Despite weakening global economic data, London's blue chip FTSE100 is in favour again in morning trading with a solid 0.8 per cent gain by mid-morning with European markets also in favour ahead of Mario Draghi's last pronouncements as head of the European Central Bank at lunchtime. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
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Capita (CPI) has extended its customer experience services contract with the National Trust for a further five years. Having worked with the trust since 2009, the group will help incorporate digital technology into their customer services operation, improve the service available to members and deliver cost savings. Shares are up 1 per cent this morning. We remain sellers.
After the departure of its eponymous portfolio manager last week, Woodford Patient Capital Trust (WPCT) has appointed Schroders (SDR) to manage the trust’s assets. Once the switch is complete – expected by the end of 2019 – the company will be renamed ‘Schroder UK Public Private Trust’. Schroders will not take a management fee for the first three months of the mandate, but will then be paid 1 per cent a year on a market capitalisation up to £600m, and 0.8 per cent above this threshold. No performance fee is payable until the end of 2022, when “Schroders will be eligible to a fee of 15 per cent of any excess returns above a NAV per share of 77p”. Shares in WPCT are up 24 per cent this morning, while Schroders – unmoved on the news given the teeny impact on revenues – remains a buy.
Drinks maker C&C Group (CCR) reported a 13.5 per cent increase in net revenue to €875m (£m) during the six months to August, with adjusted cash profits up 8 per cent to €71.5m. This was despite a tough comparative period with last summer’s football World Cup and hot weather. The company reported strong cash conversion of 112.7 per cent, though net debt was “ahead of forecast” with a leverage ratio of 2.04 times net debt to cash profits at the end of the period. Chief executive Stephen Glancey said the company is on track to deliver double digit EPS growth in 2020. Shares were up 3 per cent in early trading. Buy.
AstraZeneca (AZN) issued improved product sales guidance for FY2020, which are expected to increase by a low to mid-teens percentage, up from the prior guidance for a low double-digit percentage rise. That followed a 13 per cent rise in product sales so far this year, which translated into a 3 per cent increase in operating profit. Oncology sales led the way, up almost half on the same period the prior year. We place our sell recommendation under review.
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Though the diminished prospect of a no-deal Brexit has boosted its shares in recent weeks, the Royal Bank of Scotland (RBS) is down today, after the surge in last-minute payment protection insurance claims forced the lender to book a £0.9bn provision. In turn, that pushed RBS to an operating loss before tax of £8m for the three months to September, and an attributable loss of £315m. Perhaps most disappointing were a note that competitive pressures in the mortgage business are eating into front book margins, and that core income in NatWest Markets has cratered. Though the outlook has not changed, a 7 per cent return on tangible equity (excluding the PPI hit) shows that incoming CEO Alison Rose has her work cut out.
RHI Magnesita (RHIM) issued a profit warning this warning, highlighting the toll of a slowing macroeconomic environment on the refractory specialist. “This market environment has led to lower volumes sold and accordingly lower fixed cost recovery from reduced plant utilisation,” the company said, “which together have more than offset the company's ongoing cost saving initiatives.” RHI has accordingly reduced its target for adjusted cash profits to the range of €400m to €410m, compared with house broker Peel Hunt’s forecast of €460m.
Shares in GB Group (GBG) were up by a tenth this morning on the back of a strong half-year trading update. For the six months to September 2019, the group expects to report revenue growth of 64 per cent to £93.7m, reflecting its acquisitions of Vix Verify and IDology. At constant currencies, organic revenues are up 18 per cent. Adjusted operating profits are expected to land at around £20.9m, up by 138 per cent. Net debt at the period-end sat at £53.8m, against net cash of £18.6m a year earlier, after the aforementioned acquisitions. Management anticipates meeting full-year consensus revenue and profit expectations.
OTHER COMPANY NEWS:
The Competition and Markets Authority (CMA) has launched a merger inquiry into the proposed acquisition of SSE’s (SSE) Energy Services business by OVO. Examining whether there would be a “substantial lessening of competition”, the CMA is inviting comments from interested parties until November 6th, after which it will decide whether a ‘phase 2’ investigation is required. The £500m deal unveiled in mid-September would see OVO add 5.7m customers to its current 1.7m and become the second largest supplier in the market behind Centrica (CNA). RBC Capital Markets believes it is not unexpected that the CMA would assess the market impact and anticipates approval will be granted.
