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News & Tips: IQE, Jadestone Energy, Aviva & more

Shares in London have started the week with modest gains
November 18, 2019

Shares across the London markets have opened the week in positive territory although the gains in the FTSE100 have been held back by escalating concerns about unrest in Hong Kong. Click here for The Trader Nicole Elliott's latest thoughts on the markets. 

IC TIP UPDATES: 

IQE (IQE) shares lost a quarter of their value in early trading after the semiconductor technology specialist issued a profit warning, as chief executive Drew Nelson cited “very challenging market conditions in 2019”. Low volumes and decommissioning costs are included in IQE’s explanation for an anticipated mid-single digit adjusted operating loss having previously forecast an adjusted operating margin of over 10 per cent of 2019 revenues, with operating profits expected to pick up towards the end of this year. IQE expects revenues of between £136m and £142m from a previous range of £140m to £160m. Sell.

Recent buy tip Jadestone Energy (AIM:JSE) has spent $50m (£39m) on a New Zealand offshore project that will add around 4,000 barrels of oil per day (bopd) to its production, a 30 per cent increase. The company is guiding 13,500-14,500bopd for 2019. Jadestone, which announced this year a maiden dividend would arrive in 2020, said the cash deal “further enhances” the payout goal. The deal is not expected to close until the second half of next year. Jadestone shares were up 9 per cent on the news, to 69p. Buy

McKay Securities (MCKS) reported a 23 per cent rise in net rental income during the first-half as it let the refurbished 30 Lombard Street office. However, the commercial property group is exploring the sale of that asset, partly reinvesting proceeds and bringing down gearing. The portfolio valuation rose 1 per cent, outperforming the MSCI benchmark, which fell 1.1 per cent. Buy

Following a review of its operations in Asia, Aviva (AV.) has decided to retain its Singaporean division and its joint venture in China – the latter “given the scale of the market, excellent relationship with its partner COFCO and the high growth prospects”. However, the financial services giant continues “to explore strategic options” for its businesses in Hong Kong, Vietnam and Indonesia. The market has responded to the update by knocking four per cent off the share price. We are buyers.

KEY STORIES: 

Capital and Counties (CAPC) announced after market close on Friday that it had secured the sale of its Earls Court interests property development group Delancey and Dutch pensions group APG for £425m on a on a cash-free and debt-free basis. That compares to a balance sheet value at 30 June 2019 of £508m, but the sale will reduce the commercial property group’s portfolio loan-to-value ratio to 15 per cent, from 19 per cent. Following the announcement, Candy Ventures also confirmed that it did not intend to make an offer for the group.  

In a less-than-encouraging start to the week, investors in H&T Group (HAT) today awoke to a regulatory announcement ominously-titled ‘FCA review’. Its contents are equally worrying; the pawnbroker says it is working with the regulatory watchdog on aspects of its high-cost short-term lending business, and its practices over the last six years – during which time, H&T collected £24m in interest payments. These operations, which are likely to account for around four per cent of revenues this year, have been voluntarily and temporarily ceased as new policies and procedures are implemented. The possibility of redress has also been floated, though H&T’s board “anticipates being able to fund this from its existing financial resources”. The pawnbroking outfit’s share price is off by more than a fifth.

Sage (SGE) has entered into an agreement to sell its Sage Pay business to Elavon, a global payments company and wholly-owned subsidiary of US Bancorp. This follows Sage’s announcement on 9 September, when it noted recent media speculation regarding a possible disposal of its Sage Pay business and confirmed that it was evaluating potential options for the business including a sale. Sage said today that it expects to report a statutory profit on disposal of Sage Pay of approximately £180m on completion. The deal is subject to Elavon gaining regulatory approval, and is expected to take place in the second quarter of FY2020.

OTHER COMPANY NEWS: 

DWF (DWF) expects revenue to increase by at least 10 per cent in the first half of the 2020 financial year, driven by organic activity. Revenue from international and connected services has increased by 29 per cent and 18 per cent respectively. UK performance has been described as “robust”, particularly in insurance and litigation, despite political uncertainty. At £49.5m, net debt is 16 per cent lower than the same period last year, although an increase since the year end. The group says this reflects “the normal cyclicality of partner tax payments” as well as £3m of dividends paid in September. Net partner headcount has increased by 20, including 15 senior hires. The group is pointing to a strong second half pipeline of work supported by activation of the BT managed services contract. Shares are up over 5 per cent. 

Shares in Diploma (DPLM) are up 3 per cent this morning following the release of the group’s half-year results. As is typical of the technical products specialist, it split sales growth evenly between organic and acquisition led, with 5 per cent each. Operating margins strengthened 30 basis points to 17.8 per cent. Management noted growing uncertainty in industrials markets, but said it remained confident of further progress in the second half.