The blue chip FTSE100 is ahead this morning after Donald Trump calmed his rhetoric over Iran somewhat but UK-focused mid-caps are more depressed amid a flurry of trading updates today with the retail sector in focus. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
British Airways parent company IAG (IAG) has announced that chief executive Willie Walsh is to retire. He will stand down from his role and from the board of IAG on 26 March 2020, before retiring on 30 June. Luis Gallego, currently chief executive of Iberia, will take over from Mr Walsh. Antonio Vázquez, IAG chairman, said: "Willie has led the merger and successful integration of British Airways and Iberia to form IAG. Under Willie's leadership IAG has become one of the leading global airline groups”. The shares were up by just under 2 per cent this morning. Buy.
Shares in Marks and Spencer (MKS) fell 9 per cent this morning, after management announced full-year gross margins would come in at the low end of guidance. Trading was mixed over the Christmas period, with food sales up 1.5 per cent on a like-for-like basis, and clothing & home down 1.7 per cent. However, issues with the food supply chain and waste levels held the business back. We have been waiting for signs the group is making progress on its turnaround plan, but these were frustratingly absent. Sell.
In a rare shaft of light for the supermarkets, Tesco (TSCO) had its best day of UK food sales in history over Christmas. The group saw like-for-like sales growth of 0.4 per cent for the 19 weeks to January 4. As has been seen with other supermarkets, general merchandise held back grocery performance, but a focus on pricing and promotions helped Tesco outperform the wider market. However, there was no word on the impact this had on margins. Buy.
Robert Walters (RWA) has seen net fee income drop by 7 per cent at constant currencies to £94.2m in the fourth quarter. UK net fee income declined by over a fifth in the three months to 31 December to £20.7m, adversely impacted by Brexit and general election uncertainty. Turbulence in Hong Kong weighed on the Asia Pacific while Europe was a mixed bag with strong performances in the Netherlands, Spain and France offset by weakness in Germany. But net fee income for the full year is up 2 per cent and the group has £78.9m of net cash on hand. Shares are down 10 per cent this morning. Under review.
MJ Gleeson (GLE) sold 811 units during the last six months of 2019, an 17 per cent rise on the same time the prior year. However, the housebuilder said that sales due to be made by its strategic land business prior to the period end are expected during the second half of the financial year as “greater certainty” has returned to the market. That means performance for that business is expected to be significantly down on the prior year, but management said a better performance by Gleeson Homes and a recovery in land sales by the strategic land business meant full year trading should be in line with expectations. Buy.
Centamin (CEY) has posted a positive set of production numbers just days before the deadline on an official offer from merger hopeful Endeavour Mining (CAN:EDV). The gold miner produced 148,387 ounces (oz) of gold in the three months to 31 December, a 50 per cent increase on the previous quarter. This is a major improvement after 18 months of production issues at the Sukari mine in Egypt. Interim chief executive Ross Jerrard said changes in senior management had led to the improvement. Former boss Andrew Pardey left a month ago, after previously indicating he would retire once a successor was found. Centamin previously rejected an all-share offer from Endeavour, which has gold mines in West Africa, but the companies have worked more closely after a spiteful opening in public merger discussions towards the end of 2019. Buy.
Shares in Card Factory (CARD) plunged more than a fifth this morning after the retailer warned “market headwinds” were likely to knock £5-10m off adjusted cash profits in the coming financial year. It said an efficiency drive had helped to insulate profits from being impacted thus far, but “the opportunity for efficiencies within the current business model is finite”. Management also announced plans to cut the special dividend and review the ordinary payment. Sell.
Despite a strong quarter for the performance of its funds, Polar Capital (POLR) saw assets under management decline by £81m to £14.2bn in the three months to December. The largest single contributor to that swing was the £611m net outflow from the active manager’s North American fund. Net performance fees for the first nine months of the current year have come in at £8.8m. Under review.
