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News & Tips: Asos, Sainsbury, Woodford Patient Capital & more

London equities are in the red
October 16, 2019

With political uncertainty reigning in Europe, London's main indices are in the red this morning. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES: 

It has been a tough year for Asos (ASC), with operational issues leading to a profit warning in July. The group’s full-year results show the extent of the damage, with a 240 basis point drop in the gross margin and 68 per cent drop in pre-tax profits. Despite this, the market has taken comfort from management’s assertions of “substantial progress” in getting the business back on track, and has sent the shares up 17 per cent following the results announcement. We are less confident of the outlook, but are reviewing our sell recommendation nonetheless.

J Sainsbury (SBRY) has outlined how the adoption of new lease accounting rules will affect its business, restating some of its numbers for the financial year to March 2019. The changes have no economic effect on the business or cash, but underlying pre-tax profit falls from £635m to £601m under the new regime. The largest impact is to net debt which, once the effect of £5.8bn in IFRS 16 lease liabilities is taken into account, rises to £6.8bn. Sell.

From next year, National Express (NEX) will operate more busses in Morocco than it will in the UK. It’s already the largest bus operator in Morocco, and National Express has now been awarded a contract in Casablanca for up to 15 years that could generate more than €1bn over that time. The contract will start in November 2019 with an initial 400 buses in operation, increasing to 700 buses next year, carrying 100 million passengers annually. The contract also includes responsibilities to introduce new payment and scheduling systems, alongside a network redesign. Buy.

KEY STORIES: 

Britain’s largest housebuilder Barratt Developments (BDEV) has reported a good start to its financial year, as the group’s sales rate remained even, despite a less-favourable portfolio mix. In the fifteen weeks to 13 October, the group also completed 14 per cent more homes, and counted 12,963 homes as forward-sold, at a slightly lower value, year-on-year.

Neil Woodford and his investment management firm have resigned as portfolio managers of the Woodford Patient Capital Trust (WPCT), a day after the early-stage venture capital firm said it would be reviewing management arrangements. Yesterday, the corporate director of Mr Woodford’s flagship equity income fund removed the stock-picker from management and began the wind-up process. The shares have fallen to a fresh all-time low of 32p, as the WPCT board said new management arrangements would be announced “shortly”.

OTHER COMPANY NEWS: 

Extending its relationship from the past four regulatory cycles, Costain (COST) has been selected to maintain and improve Southern Water’s water supply and wastewater treatment for AMP7. Pending final determination of Southern Water’s ‘Water for Life’ business plan, the new contract will begin in April 2020 and is worth around £325m to a 50:50 joint venture with MWH Treatment over a five-year period. 

Rio Tinto (RIO) has got its iron ore production back on track in the September quarter after an extensive maintenance programme this year in the Pilbara. The major could now beat its high-end full year guidance of 330 million tonnes with a big finish to 2019. The numbers weren’t all positive in its quarterly production announcement, however, with aluminium production down 3 per cent year-on-year to 789,000 tonnes. The company said a safety-related shutdown at its smelter in Iceland was the main cause of the fall. Rio did not give an update on progress of the new mine plan at Mongolian copper mine Oyu Tolgoi, while in the September quarter the open pit grade fell 28 per cent year-on-year. The company said this was as expected.