Fresh concerns over US-China relations and the deteriorating situation in Hong Kong have hit sentiment in London today. Click here for The Trader Nicole Elliott's latest thoughts.
IC TIP UPDATES:
Aviva (AV.) has confirmed the sale of its Hong Kong joint venture, in perhaps the most eye-catching development to be unveiled at its capital markets day today. The group has also updated its Solvency II return on equity target, and now expects to hit 12 per cent in 2022. For analysts at Citigroup, the update “focuses on simplification and execution of the existing businesses” rather than a major overhaul in the shape of the group. Buy.
Metro Bank (MTRO) has appointed an expert in financial regulation and governance to its board, in the latest shake-up of its directors. Monique Melis, the head of compliance and regulation at consultancy Duff & Phelps, is set to join the lender’s board as an “interim senior independent director”. Her background includes providing advice on “regulatory investigations, transaction reporting, expert witness reports and regulatory due diligence” and “the resolution of regulatory investigations issues”. Sell.
The first set of interim numbers from currency exchange business Argentex (AGFX) make for slightly awkward reading. Because it was structured as a limited liability partnership until 26 April, there are no true comparable figures from 2018, while the most recent period is truncated by almost a month. However, the operating profit margin of 46 per cent was well ahead of a three-year target, while uncertainty created by Brexit and the general election is creating strong demand from clients, leading co-CEOs Harry Adams and Carl Jani to report that the “outlook for the business remains strong”. Buy.
Over the past year, Liontrust Asset Management (LIO) has battled hard amid a sometimes rocky period for the independent fund management industry. Half-year results again indicate it has the right formula. Statutory pre-tax profits rose 19 per cent in the six months to September, which immediately preceded the acquisition of Neptune Investment Management. That deal added £2.7bn to the group’s assets under management on 1 October, though the total figure has since risen to £17.9bn – an increase of 41 per cent since 1 April. Under review.
Shares in Alpha Financial Markets (AFM) have underwhelmed for much of 2019, though judging by half-year results, the asset management consultancy is moving in the right direction. In a period marked by several large investments, adjusted earnings rose 10 per cent to 6.82p per share in the six months to September. The interim dividend is up by the same amount. Under review.
U&I (UAI) reported an increased pre-tax loss of £23.9m for the first-half, after banking much lower development and trading gains. However, the regeneration developer plans is still targeting £35-45m in gains by March 2020. A marked decline in the value of retail properties meant the value of the investment portfolio reduced by 3.2 per cent on a like-for-like basis. Gearing also rose to 47.1 per cent, from 33.3 per cent at the end of August last year. We place our buy rating under review.
Like-for-like sales rose 3.5 per cent at Mitchells & Butlers (MAB) in the year to September, while operating margins were up 10 basis points. The improvements prompted analyst upgrades, and the shares have risen 6 per cent in response to the announcement. The pub group has faced difficult market conditions in recent times, and expects this to continue, having reported like-for-like sales growth slowing to 1.4 per cent for the first seven weeks of the current financial period.
KEY STORIES:
Shares in Clipper Logistics (CLG) are up over 21 per cent this morning after the group confirmed speculation that it has received a preliminary takeover approach from Sun European Partners to acquire its full share capital. According to a Sky News report, Clipper’s founder and executive chairman, Steve Parkin, has been working on a £300m bid with the private equity group and has approached fellow board members about a potential deal. Clipper has said there is “no certainty that an offer will be made…nor as to the terms on which any offer will be made”. Under the rules of the Takeover Code, Sun European Partners has until the close of business on 18 December to make a firm offer.
Takeaway.com has published its offer document for Just Eat (JE.) and is now awaiting shareholder approval. The online takeaway food platform has been the subject of competing offers from Takeaway.com and Prosus, and now shareholders have until the 11th of December to tender their shares if they wish to accept the offer. If accepted, the deal will become effective from 31 January at the latest.