Fellow specialist fund manager Liontrust Asset Management (LIO) has fared considerably better. In the final three months of 2019, the group saw net inflows of £836m, equating to £2.2bn in the nine months since the start of its financial year. That’s double the rate in the prior year, and before the receipt of £2.7bn assets from the acquisition of Neptune Investment Management. Buy.
Dunelm (DNLM) increased like-for-like sales 5.6 per cent in the half-year to 28 December, once again generating significant growth through its newly revamped digital platform. Online sales grew 33.2 per cent year-on-year. Management has been reducing discounting, and did not participate in Black Friday sales, contributing to a roughly 110 basis point improvement in gross margins year-to-date. Buy.
Shares in Naked Wines (WINE) are up close to 2 per cent this morning after clocking up underlying continuing sales growth of 11 per cent in the last 10 weeks of 2019. The group’s investment in new customers came in at the lower end of the £20-25m range guided in the interims, but this fed through to a 1 percentage point improvement in the gross margin year-on-year. A strong performance, but we would like to see more progress with the new business model before changing our recommendation. Sell.
KEY STORIES:
SIG (SHI) has warned that underlying profits for 2019 are expected to come in at around £42m, below consensus expectations of £68m, citing an ongoing deterioration in construction activity, particularly in the UK. Organisational change has also hindered the construction material group’s ability to sustain sales rates, a deterioration that accelerated in December and came in around a quarter per day lower than the prior month. The disposal of the air handling and business solutions businesses continues, which will generate £204m in proceeds. Following their completion, management is targeting a leverage ratio of 0.5, compared with 1.8 at December 2018. Shares were down by around a quarter in early trading.
Galliford Try (GFRD) announced that it entered the new year with an order book of £3.2bn, with recent contract wins including appointments to the YORCivil four-year major framework for Sheffield Council and AMP7 for Yorkshire Water. Pro-forma cash balances were £225m at the end of December, with average month end cash balances for the second half expected to be in excess of £100m. However, management expects performance to be weighted to the second half of the financial year due to both market uncertainty and the settlement of certain claims in the first half of the year.
OTHER COMPANY NEWS:
Bunzl (BNZL) has acquired Joshen Paper & Packaging for an undisclosed amount, expanding its presence in the US grocery sector. Joshen is expected to generated revenue of around £225m in 2020 although its operating margin is below Bunzl’s North American average. The group expects to achieve synergies over the next few years.
eEnergy (EAAS) has made its debut on the Aim market today having raised £2m via a placing of 26,666,667 new ordinary shares at an issue price of 7.5p. Its market capitalisation is approximately £9.8m. The group is an ‘energy efficiency-as-a-service’ business that helps commercial customers switch to LED lighting for a fixed monthly service fee. It supplies, installs and maintains the more energy efficient lighting with the idea that the energy savings made by businesses are higher than the monthly fee being paid.
Shares in Mitchells & Butlers (MAB) have enjoyed an excellent run since last May, and are up 3 per cent today, after the pub and restaurant group noted a 2.6 per cent rise like-for-like sales in the 14 weeks to 4 January. The festive period was even stronger, The group traded well over the three-week festive period, with like-for-like sales up 5.6 per cent on last year.
While Rathbone Brothers (RAT) remains committed to the strategic objectives it set out in October, a trading update for the December year-end points to the challenge to attract organic inflows to the investment management business. In 2019, despite a decent performance for the group’s funds, gross outflows outstripped new mandates by £0.6bn, though net inflows to the unit trust business shot up to £943m, from £543m in 2018. That means almost 15 per cent of the group’s £50.4bn total funds under management are now in unit trusts.
Calisen Group Holdings has announced that it is considering raising £300m though a listing on the main market. The group’s Calvin Capital division owns and manages domestic electricity and gas meters on behalf of energy retailers in exchange for long-term contracted fees. It has a particular focus on smart meters anticipating growth will be driven by the government mandated roll-out. In the nine months to 30 September the group generated revenues of £148m and operating profit of £24.6m.
