in the manufacturing and automotive sectors. Meanwhile, Asia and the Americas saw 7 per cent net fee growth with quarterly records in China and the US. Following profit warnings from fellow recruiters Pagegroup (PAGE) and Robert Walters (RWA) last week, Barclays characterises these numbers as “better than expected”. Shares are up 6 per cent in early trading. 

Ofgem has proposed cutting National Grid’s (NG.) funding for the new Hinkley Point grid link by £80m to £637m, having rejected the group’s request to include £40m of “risk funding” in the upfront cost of the project. Described as a “clear positive” by RBC Capital Markets, the regulator has shifted away from the competition proxy model it had planned to use to set National Grid’s allowed return on the project. It will instead use the RIIO 2 model which currently has a draft allowed return of 2.88 per cent under CPI for the control period 2021-26.

Shares in Rank Group (RNK) were up 6 per cent in early trading after revealed a 10 per cent increase in like-for-like net gaming revenue in the first quarter of its financial year, driven by increases in digital sales and Grosvenor revenues. Management called Grosvenor venues the “standout performer” with net gaming revenue up 27 per cent during the quarter, driven by growth in customer numbers and lapping weak comparatives. In early October Rank completed the acquisition of Stride Gaming, though Stride’s net gaming revenue fell 15 per cent to £16.3m during the quarter due to lower customer acquisition volumes.