A trading update from RPS (RPS) indicates third quarter fee income has remained flat at £140m when compared to the same period last year. Performance in the ‘Australia Asia Pacific’ region is said to have strengthened from the first half as political uncertainty settles, market conditions improve and efficiency savings come through. Consulting continues to perform well in Ireland, partly offset by Brexit uncertainty hindering the UK. Reflecting a seasonal working capital increase, the Reservoir Imaging acquisition and capital expenditure, net bank borrowings have risen by 7 per cent since the end of the first half to £108m. Shares are up 3 per cent this morning.
Investment management group Brooks MacDonald (BRK) may be on track to meet full-year expectations, but growth in its funds under management remains sluggish. In the three months to September, “challenging” conditions meant net outflows hit £28m and held back asset growth to just 1 per cent. A glimpse as to why clients are pulling their cash was also provided by a 1.3 per cent investment performance in the period, 70 basis points adrift of Brooks’ MSCI WMA Private Investor Balanced Index benchmark.
AJ Bell (AJB) chief executive Andy Bell trumpeted the resilience of the investment platform provider’s business model, as the group unveiled a 19 per cent increase in customer numbers and a 16 per cent rise in assets under administration (AUA) in the 12 months to September. The first full set of numbers since last year’s IPO show growth was particularly strong in the direct-to-consumer segment, where AUA rose 28 per cent to £11.1bn. Analysts at Numis, who wrote the stock a ‘hold’, said “AJ Bell continues to deliver superior growth which justifies its significant premium valuation”. Shares are up 3 per cent.
Cries of “avast!” will be ringing from investors in Braemar Shipping Services (BMS) this morning, after half-year results for the shipbroker revealed a 14 per cent drop in underlying pre-tax profit, and another period of heavy statutory losses. Despite a doubling in net debt to £18.8m, the dividend has been held at 5p per share – presumably because shipbroking activity picked up in the second quarter of the financial year. The shares were down 7 per cent shortly after the morning bell.
Shares in pensions consultancy XPS Pensions (XPS) are up 6 per cent in early trading, after a half-year trading update revealed revenues are up 8 per cent year-on-year – in-line with the board’s expectations. Chief executive Paul Cuff said the pensions actuarial and consulting division – where the top-line was flat – is now “well-placed to return to modest growth in the second half”
Aveva (AVV) saw low double-digit revenue growth on a pro-forma constant currency basis over the first half to September. It attributed this to the continuation of strong sales execution seen in the first quarter, and the early renewal of a large contract, with a small rise in revenues from multi-year contracts. Reported revenue growth benefited from currency exchange rates. All geographies saw growth year-over-year, particularly the Asia-Pacific region. The shares were up by around 2 per cent this morning.
Relx (REL) saw underlying revenue growth of 4 per cent over the first nine months of 2019. Its scientific, technical and medical business saw 1 per cent underlying sales growth; risk and business analytics saw 7 per cent growth; legal saw 2 per cent growth, and exhibitions saw 6 per cent growth. The group has made 12 asset acquisitions so far this year, totalling £378m, and sold seven assets for £62m. It has also completed £550m of its £600m share buy-back. It has maintained its full-year outlook. The shares were up by around 3 per cent this morning.
According to a report by Carbon Tracker, four in five coal plants in the European Union (EU) are unprofitable, creating the potential for their owners to lose €6.6bn (£5.8bn) in 2019. As they come up against ever-cheaper renewables and gas, EU coal generators are said to be “haemorrhaging cash” and losses could be sustained for the foreseeable future without heavy subsidies. Matt Gray, head of power of utilities at Carbon Tracker believes “policymakers and investors should prepare to phase out coal by 2030 at the latest.” In the UK, which has a 2025 deadline, the study estimates that the remaining coal plants will see cash losses of €732m this year, forecasting £78m and £199m in losses for SSE (SSE) and Drax (DRX) respectively.
