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News & Tips: stocks slide, Hunting, Liontrust & more

The sell off in UK shares has accelerated
April 15, 2020

UK indices are sharply down as the reality of the coming sharp economic shock sinks in. In his column today our Trader writer Neil Wilson asks what sort of recovery can we expect to see: 'The OBR says the UK economy could fall by 35 per cent in the second quarter. Brutal for sure, but it also expects a very sharp bounce back. This puts it in the V-shaped recovery camp, which is an ever-decreasing circle. Charles Evans, the Chicago Fed president, said yesterday the US is in for a very sharp but hopefully short downturn.

Money managers are more pessimistic. According to Bank of America’s latest Global Fund Manager Survey, just 15 per cent see a V-shaped recovery. Over half (52 per cent) see a U-shaped recovery, where the long line along the bottom stretches on for some time, perhaps years. A fifth (22 per cent) see a W-shaped recovery – possibly sparked by a sharp bounce back and second or third wave of infections – and 7 per cent see the dreaded L – a long depression like the 1930s and no real recovery.' For Neil's full article, click here

IC TIP UPDATES: 

Shares in Spirent (SPT) bumped up 3 per cent in morning trading as the telecoms testing provider posted a 12 per cent increase in revenue in the first quarter, with ‘robust profit growth’ compared to the same period last year. Management said that it has continued to build momentum into the second quarter but conceded that the launch of devices by its customers may be impacted by delay as a result of coronavirus. Still, the board confirmed payment of the final dividend of 2.7 pence per share, due to be paid on 1 May to shareholders on the register on 13 March subject to approval at the AGM. Buy.

Oil and gas services company Hunting (HTG) has withdrawn guidance and seen its cash position fall by $100m (£80m) between the end of 2019 and 31 March. Hunting is reliant on the US onshore oil sector for earnings, through its largest division Titan. Rig counts are down and many onshore companies are in distress after the oil price crashed last month. The fall in net cash came from “the settlement of receivables/payables” of $56m and the $33n purchase of Enpro Subsea. Hunting also spent $11m on buybacks in the March quarter and will hand out $5m in dividends next month despite the challenging environment. Sell

Costain (COST) has announced that its joint venture with Skanska has been granted “notice to proceed” on the full detailed design and construction of phase 1 of the southern section of HS2. The contract is worth £3.3bn to the joint venture as a whole and involves work on the major tunnels approaching the London terminus at Euston station. Current construction has been paused in light of the Covid-19 pandemic and the delayed start means the contract will not make a significant contribution to Costain’s profitability until 2021 onwards. Sell.

Liontrust Asset Management (LIO) saw net inflows of £492m in the three months to March and a further £136m of net new business in the first nine days of April, in a sign that the alternative fund manager has lost little momentum throughout a rocky period for financial markets. Year to date, declines in market values mean total assets under management are down 12 per cent. Chief executive John Ions put the track record down to the performance of the group’s funds, most of which sit in their top-quartile of their peer groups. Under review.

Life insurance and pension consolidator Chesnara (CSN) has increased its final dividend by 3 per cent, after a year in which group cash generation came in at £36.7m. Positive investment movements in 2019 also meant economic value climbed 7 per cent to £670m, while pre-tax profits hit £96.1m, from £27m in 2018. This year, despite an expected slowdown in new business, the group’s various divisions expect to generate £50.1m in dividend income. Buy.

KEY STORIES: 

U&I (UAI) had collected just half of rent due for the March quarter, with just 19 per cent paid by tenants in the leisure sector. An aggregate 33 per cent is under negotiation and tenants representing rent of 16 per cent have yet to respond. The regeneration specialist expects to have achieved around £16m of gross development and trading gains against a target of £35-45 million for 2020 and has withdrawn future financial guidance. The final dividend has also been withdrawn, saving £4.4m. The group also disposed of joint venture Harwell Campus, which should result in an accounting profit of £11m. It has £45m of free and £26m of restricted cash, including £15m to be drawn against previously uncharged assets. 

The International Energy Agency (IEA) has forecast a massive 9.3m barrel-per-day fall in oil demand this year, with the prediction that travel restrictions will be loosened in the second half of the year. This is around the same level as the Organisation of petroleum exporting countries (Opec) and G20 cuts - also a record at 9.7mbopd - agreed over the weekend, although the year-on-year demand fall this month is far bigger, at 29mbopd. The IEA also forecast a 9 per cent fall in refining output compared to 2019, to 74.3mbopd. Brent crude is currently trading at $28 (£22) per barrel. 

