Small caps are in demand in London this morning as the large and mid cap indices are hit by oil exposure. Our Trader writer Neil Wilson says: 'After rallying into the Easter weekend, European markets were bit lacklustre on Tuesday but still trading marginally higher thanks to some decent numbers out of China and the continued hope that governments are getting a grip of the crisis. US shares closed softer on Monday, with the S&P 500 down 1 per cent, but this was after the best weekly rally for Wall Street since 1974.' For Neil's full article, click here.
IC TIP UPDATES:
Next (NXT) has reopened its online shopping channel, having closed it on 26 March amid worker concerns regarding coronavirus. The retailer will recommence online sales in limited volumes and will focus on more essential goods, such as childrenswear. Buy.
Centrica (CNA) has appointed Chris O’Shea as permanent chief executive with immediate effect. He had been acting on an interim basis since mid-March following the premature departure of predecessor Iain Conn. In light of the Covid-19 crisis, Mr O’Shea has taken a voluntary salary cut of £100,000. The search for a chief financial officer continues. Sell.
Chemring (CHG) says the duration and impact of the Covid-19 pandemic across its home markets is as yet unknown, although its operations have been designated as critical in the US, UK and Norway. Net debt sits at £84m, comprising £33m of cash balances and £108m of drawings from its £150m committed revolving credit facilities (RCF). With net debt being 1.18 times cash profits (Ebitda), this is well within its financial covenant of being less than 3 times. The final 2.4p dividend declared for 2019 has been maintained and approved by shareholders and will be paid on 24 April. Buy.
Ultra Electronics (ULE) says trading in the first quarter of 2020 has been broadly in line with expectations with demand in its defence and majority of critical detection and control markets remaining “robust”. It has not yet seen any material deterioration requiring it to instigate its emergency Covid-19 response plan to protect profitability, liquidity and cash flow. The group does expect “a small impact” on revenue from weakness in commercial aerospace and customer driven delays and on margins due to production efficiencies. The 39.2p final dividend declared for 2019 is being delayed. Instead, Ultra intends to pay an additional interim dividend of the same amount in the second half of 2020. Buy.
Dotdigital (DOTD) anticipates a slight softening of revenue this year, but expects to deliver on consensus earnings for its full year ended in June. The software company has seen an expected slowdown of new business wins, but 90 per cent of its revenues are recurring - of which 90 per cent is contracted, providing strong future sales visibility. Cash at the end of March was on target at £22m with zero debt. Buy.
Sirius Real Estate (SRE) collected 75 per cent of rent due for April by the 7 of the month, 90 per cent of the historical norm, as the industrial landlord reported a decline in enquiry levels since the March 31 year-end. However, over 13,000 sqm of new lettings have been completed since 1 March 2020, generating €1.2 million of annualised rent. Total debt increased from €386m at the start of the period to €486m at 31 March 2020, with unrestricted cash and undrawn facilities of €129.7m. However, interest cover rose to a multiple of 11. Buy.
SDL (SDL) said that it will not recommend a final dividend for 2020 in light of the uncertainty caused by coronavirus and has continued to suspend its full year guidance. But shares in the language software company were trading up as much as 11 per cent in morning trading off the back of a strong set of results for 2019. Revenue was up 16 per cent to £376.3m and operating profit jumped up 57 per cent to £29.7m. The group said that it has not seen a material impact from the pandemic on revenue in the first quarter in 2020, but has implemented a ‘phase 1’ cost reduction plan worth £8m. Buy.
Specialist buy-to-let mortgage provider Paragon Banking (PAG) says it is “too early to determine the impact” of the coronavirus crisis on new business flows, redemptions, income recognition and impairment charges. The bank added that it is “fully operational”, but has opted to suspend its interim dividend. In the six months to 31 March, a change in product mix and clients resulted in an improvement in underlying net interest margins, while operating costs are “running slightly below expectations”. Shares are off 1.6 per cent in early trading. Under review.
KEY STORIES:
Mitchells & Butlers (MAB) warned that the continued closure of its sites “could amount to a technical breach of our secured financing arrangements” and has secured a temporary waiver for these agreements until 15 May. Over 99 per cent of employees have been furloughed while salaries have been cut by 60-80 per cent depending on seniority. The pub chain owner said that it believed its cash resources would be sufficient “to fund obligations well into the second half of the year”.
National Express (NEX) has withdrawn its proposed final dividend as a result of coronavirus. Despite restrictions on movement, the bus operator’s first quarter revenues were up 8.9 per cent on a constant currency basis compared with last year, according to a trading update. National Express highlighted its improved liquidity, pointing to more than £200m in cash on deposit and over £1bn in undrawn borrowing facilities.
Mining operations in South Africa will remain suspended until at least the end of the month. Affected companies include Anglo American (AAL), Pan African Resources (PAF), Glencore (GLEN), Rio Tinto (RIO) and Petra Diamonds (PDL). Glencore has also announced the major Antamina copper and zinc mine in Peru would be closed to protect workers. The major mining and trading company has started work to reopen its operations in Quebec, however, after the provincial government reclassified mining as essential business. It said its zinc and nickel operations would be up and running by 4 May.
Peel Hunt has withdrawn its ‘buy’ rating for Burford Capital (BUR) shares, describing the prospect of another poor year of cash generation as “unnerving”. The brokerage also said that Burford’s accounts remain hard to analyse, and that the litigation financier will struggle to both raise capital and make investments this year. “We do not see an imminent liquidity crunch, since [Burford] can delay drawdowns against commitments,” analyst Andrew Shepherd-Barron wrote in a note published today, “but the financing environment is clearly tough hence our focus on cash has increased.” The shares are down 12 per cent.
OTHER COMPANY NEWS:
Wizz Air (WIZZ) expects to register fourth quarter exceptional losses of €70m-€80m, which relate to hedging losses over March to May 2020. The airline, which is operating 3 per cent of its capacity, anticipates full year 2020 net profits of €270m-€280m.
Events business Hyve (HYVE) is considering potential equity fundraise. The company said that it is engaged in “constructive dialogue” with its lenders in relation to covenant headroom and facility flexibility, and has secured a waiver of covenant tests in June under its debt facilities.
