IC TIP UPDATES:
Capita (CPI) has renewed its contract to run The Co-operative Bank’s UK mortgage servicing operation and support its digitally enabled transformation. Commencing on 1 November, the contract is worth up to £141m over six years, of which £107m is incremental to the group’s current contract with the Co-op which was due to conclude in 2020. We remain sellers.
International Consolidated Airlines (IAG) highlighted the impact of pilot strike action at subsidiary British Airways on its third quarter, along with threatened strikes by Heathrow employees. The group’s operating profits fell year on year to around €1.4bn from approximately €1.5bn. But IAG’s rising fuel bill also played its part, increasing by €136m during the quarter, while passenger unit revenue fell by 1.1 per cent. Sell.
Smith & Nephew (SN.) has raised its revenue guidance for the second successive quarter, now anticipating underlying revenue growth of 3.5-4.5 per cent for the full year. The global medical technology business saw organic revenue increase by 4 per cent in the third quarter, with 3.9 per cent of acquisitions driven growth outweighing a 1.4 per cent currency headwind. Continuing momentum from the first half, orthopaedics sales rose by 3.4 per cent in the three months to 28 September while sports medicine and ENT revenue jumped by 6.9 per cent. Led by another strong quarter of trading in China, the group has seen mid-teens growth from emerging markets. Buy.
KEY STORIES:
Some City folk blame António Horta-Osório for inviting the drawn-out redress for payment protection insurance. Others view the contrition as admirable and necessary. But the Lloyds Banking Group (LLOY) chief executive will nonetheless be disappointed with the impact of the final surge in claims, which came in at the top of estimates and all but wiped statutory profits from the lender’s third quarter results. Mr Horta-Osório’s statement contained the usual caveats around economic uncertainty, though the underlying return on tangible equity (which excludes the £1.8bn additional PPI provision) was a respectable 15.7 per cent. Separately, Lloyds announced that chief operating officer Juan Colombás will retire in July 2020, after nine years with the lender. The shares are off 2 per cent in early trading.
Crest Nicholson (CRST) has warned that pre-tax profits are likely to come in at between £120m and £130m this year, citing a “volatile sales environment” during the second half of the financial year, particularly at its legacy London sites. That has led to the housebuilder making a £10m adjustment to some of the carrying values of those developments. It is also recorded a £17m charge against the cost of ensuring cladding complies with the latest government guidance notes in respect of combustible materials, fire risk and protection and regulatory compliance. Management also lowered guidance for pre-tax profits, excluding exceptional charges, for 2020 to between £110m and £120m. However, the board said it expects to continue to pay a dividend of 33p a share for FY2020.
Foxtons (FOXT) reported a 3 per cent decline in revenue during the third quarter, as the tenant fee ban continued to weigh on revenue for the lettings division. Meanwhile a weaker London residential market meant property sales revenue was down 15 per cent. Overall revenue for the estate agency is down 5 per cent so far this year, compared with 2018.
Future (FUTR) announced after market close yesterday that it plans to acquire print-led consumer magazine and digital publisher TI Media for £140m in cash. Management hopes to achieve annual cost synergies of £15m within two years. The group placed 8,184,906 new shares at a price of 1,275p a share – a 6.25 per cent discount to the closing price on 30 October – raising gross proceeds of £104m.
OTHER COMPANY NEWS:
International Personal Finance (IPF) says it remains on track to meet consensus pre-tax profit forecasts for 2019, though the door-step lender saw credit issue growth slow to just one per cent in the three months to September. Mexico, where credit quality has been prioritised over growth, remains in turnaround, while there have been no material updates on Polish lawmakers’ proposals to reduce certain interest caps on loans. However, the recent settlement of a tax matter in the country has created “more flexibility in the refinancing of the Eurobond”, which should now complete by the end of 2020.
Moody’s has assigned a Ba3 rating to Burford Capital (BUR) and its senior unsecured debt, with a positive outlook – a level that broker Numis reckons should open the door to the corporate bond market should the litigation finance group require it. According to Moody’s classification system, the rating is below investment grade and contains “speculative elements and a significant credit risk”.
BT (BT.A) has seen its revenue fall by 1 per cent to £11.5bn in the first of 2019, reflecting the impact of regulatory caps on international calls and mobile charges, declines in legacy products and a shift away from lower margin businesses. Adjusted cash profits have dropped by 3 per cent to £3.92bn on the back of higher spectrum fees and content costs. Expanding its 5G and fibre broadband coverage, network investment has increased by almost a fifth to £936m. Excluding £6.1bn in lease liabilities, net debt has risen by 11 per cent to £12.1bn. The interim dividend has been maintained at 4.62p and the group expects the full-year payout to remain unchanged at 15.4p.