In what the group today described as “challenging market conditions” stemming from the coronavirus outbreak, Jupiter Fund Management (JUP) saw net outflows of £2.3bn and a £5.5bn negative impact from market movements in the first quarter of 2020. That resulted in an 18 per cent drop in assets under management (AuM), a decline surpassed by Merian, the business Jupiter agreed to buy in February. Thanks to £2.6bn of net outflows and £4.2bn in negative market movements over the same period, Merian’s AuM was down 30 per cent over the same period.

OTHER COMPANY NEWS: 

888 Holdings (888) shares fell 6 per cent in early trading after the gambling operator revealed the toll of gaming duties in its full year 2019 results. 888’s cash profits of $84.2m represented a 35 per cent decline on last year, and were largely affected by $25.6m in additional duties and FX headwinds.

Smurfit Kappa (SKG) has seen cash profits (Ebitda) come in at €380 million (£332m) in the three months to 31 March with volumes in Europe and the Americas growing by 3 per cent and 3.5 per cent respectively. Deemed an essential business during the Covid-19 crisis, its packaging is being used in key supply chains such as pharmaceuticals, food and sanitation products. The group ended the first quarter with liquidity of over €1.5bn with leverage of 2.2 times. Capital expenditure for the year is expected to come in at €500m-550m, below previous guidance of €615m and the 2019 spend of €730m. The final 80.9c dividend declared for 2019 has been cancelled.

Equiniti (EQN) has said that UK revenue from ‘EQ Boardroom’ will be held back in the first half of the year by lower corporate activity, fewer share-dealing programmes and reduced dividend commissions. In the US, underlying growth will be hindered in the near term by uncertainties in equity markets and reduced corporate actions. ‘EQ Digital’ could suffer from clients closing sites and deferring projects. In light of the Covid-19 crisis, the group is withdrawing its 2020 guidance as well as the final dividend declared for 2019.

Ferguson (FERG) says trading to 31 March was not materially impacted by the Covid-19 pandemic although revenue growth weakened towards the end of the period. Accounting for 85 per cent of the total, the US saw sales increase by 8.2 per cent across February and March, however the last 10 days has seen a deterioration amid states’ lockdowns measures. Excluding lease liabilities, net debt as at 31 March was $1.93bn (£1.54bn), equivalent to 1 times adjusted cash profits (Ebitda), and the group had $2.5bn of available liquidity. The $500m share buyback programme announced in February has been suspended, acquisitions activity has been paused and capital expenditure for the year will be reduced to $280m-300m. The interim dividend has been withdrawn. Ferguson says the demerger of the UK business will be completed this year if market conditions normalise.

Agriculture and engineering group Carr’s (CARR.L) has not endured any material impact from Covid-19 to date, but concedes that “significant uncertainty” remains. It has taken steps to minimise the potential impact on the group. It had net debt of £25.4m at the end of the first half, representing 1.2 times cash profits – and undrawn facilities of £22.4m. The group said that cash forecasting has been thoroughly stress tested – but, for now, payment of the interim dividend has been deferred. For the six months to February 2020, management pointed to a “resilient performance” amid challenging market conditions and considerable headwinds. Revenues were down slightly from £206m to £200m. Adjusted operating profits were down 13.4 per cent to £10.3m.

Telit Communications (TCM) has seen a slowdown in customer demand due to coronavirus and the resultant lockdowns in most of Europe and North America. The company anticipates that its full year revenues for 2020 will still grow from last year, excluding automotive - but management cautioned that the extent of this growth may be limited by the impact of the pandemic. 

Royal Bank of Scotland (RBS) is to replace its normal AGM with a virtual shareholder event on Wednesday 29 April, where chairman Howard Davies and chief executive Alison Rose will provide an update and field pre-submitted questions.

Personal line insurer Hastings (HSTG) is to press on with plans to pay a 5.5p per share final dividend, after weighing its “capital position, current outlook and ongoing ability to support policyholders and continue to invest in the wider economy”. In the first quarter of 2020, gross premiums were stable at £234m, while live customer policies rose 4 per cent year-on-year.