Although the sell off has slowed, UK equities remain in the red after yesterday's sharp falls on the back of rising coronavirus pandemic fears. Click here for the Trader Nicole Elliott's latest thoughts on the markets.
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De La Rue (DLAR) has unveiled its turnaround plan that will be implemented between 2020 and 2023. It is aiming for the currency division to achieve a mid-teen adjusted operating profit margin from the year ending 30 March 2021 while the authentication business is targeting “strong year-on-year growth” and £100m of revenue by the 2022 year-end. The group is hoping to achieve annualised cost savings of £35m from the second half of the 2021 financial year and rebase its cost structure to allow it to tender for more currency orders and boost margins on existing work. In the near term, De La Rue expects to report adjusted operating profit of between £20m-25m for the year ending 30 March 2020. This is versus the £60.1m achieved in 2019. It is guiding that the ratio of net debt to cash profits (Ebitda) will fall within its banking covenant of less than three times. Sell.
Ricardo (RCDO) warned of a tough second half in its interim results released today, with the engineering consultancy expected a slow automotive environment and the coronavirus outbreak to hamper its operations. The group experienced a 19 per cent drop in its statutory pre-tax profits, which was partly attributable to revenue falls in its biggest segment, automotive industrial, along with performance products. Under review.
Springfield Properties (SPR) reported a 16 per cent rise in new home completions during the six months to the end of November, weighted towards affordable housing. Despite the rise in affordable completions, the gross margin improved by 270 basis points to 19.9 per cent and operating profit was up 15 per cent to £7.3m. Buy.
Morgan Advanced Materials (MGAM) saw organic revenue growth of 0.8 per cent on a constant currency basis in 2019, its third successive year of organic growth. Adjusted operating profit rose 4.3 per cent on a constant currency basis to £134m and the margin expanded by 0.7 percentage points to 12.8 per cent. This is despite weak demand in the thermal products division from the automotive and industrial sectors. The coronavirus outbreak has seen an extended shutdown of its Chinese manufacturing facilities and based on the current impact, the group is guiding this will trim £7m off revenue and £3.5m from adjusted operating profit in the first half of 2020. But pointing to the offsetting impact of faster growing market segments, Morgan anticipates “flat to modest” constant currency organic revenue growth in the first half. Buy.
Shares in SIG (SHI) plunged by as much as 13 per cent in early trading after the building materials supplier announced that both its chief executive Meinie Oldersma and chief financial officer Nick Maddock have resigned from their roles and as directors of the company with immediate effect. Steve Francis has been appointed as chief executive in an initial contract until 31 December and Kath Kearney-Croft has taken up the role of interim chief financial officer. As a result of the management changes, 2019 full year results will be announced during the second half of April. Sell.
Derwent London (DLN) reported an 11 per cent rise in net rental income for 2019, with new lettings on 498,500 sq/ft completed at £34.0m or 6.9 per cent above estimated rental values. Estimated rental values grew 1.4 per cent but management raised guidance for growth of between 1 and 4 per cent in 2020. The portfolio value rose an underlying 3.9 per cent to £5.5bn. Buy.
Tesco (TSCO) has agreed to sell its 20 per cent stake in Gain Land, its Chinese joint venture with building materials group CRH (CRH). The sale will generate net proceeds of £275m for the supermarket, which it plans to use for “general corporate purposes”. The disposal comes as Tesco is looking to refocus on its core operations. House broker Shore Capital said the announcement was welcome, while admitting it was “relatively small beer in the big scheme of things”. Buy.
Not content with Prudential’s (PRU) spin-off of its M&G business last year, US hedge fund Third Point has called on the life insurer to separate its US and Asian businesses and get rid of its London headquarters. Prudential said it had received a letter from the group yesterday, and “looks forward to commencing a dialogue with Third Point with regard to the views outlined in its letter”. The shares, up 2 per cent in early trading, are a buy.
Hotel Chocolat’s (HOTC) revenue was up 14 per cent in its first half to £91.7m. The chocolatier company, which opened 9 new locations in the UK, reported pre-tax profits up 7 per cent to £14.9m. Management noted that its performance in new international markets in the US and Japan is in line with strategy, and that “consumer reaction is encouraging”. Shares leapt up as much as 9 per cent in morning trading. Buy.
DotDigital (DOTD), posted double-digit revenue growth in continuing operations in its first half, in line with its trading update in January. International growth strengthened, with organic revenue up 33 per cent in the six months ended 31 December 2019. Shares were up 3 per cent in morning trading. Chief executive Milan Patel said in a statement that the board was confident in “a successful outcome for the year and sustained future growth”. Buy.
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Hammerson (HMSO) has announced plans to cut its dividend for 2020 by 46 per cent and remove the direct link between earnings generated and dividend paid. The payment for 2019 was held flat on the prior year after the retail landlord reported an 11 per cent decline in net rental income and a 4 per cent reduction in like-for-like rental income last year. The property portfolio value was down 16 per cent to £8.3bn.
Meggitt (MGGT) delivered 10 per cent order growth and a 9 per cent revenue increase for its full-year, despite a spate of challenges including the grounding of the Boeing 737 Max, for which it is supplier. Its defence arm fared particularly strongly, with strong growth in parts for the F-35 Joint Strike Fighter and M1A Abrams Tank powering original equipment revenue growth of 12 per cent. But the ongoing Max disruption and the coronavirus outbreak have tempered 2020 expectations, with the engineering group now expecting to deliver lower free cash flow and organic revenue growth of 2 per cent to 4 per cent. Meggitt also announced that its chairman, Sir Nigel Rudd, is to step down from his role.
A difficult industrial backdrop left Croda International’s (CRDA) turnover flat for 2019, with pre-tax profits contracting 2.8 per cent. The specialty chemicals group saw its personal care sales drop 3 per cent owing to conditions in North America and new Chinese legislation, while its life sciences wing fared better, growing 5.9 per cent. Demand in Croda’s industrial markets is expected to remain weak but stable, while the group anticipates greater progress in consumer markets, while new capacity is coming online.
Microfinance group ASA International (ASAI) expects US dollar-denominated earnings growth to come in at 5 per cent for 2019, despite adverse conditions in a number of its markets, and massive currency depreciation in Pakistan and Ghana. Branches and client numbers both increased by 14 per cent, while the average outstanding loan portfolio rose from $174 to $189 per client.
