Shares in London have started the week relatively flat across the board as investors size up a raft of moving parts both economically and politically. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Citing economic challenges and a “softer” revenue outlook, HSBC (HSBA) no longer believes it can meet an 11 per cent targeted return on tangible equity in 2020. Interim chief executive Noel Quinn’s proposed solution – to move capital from lower return businesses to areas where returns are higher (such as Asia) – looks set to shake up divisions in the UK, continental Europe and the US. In the three months to September, a “resilient” performance in Hong Kong contributed to a 4 per cent rise in pre-tax profits in Asia, though rising expected credit losses and poor performances elsewhere has prompted the group to flag “significant charges” in the fourth quarter “and subsequent periods”. Mr Quinn says he remains “confident in the future” of the bank, though it’s less clear to us when that new future might start, so we place our buy call under review.
Photo-Me International (PHTM) shares fell 5 per cent in early trading, with the instant-service equipment specialist citing Brexit uncertainty and changes in UK regulations that have contributed to “challenging” trading in its Identification segment here. UK identification revenues fell by 3.8 per cent as a decline in photobooth activity was driven by the government's decision to allow for photos taken on a smart device or camera at home to be used for passport photo identification. Sell.
Venture capital outfit Draper Esprit (GROW) has today updated the market on three of its holdings. The most significant is data analytics provider RavenPack, which has raised $10m from another investor, pushing the fair value of Draper’s stake in the business from £15.6m to £33.9m. The value of its holding in invite-only marketplace Pollen has also swollen from £10.9m to £13.2m, though at the cost of £5.9m in bridge financing. Third, Draper led a $9m funding round for customer-experience platform Sweepr, injecting £2.7m to help the group expand its workforce and geographical reach. We remain buyers.
KEY STORIES:
Ferrexpo (FXPO) chief executive Kostyantin Zhevago has “temporarily” stepped down from his role at the Ukraine iron ore company. He has left to focus on an investigation into allegations of embezzlement at his former company Finance & Credit JSC, which Ferrexpo said he strongly denies. Mr Zhevago owns 50.3 per cent of Ferrexpo and has run it since 2008. The company has had a difficult year after auditor Deloitte quit in April because of the company’s response to missing money at a foundation set up to handle its community projects. CFO Chris Mawe will serve as acting chief executive.
Purecircle’s (PURE) shares have been suspended after the board concluded that it would be unable to publish the group’s full-year results within four months of its 30 June year-end. The delay has resulted from an investigation by the company and its professional advisers into a potential issue relating to the classification and valuation of inventory, which the board has now revealed likely has an aggregate value “significantly less” than the $30m announced last month. Thus far, the company and its advisers have seen no indication that the issues identified will have any impact on the net debt or the cash generation of the business.
OTHER COMPANY NEWS:
Costain (COST) has been awarded several contracts across the highways sector totalling over £150m. These include a major project for Lancashire County Council to deliver the Preston Western Distributor Road project, extending the group’s collaboration from the early contractor involvement phase. Having commenced this month, the project is expected to be completed in early 2023. Shares are up 2 per cent this morning.
According to a report in the Sunday Times, top investors in the water industry have complained to the Treasury that Ofwat is being politicised and warned that the Competition and Markets Authority could be facing a deluge of appeals against the regulator’s impending financial demands. With Ofwat’s final ruling on AMP7 due on 11 December, only the three listed companies – Severn Trent (SVT), Pennon (PNN) and United Utilities (UU.) – have had their spending plans fast-tracked for the next cycle. RBC Capital Markets notes that they are “not struggling to meet the demands of the regulator in the same way as some of their peers, but would ultimately benefit from any softening of the regulation if it were to occur.”
