European shares are a bit mixed today on a huge day for corporate earnings, says Neil Wilson. The FTSE 100 opened mildly lower but is holding the 5800 level. Here's this morning Market Outlook.
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IC TIP UPDATES:
In a clear sign of global economic turmoil, HSBC (HSBA) today quintupled its first quarter loan loss provision to $3bn. Among the biggest write-downs is a significant charge related to a Singaporean corporate, which investors may interpret as a nod to HSBC’s exposure to scandal-hit oil trading firm and bank client Hin Leong. The charges mean pre-tax profit has halved to $3.2bn, while material pressure is expected on net interest margins in 2020. Common equity tier-one capital held up at 14.6 per cent, thanks to the cancellation of the final dividend for 2019, though the road ahead also looks gloomy: the lender reckons the crisis will “likely lead to higher ECL and put pressure on revenue due to lower customer activity levels and reduced global interest rates”. Sell.
Diageo (DGE) has launched and priced a $2.5bn SEC-registered bond offering. This comprises $750m in 1.375 per cent fixed-rate notes due 2025; $1bn 2 per cent fixed-rate notes due 2030, and $750m 2.125 per cent fixed-rate notes due 2032. The bond issuer is Diageo Capital with payment of principal and interest guaranteed by the group itself. The proceeds are to be used “for general corporate purposes” and the offering is scheduled to settle tomorrow. Buy.
Keystone Law (KEYS) saw revenue rise 16.3 per cent to £49.6m in the year ending 31 January, with a 10.1 per cent increase in statutory pre-tax profit to £5.2m. Total fee earners jumped by over a fifth to 393. The gross profit margin dipped 0.4 percentage points to 26.7 per cent, which the group attributes to one-off litigation work last year. Billing and cash generation in the current financial year have been in line in expectations so far. But there has been a “meaningful decline” in the number of new instructions from clients. Keystone believes it is in a strong position to weather the Covid-19 pandemic given its capital-light business model and variable cost base – lawyers are only paid once the group is paid. Excluding £2m in lease liabilities, it finished the year with £4.4m of net cash. Buy.
Marks and Spencer (MKS) has secured an agreement with its lenders to relax or remove covenant tests linked to its £1.1bn revolving credit facility. It has also confirmed its eligibility for the government’s Covid Corporate Financing Facility. Sell.
Supermarket Income Reit (SUPR) has raised £140m via a share placing with institutional investors after raising the size of the issuance by almost double. The shares were issued at 103p, a 5.7 per cent discount to the closing price the day prior to the placing being announced. The supermarket landlord said it intended to use the proceeds to purchase already identified assets. Buy.
IQE (IQE) swung to the red in 2019 with an operating loss of £18.8m. The semiconductor manufacturer saw its gross profit slide from £37.5m to £21.4m, which it attributed in part to the under-utilisation of its assets. Management noted that trading in the first quarter of this year was slightly higher than internal expectations and that the outlook for the second was ‘positive’. Still, the group remains vulnerable to the risk of a global economic downturn, as well as underlying trade tensions between the US and China. Sell.
KEY STORIES:
“Market and economic turmoil, slow-moving courts and challenges at some of our shareholders — have made the rehabilitation of our share price more difficult in the short term,” surmises Burford Capital (BUR) in its long-delayed full-year results, released this morning. Those comments are included in another missive against last summer’s “short attack” by Muddy Waters, which now extends to bemoaning the response of both the London Stock Exchange and the Financial Conduct Authority. Numbers were largely as flagged, though total comprehensive income is down 43 per cent to $195m, while operating cash flow was again negative.
OTHER COMPANY NEWS:
Travis Perkins (TPK) says it has been running a “service-light” operating model since late March, serving customers through remote, non-contact channels. In the first three weeks of April, total revenue was around a third of that seen in the same period last year. Since 20 April, the group has been opening more of its merchant branch network to support large construction companies and subcontractors that are restarting activity. Around half of the workforce has been furloughed on full pay and senior management is taking a 20 per cent pay cut for three months. Having fully drawn its £400m revolving credit facility, Travis Perkins had £522m of cash on deposit as at 24 April.
In the latest expectation-defying missive from the contract for difference sector, Plus500 (PLUS) has told investors that heightened levels of market volatility have persisted since its last update on 7 April. Three weeks on, and Plus500 has “continued to see a significantly increased level” of trading activity from both new and existing customers. As a result, the group reckons full-year revenues and profit will be “substantially ahead” of the forecast adjustments analysts have only just made.
Full-year results for XPS Pensions (XPS) will be “broadly in line with its expectations”, the advisory and administration business confirmed today, as demand for the group’s services has remained largely resistant to the Covid-19 crisis. In the 12 months to March, revenues climbed 9 per cent, though a higher-than-expected rise in costs have held back profit growth to pre-existing forecasts. With around 80 per cent of its revenue non-discretionary, recurring and received for essential services, the group’s earnings visibility remains strong, though to be safe XPS has negotiated an extension to its existing £80m revolving credit facility.
Senior (SNR) has secured a ten-year contract extension with MTU Aero Engines to supply Pratt & Whitney engines airfoils. It is a dual source arrangement between the group’s businesses in Thailand and the UK and is projected to achieve total sales revenue of around $330m (£265m).
Games Workshop (GAW) has reopened some stores in China, the Netherlands and Scandinavia and will begin trade sales in Europe and North America this week. Online orders will resume from 1 May. The retailer expects pre-tax profits for its year to 31 May to be no less than £70m.
