The blue-chip index lost 94 points to 7,140 in morning trading as UK economic growth remains flat. Here is this morning's Market Outlook from Nicole Elliott.
IC TIP UPDATES:
Photo-Me International (PHTM) identification revenues fell 3.3 per cent in its interim period, owing to challenging market conditions in the UK. Overall turnover was up 3.3 per cent, as the group experienced growth of 25.2 per cent in its laundry revenues. But identification, which makes up nearly two-thirds of group turnover, was harmed by Brexit and a relaxation of rules around passport photos in the UK. Sell.
Begbies Traynor (BEG) has increased its interim dividend by 13 per cent, after bolt-on acquisitions and decent underlying growth pushed the insolvency specialist’s top-line by a fifth in the six months to October. Adjusted pre-tax profit leapt from £3m to £4m, while executive chairman Ric Traynor believes “favourable conditions in the UK insolvency market” should allow the group to deliver results “at least in line” with current expectations. Buy.
Augean (AUG) has renewed and upgraded its banking facilities for a further three years, now comprising a revolving credit facility of £20m and additional loans totalling £20m. Together with its own cash balances, these facilities have been used to fully pay HMRC’s estimate of £40.4m in underpaid landfill taxes (including accrued interest). Augean maintains it has paid the appropriate landfill tax and still intends to challenge HMRC’s assessment at a tax tribunal in 2020. But the group believes that paying the assessment now will remove the overhanging uncertainty, allowing it to focus on growth. Shares are up 4 per cent. Buy.
XP Power (XPP) experienced some short-term disruption to shipments from the implementation of its new Enterprise Resource Planning (ERP) system, which will bring revenues and adjusted pre-tax profits for 2019 below market consensus. Management says that turnover could sit £6m below previous internal forecasts, although orders have strengthened in the fourth quarter, and 2020 expectations remain unchanged. Buy.
Ashtead (AHT) has seen first half rental revenue rise by 13 per cent at constant currencies to £2.4bn, with an 11 per cent increase in underlying cash profits (Ebitda) to £1.3bn. North American end markets have remained strong with double-digit revenue growth in the Sunbelt business – sales jumped by 21 per cent and 23 per cent in the US and Canada respectively. This has offset weakness in the UK where more challenging conditions have seen revenue growth of just 2 per cent. The group has invested £1bn in the business and spent £231m on bolt-on acquisitions, adding 50 locations across the group. Shares are down 8 per cent. Under review.
RWS (RWS) has delivered its 16th consecutive year of revenue, profit and dividend growth, with sales jumping by 16 per cent to £356m in 2019. Statutory pre-tax profit surged by 45 per cent to £57.7m. Accounting for 42 per cent of the group total, Moravia increased revenue by 18 per cent to £150m, benefitting from sales growth outside of its top 5 customers. Meanwhile, IP Services revenue rose by 12 per cent with expansion into the key Asian Pacific market seeing sales in China and Japan increase by 21 per cent and 19 per cent respectively. Shares are down 6 per cent. Buy.
KEY STORIES:
The never-ending restructuring at HSBC (HSBA) has continued this week with several senior management changes. Chief risk officer Marc Moses is leaving to make way for wholesale market and credit risk head Pam Kaur, while Samir Assaf, the long-serving chief executive of the lender’s investment bank will shift to chairman of the corporate and institutional banking division. He will be succeeded by Georges Elhedery and Greg Guyett, the heads of global markets and global banking, respectively, while chief operating officer Andy Maguire will handover before his departure next June to former Hewlett Packard executive VP John Hinshaw. Noel Quinn, originally appointed to the CEO role on an interim basis, is now referred to as “group CEO”.
JD Wetherspoon (JDW) has announced plans to invest “more than £200m” to both expand and re-fit its pub estate over the next four years. The majority of the investments will be on small and medium-sized towns, including new pubs in Bourne, Waterford, Hamilton, Ely, Diss, Felixstowe, Newport Pagnell and Prestatyn. And while it does not provide its working, the pub company reckons the total investment will “result in approximately 10,000 new jobs”.
Mind Gym (MIND) reported revenue ahead of expectations for the first half of the year, which was up 24 per cent. However, the adjusted pre-tax margin declined 4.7 percentage points as the corporate training and advisory group was forced to recruit more staff to deliver courses.
Ted Baker (TED) chief executive Lindsay Page and executive chairman David Bernstein have left their positions following recent revelations that the clothing brand overstated its stock levels. Ted Baker issued a profit warning today and suspended its dividend, which sent its share price down by 15 per cent in morning trading. Rachel Osborne, who only became chief financial officer last month, will step in as acting chief executive.
Shares in Oxford Biodynamics (OBD) have fallen 8 per cent this morning after the group’s full-year results showed widening losses and lower sales for the year to September. However, the group has had success in the year signing up commercial collaborations – it now has five – and participating in trials with Imperial College London and a study with Mitsubishi.
Just Eat (JE.) has rejected the latest offer from Naspers, an increased cash offer of 740p announced yesterday. Rival bidder Takeaway.com attacked the offer as “derisory”, adding that its proposed combination has a potential value of £11 a share. Naspers, in turn, said this figure was “implausible”.
OTHER COMPANY NEWS:
Watches of Switzerland Group (WOSG) has benefitted from higher luxury watch sales in the half-year to October, with sales up 15.9 per cent on a constant currency basis. Growth was strongest in the USA, where sales were up 42.1 per cent thanks to the contribution of new showrooms. Management said conditions in the UK and US continued to be “buoyant”, with demand driven by Rolex, in particular.
Anthony Coombs, chairman of specialist motor finance firm S&U (SUS), has a flair for the dramatic. “The country now faces an almost existential choice at the General Election,” he opines in a trading statement this morning, whilst lamenting the impact on S&U’s core markets caused by “political vacillation in the UK and slowing economic growth”. S&U said trading since 1 August has been in line with expectations, despite weaker consumer sentiment and an economic slowdown.
The competition and markets authority (CMA) has cleared the proposed sale of SSE’s (SSE) household energy and services business to Ovo Energy. The £500m deal was announced in September and is expected to complete in mid-January 2020. SSE believes the sale will leave “a more focused group able to specialise in the low-carbon infrastructure”.
Shares in Computacenter (CCC) were up by around 5 per cent this morning after the group said that revenue and profitability remain well ahead of its 2018 year-to-date performance on a like-for-like basis, before the positive impact of acquisitions, with the 11 months of trading to November 2019 showing “material progress”. Management believes the group’s trading result for the 2019 financial year will be “well ahead” of current market expectations both in terms of profitability and earnings per share. The group notes that there is still a lot to do in December – its busiest month of the year.
RM (RM.) anticipates reporting results for the year to November in line with expectations. Net debt was £15m at the year-end, from £6m, after funding the acquisition of SoNET.
