Equities in London staged a recovery of sorts as investors showed a more relaxed attitude to the potential disruption caused by the spread of the coronavirus across Asia and beyond, with the first case confirmed in the US yesterday. It appears there is more confidence in a coordinated response to the virus than the SARs epidemic in the early 2000's which hit Asian equities particularly hard. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Sainsbury’s (SBRY) chief executive is stepping down. Mike Coupe, who has served at the helm of the supermarket since July 2014, and will step down in May this year. He will be replaced by Simon Roberts, who joined the supermarket in July 2017 and has previous experience at Boots and Marks & Spencer (MKS). The news comes hot on the heels of an announcement yesterday that the group would be cutting hundreds of management jobs in a bid to centralise more of its processes and better integrate Argos. Sell.
Shares in wealth management group Quilter (QLT) rocketed to as high as 179p yesterday, after various media reports suggested private equity giant Warburg Pincus is interested in a possible bid. Analysts at Numis reckon a bid price of 163p per share – as mentioned by The Times – would be a “reasonable outcome for shareholders”, given returns in the wealth management sector since Quilter’s IPO in 2018. Buy.
Today’s scheduled trading update from Close Brothers (CBG) reveals a slight decline in the lender’s net interest margin to 7.8 per cent in the six months to January. The loan book is also flat at £7.68bn, as modest growth in commercial lending was offset by a small drop in property. However, a 20-basis point rise in the bad debt ratio – albeit to a still low 0.8 per cent – and a warning that investments will cause costs to grow ahead of income in the current year, are less positive. So despite resilient flows to the group’s asset management arm, shares are down 3 per cent in early trading. Under review.
Sir Adrian Montague is to retire after seven years on the board of Aviva (AV.), the last five of which have been spent as chairman. Sir Adrian said that the appointment of Maurice Tulloch, and the subsequent revamp of the life insurer’s strategy, had provided an opportune window for his departure, once a successor has been appointed. Buy.
Antofagasta (ANTO) produced a record amount of copper in 2019. The Chilean miner hit its top-end guidance at 770,000 tonnes (t) and also produced more gold than ever in a banner year for the yellow metal. Net cash costs per pound of copper were down 6.3 per cent on the year before, to $1.22 (93p), although the December quarter saw this figure climb almost a quarter compared to the previous three months. The production strength won’t flow directly through to the bottom line, as the depreciation charge was 7 per cent up on BMO’s forecast, at $930m, and this will climb to $1bn this year. Antofagasta set 2020 guidance at 725,000-755,000t, capex of $1.5bn and net cash costs at $1.30 per pound. Buy.
NewRiver Reit (NRR) reported a slight increase in occupancy during the third quarter, rising to 96.1 per cent from 95.6 per cent at the end of September. The retail landlord completed 152,000 sq ft of leasing activity; long term deals were agreed 3 per cent ahead of previous passing rent and 2.5 per cent ahead of estimated rental values. Sell.
Sumo Group’s (SUMO) results for 2019 are due to be “at least” in line with expectations, according to the group’s latest pre-close trading update. In a brief announcement, management noted the group had won a number of significant contracts towards the end of the year, “which underpin the group’s financial forecasts for the year ahead”. At the end of the year, the group had net cash of £12.9m, and had added 174 people to its headcount, bringing the total to 766 people. Buy.
Burberry’s (BRBY) new products are continuing to win support, now accounting for 75 per cent of the group’s in-store offer. The group reported comparable store sales growth of 3 per cent for the 13 weeks to December 28th, with single digit growth across mainland China, the US and EMEIA. Management had upgraded sales guidance for the full-year to low single-digit growth, having previously said it revenues would be broadly stable over the period. Buy.
Shares in WH Smith (SMWH) are down 2 per cent this morning after the group reported like-for-like revenues down 1 per cent in the 20 weeks to 18 January. Despite the drop, the group’s performance is largely what we have come to expect, with travel delivering like-for-like growth of 3 per cent (up 19 per cent including InMotion and Marshall Retail), while high street saw sales drop 5 per cent. Buy.
KEY STORIES:
Shares in Sage (SGE) were up by around 4 per cent this morning after the accounting software group issued a trading update for the quarter ending December 2019. Recurring revenues increased by 10.7 per cent to £410m, helped by software subscription growth of 24.8 per cent to £286m. The ‘future Sage business cloud opportunity’ – entailing products within, or to be migrated to, Sage Business Cloud – saw recurring revenue growth of 12.7 per cent to £362m, tempered by a fall in recurring revenue of 2.5 per cent to £48m in products that don’t have a path to the business cloud. Other revenue declined by 15.8 per cent to £55m – in line with the group’s expectations. Management reiterated its full-year guidance.
Berkeley (BKG) has outlined a capital return plan that will see £1bn returned to shareholders over the next two years, an increase of £455m on the original plan. Around £500m will be returned to shareholders by means of a B share scheme in March 2020 and a further £500m in March 2021 via a C share scheme. Following this, the housebuilder intends to revert to making annual returns of £280m in six-monthly instalments of £140 million through either share buy-backs or dividends. Management cited “progress made in bringing forward its new sites” and a review of its net cash position and future requirements.
OTHER COMPANY NEWS:
Ted Baker’s (TED) stock overstatement - which management flagged late last year - is far biger than previously feared. Deloitte has now largely concluded a review of the group’s inventory position, and expects to report the value of inventory was £58m lower than previously thought at 26th Jan 2019, more than twice the £20-25m range previously given. For reference, the group previously reported inventories of £225.8m.
Ceres Power (CWR) has announced that Bosch is to increase its stake in the company from 4 per cent to 18 per cent through a combination of new and existing shares. The German engineering giant will purchase up to 13m existing shares via a reverse accelerated bookbuild and will subscribe to 11.9m new shares, both at 320p. This will raise gross proceeds of approximately £38m which Ceres will use to fund further product uses for its solid oxide fuel cells and diversify its research and development activity towards potential electrolysis applications.
Pub chain JD Wetherspoon (JDW) posted a 4.7 per cent increase in like-for-like sales in the 12 weeks to 19 January, and expects trading for the coming months to be in line with current expectations. Net debt is expected to be “slightly higher than previously anticipated” at between £780m to £820m, though the group flagged that this was due to share buybacks, dividends, refinance costs and new pub openings. Chairman Tim Martin also found more than 700 words to share his latest thoughts on Brexit and corporate governance.
Investor platform group AJ Bell (AJB) grew customer numbers by 4 per cent and total assets under administration by 5 per cent in the three months to December, as “the unlocking of the parliamentary deadlock” – as chief executive Andy Bell describes it – boosted markets an client appetite to invest. The shares are off 1.5 per cent.
Shares in Somero Enterprises (SOM) were up by 9 per cent this morning after the group said that it had seen a “strong finish to 2019”, exceeding its previous guidance. Revenues for the six months to December increased significantly from the first half as US weather conditions improved. Management now expects 2019 annual revenues to be modestly ahead of the top end of guidance provided in July last year of $87m, with a “consequential improvement” in adjusted cash profits. Bosses expect year-end net cash to land at around $23m, significantly ahead of its July guidance of around $18m. They plan to maintain Somero’s regular and special dividend policy.
