London is suffering its worst week since 2011. Click here to read this morning's Market Outlook from The Trader.
IC TIP UPDATES:
Aston Martin Lagonda (AML) has received irrevocable undertakings from 64.5 per cent to back a rights issue that will raise around £317m of the previously announced £500m equity raise, which was disclosed in January as part of F1 magnate Lawrence Stroll’s rescue package for the ailing luxury car brand. Aston will issue 153.2m shares at a price of 207p a share. The news was announced alongside Aston Martin’s full-year results, which showed a 53 per cent drop in its pre-tax loss to £104.3m, with Aston’s revenue decline driven by factors including a fall in sales to dealers and the impact of retail and customer financing support. Aston also disclosed that chief financial officer Mark Wilson will step down from his position. Sell.
John Menzies (MNZS) has warned that the continued spread of coronavirus is having a direct impact on its operations, particularly in Macau where it handles Chinese airlines. While forward visibility on the impact on flight schedules is limited, the group estimates it will take a £6m-9m hit to profit in 2020, assuming the virus subsides towards the end of the second quarter. Meanwhile, it says actions taken to right-size the business, reduce overheads and improve operational discipline improved commercial momentum during 2019. Shares were down 5 per cent in early trading. Sell.
Persimmon (PSN) chief executive David Jenkinson has informed the board of his intention to stand down in due course, a successor has yet to be found. The announcement comes as the FTSE 100 housebuilder reported 2019 full-year results that revealed a 4 per cent decline in homes sold and a flat average selling price. Combined with build cost inflation, that meant the operating margin declined slightly to 30.3 per cent, from 30.8 per cent the prior year. However, the group reiterated its plan to return a total £2.35 per share in 2020 to shareholders. We place our sell rating under review.
Howden Joinery (HWDN) saw revenue rise by 4.8 per cent to £1.58bn in 2019 with a 9.3 per cent increase in pre-tax profit to £261m. The gross profit margin expanded by 0.6 percentage points to 62.3 per cent thanks to a price increase implemented at the beginning of last year and a better balance between volume and price at its depots. Capital expenditure increased by over a third to £61.1m as the group invested in new depots and digital upgrades. 44 new depots were opened during the year – 39 in the UK and 5 in the less mature French market. Net cash has ticked up by 16 per cent to £267m. The group has also announced a further £85m of share buybacks over the next two years. Buy.
Rentokil (RTO) increased ongoing revenue (which excludes disposals) by 8.6 per cent in constant currencies to £2.7bn in 2019 while adjusted operating profit jumped 10.5 per cent to £368m. With 4.5 per cent organic revenue growth, this exceeded the group’s medium term 3-4 per cent target and represents its highest annual level in 15 years. Ongoing pest control sales rose 10.8 per cent with double-digit increases across growth and emerging markets. Free cash flow was up over 30 per cent to £251m. The group spent £317m on 41 acquisitions during the year, including 30 in pest control, primarily in growth and emerging markets. Buy.
Drax (DRX) saw adjusted cash profits (Ebitda) surge 64 per cent to £410m in 2019, including £114m from its acquired hydro and gas generation assets. Growth was driven by the power generation business, benefitting from the return of UK capacity market payments which contributed £78m versus just £6m in 2018. With plans to increase self-supply of biomass to 5m tonnes, it expects costs to fall from £75 per megawatt hour (MWh) to £50/MWh by 2027. The group has announced that commercial coal generation at its two remaining coal units will end in March 2021, although both units will still be available to fulfil capacity market obligations until September 2022. Closing its coal operations is expected to have a one-off cost of £25m-35m but will reduce annual operating costs by the same amount. Buy.
Mondi’s (MNDI) full year turnover declined 3 per cent owing to a mix of of lower average selling prices and weaker sales volumes, which the paper and packing company largely attributed “to longer planned maintenance shuts and restructuring initiatives”. Planned maintenance shuts had a €150m impact on adjusted cash profits compared with a €110m hit in 2018, although Mondi expects this to come down to around €100m in 2020. Under review.
Macfarlane (MACF) turnover increased 4 per cent to £225.4m, aiding a 10 per cent lift in pre-tax profits to £12m. The group’s packaging distribution and manufacturing operations arms both grew sales by 4 per cent, although packaging distribution sales revenue was hampered by weaker demand and sales price deflation during 2019, although this was offset by new business growth and contribution of £5.7m from acquisitions. Buy.
