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News & Tips: Shares build on gains, WH Smith, Cineworld & more

Investors across London's main indices are on the rise despite political uncertainty
April 7, 2020

Building on yesterday's gains, London's equities have shaken off political uncertainty to rise again. Our Trader writer Neil Wilson says: 'What constitutes a bull market? With another gain on the open the DAX today was 20 per cent above its March 18th closing level. So is the bear market over, in Germany at least? Maybe, maybe not. This probably says more about the way we measure markets and the arbitrary nature of classification and nomenclature. It’s why people get overly-excited about a $4 move in oil. For many this remains a bear market rally, or a bear market bull market perhaps? Hopes that Europe could be at or near the very worst phase of the coronavirus have sent global equity markets firmly higher this week and we are seeing signs of a strong follow-on to the rally on Tuesday as technical levels have broken down allowing a bit of a momentum trade to play out.' Click here for Neil's full article. 

IC TIP UPDATES: 

Cineworld (CINE) has scrapped its 2019 fourth quarter dividend of 4.25c per share and suspended its upcoming 2020 quarterly dividends. The company also said that it was in discussions with its lenders over its revolving credit facilities. Sell.

WH Smith (SMWH) has raised £166m from investors after issuing 15.8m shares at 1,050p apiece. Story here - Buy.

SIG (SHI) announced the disposal of Building Solutions Limited to Kingspan (KGP) in October for a consideration of £37.5m. The sale was conditional upon approval from the Competition and Markets Authority (CMA). However, following a phase one investigation, the CMA has raised concerns over competition in the supply of specialist insulation panels. The watchdog is concerned that the transaction would see the largest player, Kingspan, merge with one of only two meaningful competitors, potentially resulting in higher prices or lower quality. The two parties have five working days to address the CMA’s concerns to avoid an in-depth phase two investigation. With regards to SIG, sell.  

HomeServe (HSV) is guiding that adjusted pre-tax profit for the year ending 31 March 2020 will come in ahead of consensus expectations of £181m. In the membership business, customer numbers are set to reach 8.3m, including 4.4m in North America. In Home Experts, marketing initiatives at Checkatrade have increased revenue by 30 per cent with the number of trades on the platform rising by 9 per cent to 39,000.  Including £55m of lease liabilities, year-end net debt is £515m, equivalent to 1.9 times cash profits (Ebitda) and within the group’s 1.0-2.0 times target range. In response to the Covid-19 pandemic, HomeServe will not be furloughing staff but is pausing most marketing campaigns. It expects to report results on 19 May and will “consider its full year dividend options”. Buy.

4imprint (FOUR) has scrapped its final dividend, saving $16m. The group said that its daily order counts have plummeted 80 per cent from the same period last year. Management anticipates that the limited level of activity will continue until lockdown restrictions lift and economic activity improves. The group said that it was tightly controlling discretionary costs and has reshaped its marketing portfolio.  At the end of the first quarter of 2020, the company retained over $50m in cash balances. Under review. 

Ideagen (IDEA) expects to report revenues of £56m for the year, slightly below previous expectations of £58.5m. The software company said that recurring ‘software-as-a-service’ and support and maintenance revenues have not been affected by the coronavirus crisis, but non-recurring revenue has been impacted. Management said that it had taken measures to reduce its forecast annual cost base by approximately £4m. Buy. 

Codemasters’ (CDM) shares were trading up as much as 10 per cent in morning trading, as the company said that it expects to report revenues of approximately £76 million in 2020, compared to £71.2m last year. The coronavirus has affected sales mix, accelerating the shift to digital delivery which has in turn contributed to higher margins. Traditional retail and box sales have been impacted, exacerbated by the closure of most game retailers. The game developer maintains gross cash of approximately £25.5 million. Buy.

Hilton Food Group (HFG) saw revenues rise by a tenth for the year to 29 December, reaching £1.8bn. Pre-tax profits rose by 9.2 per cent to £47.3m. The food producer said that the covid-19 outbreak will test its established business continuity programmes - but to date, it has “risen to the challenge”. Operating performance since the start of 2020 has been in line with management’s expectations, and it has reached agreement to expand into Belgium - with a facility due to open there in September. Buy.

KEY STORIES: 

Workspace (WKP) collected 50 per cent of rent due at the end of March, and experienced a material slowdown in activity in March. The office space provider said it would update on whether it would pay a final dividend at the time its full-year results are released in June. The group, which has a loan-to-value ratio of 21 per cent, said it could withstand a reduction in net rental income of 61 per cent or a fall in asset valuation of 63 per cent before any debt covenants are breached. 

In recent weeks, several trading updates from Plus500 (PLUS) have hinted at the ways market volatility have sparked huge client trading activity. First quarter results, out today, highlight quite how beneficial that activity has proven to the company. In the period, revenues rose 487 per cent to $317m year-on-year, a figure equivalent to 89 per cent of all the revenues generated in 2019. Customer numbers also rose by 82,951, while cash balances surged 76 per cent to $516m and margins unsurprisingly pushed well ahead of market expectations. Management has reiterated its commitment to distribute at least 60 per cent of net profits via dividends and share buybacks.

Alpha FX (AFX) is raising £20m in a placing at 680p per share via an accelerated bookbuild, in a bid to acquire new clients and “continue investment in new products and markets”, as well as fulfilling repeat orders from existing clients. Assuming that it raises the full £20m, Alpha reckons it will have £35m of adjusted free cash on its balance sheet. Several directors, employees and their families have subscribed to up to £1.9m-worth of the placing.

OTHER COMPANY NEWS: 

Alliance Pharma (APH) reported ‘see-through’ revenue growth of 16 per cent to £144m for 2019, with a continued strong performance from its international star and other consumer brands. While its international wings saw a further period of growth, UK and Ireland sales were down by 2 per cent at £51.4m because of weaker performances from some of the group’s heritage pharma products. Alliance has decided not to propose a dividend in order to preserve cash amid the coronavirus pandemic. It noted that its supply chain was holding up well, though it is difficult to forecast demand. It expects 2020’s trading to be second-half weighted.

ESG-focused active fund group Impax Asset Management (IPX) saw net inflows of £1.1bn in the first three months of 2020, including – quite improbably – £6m of positive net flows in March. Unsurprisingly, market and foreign exchange movements were negative, resulting in an 11 per cent decline in assets under management to £14.4bn. That suggests resilience, which helps to explain the shares’ 6 per cent in early trading.

Sabre Insurance (SBRE) has withheld its special dividend until it has “greater clarity over the full impact of Covid-19 on the group and the wider economy”. Full-year results, out this morning – which highlight a pre-dividend solvency coverage ratio of 214 per cent and a decline in return on tangible equity – do not yet point to any significant adverse capital strain, though chief executive Geoff Carter warned of the threat of unforeseen challenges.