Shares in London are mixed mid-morning with the FTSE100 off marginally as investors take on a watching brief with global events still sowing uncertainty. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Moneysupermarket.com’s (MONY) shares leaped 11 per cent in morning trading as it posted full year results in line with market expectations: group revenue increased 9 per cent to £388.4m from £355.6m. In its last quarter the price comparison website saw its Home Services division grow by 36 per cent, though its Money vertical declined by 14 per cent - but management expects that it will return to growth this year. The group announced yesterday that its chief executive Mark Lewis wishes to resign, which creates some uncertainty at the top. But the board is “confident of delivering expectations for the year” in 2020. Buy.
Spectris (SXS) shares surged 6 per cent in early trading after the supplier of productivity-enhancing instruments and controls announced a proposed £175m special dividend and share consolidation within its 2019 full-year results. The group’s profit improvement programme yielded benefits of £25.5m and restructuring costs of £52.2m, with the initiative set to continue into 2020. Spectris did, however, experience limited top-line growth and expects this to persist in challenging markets, and is “experiencing less activity in China in February than would normally be expected” owing to the coronavirus outbreak. Buy.
Morgan Sindall (MGNS) saw revenue tick up 3 per cent to £3.1bn in 2019 while statutory pre-tax profit rose 10 per cent to £88.6m. The secured workload has increased by 14 per cent to £7.6bn. Benefitting from contract selectivity and improved operational delivery, adjusted operating profit from ‘construction and infrastructure’ jumped 20 per cent to £32.3m with a 0.2 percentage point improvement in the margin to 2.2 per cent. Amid tighter market conditions and more competitive tendering, ‘Fit Out’ adjusted operating profit dipped 16 per cent to £36.9m, although this exceeded guidance of £30m-35m. Investment in regeneration activities saw net cash (excluding £60m in lease liabilities) drop 7 per cent to £193m, but average daily net cash was up 10 per cent to £109m. Buy.
Aveva (AVV) achieved high single-digit organic revenue growth at constant currencies for the first 10 months of the financial year. This was helped by good orders in rental and subscription, tempered by significantly lower initial and perpetual licences and services (as planned). The industrial software group said that as such, its business model transition continues to improve revenue mix and quality. It noted that the coronavirus is having some impact on sales in China – a country which has historically constituted 5 per cent of overall group revenue. The fourth quarter has started well, and there’s a “solid” order pipeline for the next few weeks. Buy.
Tracsis’s (TRCS) trading for the first half of the year has been in line with expectations. Revenues landed at more than £26m – up from £18.8m – and the group expects to report cash profits and adjusted profit ahead of the prior year. The rail technology and services business performed well, and the traffic and data services division – which is second half-weighted – traded ahead of expectations. The group continues to consider acquisition opportunities, particularly in rail. Cash balances as at January were about £26m, up from £24.1m. Buy.
Regional Reit (RGL) has announced plans to raise more cash for acquisitions by placing new shares and would follow a £62.5m capital raise in June. Those proceeds have all been deployed across 11 office assets at a net initial yield of 8.7 per cent. The regional commercial property group reported a 1.4 per cent like-for-like increase in the value of its portfolio in 2019. Buy.
Smith & Nephew (SN.) has reported revenues of more than $5bn for the first time in its history, though operating profits were constricted due to acquisition and restructuring costs. The FTSE 100 medical technology group made a pre-tax profit of $743m compared with $781m a year earlier. Smith & Nephew’s full year dividend was up 4 per cent to 37.5 cents per share. Buy.
KEY STORIES:
Though the story is by now well-known, one line in Lloyds Banking Group’s (LLOY) full-year income statement sticks out: the lender’s payment protection insurance provision. In 2018, extra provisions came to £750m; in 2019, the final bill was £2.45bn. That was enough to knock 26 per cent off statutory pre-tax profits, and reduce the return on tangible equity to 7.8 per cent, from 11.7 per cent in the prior year. The outlook is also mixed. Though operating costs are expected to reduce, and capital generation is in line with longer-term forecasts, dogged competition in the mortgage market means the net interest margin is set to reduce by up to 13 basis points, year-on-year. However, a forecast increase in statutory return on tangible equity to between 12 and 13 per cent appears to have reassured investors in early trading.
BAE Systems (BA.) full-year results revealed revenue growth across all of its segments, with the defence group experiencing cash flow improvement and an 18 per cent reduction in its net debt to £743m. The group also announced a new funding plan for its pension obligations, having consolidated six of its nine UK schemes into a single scheme in October 2019 with a deficit of £1.9bn. BAE has replaced an old deficit recovery plan with a commitment to make a one-off, debt-funded £1bn contribution in the coming months, followed by funding of around £240m and £250m for the years to 2020 and 2021 respectively.
OTHER COMPANY NEWS:
DS Smith (SMDS) announced that the US Department of Justice has given the green light to the acquisition of its plastics business by Olympus Partners and its affiliate Liqui-Box Holdings. The packaging group expects net cash proceeds of around £400m from the deal, which it will use to lower its gearing in line with its medium-term net debt to cash profits target multiple of two or below.
The full cost of wealth management firm Rathbone Brothers’ (RAT) investment strategy is laid bare in full-year numbers today; on an underlying basis, operating expenses are up 18 per cent at £259m, owing to a mixture of software impairment costs, growth-led initiatives and a “considerable increase” in the FSCS levy. And despite a strong rise in total funds under management and administration, this was due largely to market performance and strong flows to the unit trust division. The core investment management division had a tougher time, posting net outflows of £0.4bn.
Trinidad & Tobago-focused oil and gas producer Touchstone Exploration (AIM:TXP) has raised $11.6m (£9m) in a placing with institutional investors. The company’s value skyrocketed in recent months off the back of the onshore gas discovery Cascadura, its share price climbing from 14p in mid-December to 40p before the placing. Touchstone said the $11.6m would pay for a new well in the Ortoire licence area that contains Cascadura and three other prospects.
Operating profit at recruiter Hays (HAS) fell 18 per cent in the six months to December as three one-off events - general strikes in France, Australian bushfires and the UK election - added to the pressure created by a slowdown in Germany (its largest market). However, the difficulties were largely expected, and the group is reducing costs by cutting headcount, while investing in its IT provision. In spite of the challenges, the dividend has been maintained and a special payment is expected at the full year.