Shares in WPP (WPP) were down by more than 15 per cent this morning after the advertising group revealed a “deterioration” in the fourth quarter. Like-for-like revenues less pass-through costs in the final three months of the year were down 1.9 per cent, from a 0.5 per cent rise in the third quarter. For 2020, WPP expects like-for-like revenues less pass-through costs to be flat, with a flat headline operating margin – with guidance made prior to any impact from the coronavirus outbreak. Still, it maintained its 2021 financial targets, including organic growth in line with peers and a headline operating margin of at least 15 per cent. Chief executive Mark Read noted that “2019 was the foundational year for the new WPP strategy”. Under review.
National Express (NEX) has pledged not to buy another diesel bus in the UK as part of plans to bring its bus and coach fleet to zero emissions by 2030 and 2035, respectively. The group’s plans to cut emissions were unveiled alongside the group’s full year results, which showed revenue growth of 10.2 per cent in constant currencies, while normalised pre-tax profit came in up 7.8 per cent. The group reported free cash flow ahead of expectations at £178.7m. Buy.
Reckitt Benckiser (RB.) has taken a £5bn charge on its acquisition of Mead Johnson Nutrition in 2017, as the group struggled to integrate the business and the Chinese market proved more difficult than expected. The health and home product manufacturer also reported a £3.7bn net loss for the year, including £898m from discontinued operations and a £1.1bn settlement in an investigation into the alleged conduct of its former Indivior business. Under review.
KEY STORIES:
NMC Health (NMC) has suspended its shares as it tries to provide “additional clarity to the market as to its financial position”, following a post-close announcement Wednesday it had found hundreds of millions of dollars had been raised by former directors in a supply chain financing arrangement. The company sacked its chief executive in response and said investigations into the balance sheet had been obstructed. The board said founder and director until earlier this month BR Shetty had drawn $335m (£259m) in loans through supply chain financing with another major shareholder and former board member, Khaleefa Butti Omair Yousif Ahmed Al Muhairi. Read the full story here.
Grafton (GFTU) reported a 3 per cent rise in revenue from continuing operations last year, despite the UK merchanting business suffering a 1 per cent decline. Weakness in the UK RMI market weighed on demand from domestic consumers, the building materials supplier said, while heightened competition also eroded the operating margin. However, the Dutch and Ireland businesses both generated a rise in revenue of 36 per cent and 6 per cent, respectively.
RSA Insurance (RSA) generated an underlying pre-tax profit, excluding business line exits, ahead of consensus forecasts for 2019 at £624m. The underwriting result increased to £405m, compared with £250m the prior year and the combined operating ratio also improved to 93.6 per cent, from 96.2 per cent. The insurer also managed to push through rate increases, which contributed £330m in premium income, up on £238m in 2018.
Vistry (VTY) – formerly Bovis – reported a 3 per cent rise in completions last year, with a corresponding rise in the average selling price last year, which offset build cost inflation and helped push up the operating margin 60 basis points to 17 per cent. Around 48 per cent of consensus housebuilding revenues for 2020 have also been secured.
Despite revealing a 23 per cent increase in earnings per share in 2019, shares in Standard Chartered (STAN) are down 5 per cent in early trading after the Asia-focused lender said growth in 2020 will likely fall short of its medium-term 5 to 7 per cent target range. Lower interest rates, slower global economic growth, Hong Kong protests and the coronavirus outbreak are all to blame, though the bank believes these headwinds will be transitory. Nonetheless, hitting a return on tangible equity target of 10 per cent is likely to take longer than previously expected.
Hastings (HSTG) reported a rise in the loss ratio to 81.6 per cent last year, before the impact of the Ogden rate change, up from 75 per cent in 2018. The insurer’s underlying average premiums were up 5 per cent, with the increase in prices being offset by a change in the risk mix of business. As previously announced, the final dividend declared was down on last year at 5.5p a share, from 9p, taking the overall payment for the year at 10p.
Shares in Inchcape (INCH) have fallen 5 per cent following the release of the group’s full year results. Statutory profits were up 256 per cent thanks to gains on disposals and the non-recurrence of impairment charges from 2018, but strip out the impact of this and pre-tax profits fell 7.4 per cent. The group has come up against a number of challenges in the period, with headwinds in Singapore and Hong Kong, as well as a contraction in the Chilean market.