Breedon (BREE) reported an improvement in revenues and adjusted operating profits during the 10 months to 31 October. An 8 per cent rise in the former was driven by a 4 per cent increase in sales volumes of aggregates, 8 per cent for asphalt and 6 per cent for cement sales, which offset a 5 per cent decline in ready-mixed concrete volumes.
Shares in Kingfisher (KGF) have fallen more than 5 per cent this morning after the group’s new chief executive, Thierry Garnier, said “there is much to do” to improve its performance after reporting like-for-like sales down 3.7 per cent in the three months to October 2019. The decline looks broad-based, with only the UK & Ireland Screwfix business and the Romanian division reporting growth.
OTHER COMPANY NEWS:
For the year to October 2019, Micro Focus (MCRO) expects to report revenues and adjusted cash profits that are consistent with the revised revenue guidance given in August, and in line with company compiled consensus. Back in August, Micro Focus lowered its constant-currency revenue guidance range to minus 6 per cent to minus 8 per cent, from a range of minus 4 per cent to minus 6 per cent. The group expects to report net debt of $4.3bn, at a leverage multiple of around 3.2 times adjusted cash profits. It plans to update on its strategic review within February’s full-year results.
Babcock International (BAB) underlying pre-tax profits fell by 18 per cent against the engineering group’s prior half year to £202.5m, primarily reflecting ‘step downs’ relating to the ending of a host of major contracts. But Babcock, which recently sealed a deal with the Ministry of Defence (MoD) to build five Type-31 frigates, also today announced a training contract with the Metropolitan Police and an increase of its order book to over £18bn.
The Financial Times has reported this morning that Samir Assaf is to step down as the long-serving head of HSBC’s (HSBA) investment banking division. The move is reported to be part of a major restructuring spearheaded by interim chief executive Noel Quinn, who announced a root-and-branch overhaul of the lender in last month’s third quarter results.
Having allowed the “dust to settle” on a tumultuous few months, analysts at Berenberg have downgraded their target price on Burford Capital (BUR) from 2,070p to 810p. In a note published yesterday, the bank argued that while the litigation finance group’s “accounting is likely correct, Burford’s returns are heavily concentrated in a low number of investments and a large proportion of Burford’s value is driven by the Petersen case, which so far has been one spectacularly successful investment”.
Inmarsat (ISAT) – whose takeover by a private-equity consortium was approved by shareholders in the first quarter, with all regulatory clearances now received – has delivered its third-quarter results. Revenues for the three months to September 2019 declined by 11.4 per cent to $327m, with cash profits down 16.4 per cent to $173m. Excluding the Ligado business, revenues declined by 2.7 per cent. Chief executive Rupert Pearce said “Inmarsat produced a solid performance in the quarter, supported by our diversified growth portfolio, as we remain focussed on growing market share in our target markets”. The court hearing to sanction the scheme of arrangement is scheduled for 28 and 29 November 2019.
United Utilities (UU.) has seen revenue increase by 2 per cent to £936m in the six months to 30 September, although statutory pre-tax profit has dropped by a quarter to £195m on the back of finance expenses more than doubling. Underlying operating profit has risen by 7 per cent to £393m thanks to lower infrastructure renewals expenditure and the absence of one-off dry weather costs. Total net regulatory capital expenditure during the half was £323m and this is set to rise to around £700m for the full year. Excluding £55m in lease liabilities, net debt has increased by 5 per cent to £7.3bn.
Sage (SGE) saw recurring revenue growth of 11 per cent for the year to September, with organic total revenue growth of 6 per cent to £1.8bn. Total statutory revenues were up by 5 per cent to £1.9bn. Organic operating profits landed at £432m, down by 13 per cent, on a margin of 23.7 per cent. Looking ahead, Sage is guiding towards recurring revenue growth of 8-9 per cent, as it focuses on moving customers to the Sage Business Cloud. Other revenues are expected to decline by high single-digits. The group anticipates an organic operating margin of around 23 per cent, as it carries on investing in its transition to being a software-as-a-service (SaaS) company. The shares were down 4 per cent this morning.