Shares in Topps Tiles (TPT) have fallen 23 per cent this morning after the group warned on profits. The home retailer warned in early January that trading had been impacted by the political and economic uncertainty surrounding the UK general election, knocking like-for-likes down 5.4 per cent. However, the market has remained challenging since, with retail like-for-likes falling a further 5.5 per cent in the eight weeks to February 22. In response, management is increasing its focus on costs and cash management.
Analyst Peel Hunt has trimmed its forecasts for Playtech (PTEC) this morning after the gambling technology company reported the COVID-19 outbreak had led to changes in customer patterns that significantly affected two of its largest markets. This, in turn, led the group to warn results for the full year are likely to be below market expectations. After the announcement, Peel Hunt saw fit to cut its 2020 EPS forecasts by 22 per cent.
OTHER COMPANY NEWS:
G4S (GFS) has entered an agreement to sell the majority of its conventional cash handling businesses to US security company Brink’s for an enterprise value of £727m. It will receive around £670 in net cash proceeds which will be used to pay down net debt and invest in its core integrated security solutions business. The group had previously planned to demerge cash solutions in its entirety in the first half of this year but has chosen to retain its payment and cash technology technology operations. Shares were down 8 per cent in early trading.
Shares in Flutter Entertainment (FLTR) fell 3 per cent following the release of the group’s full year results for 2019. Sales were up 14 per cent, thanks to its growth in the US sports betting and gaming market. However, tax and regulatory changes, combined with investment in the US market led underlying cash profits to fall 15 per cent to £385m.
Genus (GNS) saw sales increase by 13 per cent at constant currencies to £271m in the six months to 31 December and swung to a statutory pre-tax profit of £30.4m. Adjusted operating profit from the porcine division rose 28 per cent at constant currencies to £62.6m with an almost threefold increase in China as pig producers there start rebuilding their herds in the wake of African Swine Fever. Bovine adjusted operating profit was up 15 per cent to £14.6m as demand for sexed dairy genetics increases. The group has cautioned that the second half of the year will face stronger prior year comparatives, currency headwinds and potential disruption to trade from coronavirus.
Vesuvius (VSVS) full-year revenues edged down £87.6m, or 4.9 per cent, which the specialist in molten metal engineering attributed to a “significant deterioration in both our main end markets of steel and foundry” after a strong prior year. Vesuvius took the opportunity to intensify its cost-saving efforts, realising £16.4m in savings and closing eight plants without lowering its overall production capacity. But the company expects weak market conditions to persist through its first quarter and weigh upon its half-year performance.
Powered by a strong market performance and slightly weaker net inflows, St James’s Place (STJ) grew its funds under management by 22 per cent in 2019. But chief executive Andrew Croft sounded in a bullish mood this morning, speaking of “an increase in activity across the business…in the early part of 2020” and confidence that this will lead to growth, notwithstanding uncertainties for the UK and market concerns around the coronavirus.
Provident Financial (PFG) has increased its final dividend by 60 per cent to 16p per share, after the high-cost credit provider posted a 32 per cent increase in statutory pre-tax profit for the year to December 2019. Credit card arm Vanquis saw a drop in adjusted profits and car finance division Moneybarn posted increases, while losses narrowed at the consumer credit division. Chief executive Malcolm le May said the results reflected adaptations to “changing customer needs and the evolving regulatory environment”.
Anyone interested in buying Amigo Holdings (AMGO) will be able to update their due diligence folders today, after the guarantor loans group posted figures for its December-end third quarter. While the third quarter operating cost to income ratio edged down to 17.8 per cent – below the nine-month average – year-to-date complaints have so far cost the group £26.6m, forcing an increased balance sheet provision of £18.7m. Chief financial officer Nayan Kisnadwala said that as part of its sale process, Amigo is reviewing its risk appetite for new lending, and that this could “lead to materially lower future lending volumes, impacting net loan book growth”.
Burford Capital (BUR) has nominated a former director general of the UK Takeover Panel and a senior ex-banker at Merrill Lynch to join the litigation financier’s board as directors. If elected, Robert Gillespie and John Sievwright will join chief executive officer Chris Bogart at the top table.
PPHE Hotel Group (PPH) reported a steady set of results for 2019, with revenue up by five per cent, despite a difficult trading environment in the sector. The company, which has recently completed a real estate investment programme upwards of £100m, said that its revenue-per-available-room was also up five per cent year-on-year. Chief executive Boris Ivesha said in a statement that the group was monitoring the “uncertain macro environmental developments related to the Coronavirus outbreak”, but noted that trading so far in 2020 had been “in line” with the board’s expectations.
