News that the UK economy slipped in reverse in March is hardly a surprise, but it has still knocked confidence in London this morning. Our Trader writer Neil Wilson says: 'US stocks had a dismal close, sliding sharply in the final hour of trading as Los Angeles County looked set to extend its stay at home order for another three months and Dr Fauci warned of reopening too early. The S&P 500 fell 2 per cent and closed at the session low at 2870. The close could leave a mark as it broke support and we note the MACD crossover on the daily chart. European markets followed suit and drove 1-2 per cent lower – this might be the time for the rollover I’ve been talking about for the last fortnight.' For Neil's full article, detailing why he is worried about negative interest rates, click here.
IC TIP UPDATES:
Aston Martin Lagonda (AML) first quarter pre-tax losses widened to £119m from £17 in last year’s comparable period. The luxury car manufacturer reopened its St Athan facility last week, where it is manufacturing its new SUV model, while Aston is busy reducing cutting dealer inventories and has brought this figure down by 428 units since the end of 2019. Sell.
TP ICAP (TCAP) delivered what it described as a “robust financial performance” in the three months ended 31 March, as the interdealer broker benefited from higher trading volumes created by a rise in market volatility at the end of the quarter. The group’s two largest divisions – global broking and its energy and commodities trading team – both performed especially well, with the latter posting a 26 per cent rise in revenues to £117m. However, activity in April returned to “more normal levels”, and management has maintained its full year guidance of low single-digit revenue growth, believing it “too early to fully assess the impact of the Covid-19 pandemic on the business and clients. Buy.
Spirax-Sarco (SPX) saw organic sales drop 4 per cent in the first three months of year, reflecting the inclusion of Thermocoax and a currency headwind, with an 8 per cent dip in April. Operating profit for those four months is behind that of a year earlier, but cost control has kept margins above 21 per cent. Demand from ‘maintenance, repair and overhaul’ (MRO) activity and small improvement projects – typically 85 per cent of total revenue – has experienced a “mild decline” versus a strong comparator in 2019. As at 30 April, net debt was £288m and the group had £500m of headroom on its borrowing facilities. Spirax is guiding to a tougher second and third quarter before an improvement in the final three months of the year. The focus on customers’ operating rather than capital budgets offers resilience and keeps us bullish. Buy.
A short update from Ultra Electronics (ULE) indicates all facilities remain open and trading is broadly in line with expectations. The group expects 2020 to be “a good year of progress”. Buy.
Young & Co (YNGA) has secured £30m through the Bank of England’s emergency coronavirus financing facility and is in the process of agreeing £70m in further funding, spread across credit and loan facilities. With all agreements in place the pub operator will have £285m in funds and facilities from its lenders. Buy.
KEY STORIES:
Taylor Wimpey (TW.) will reopen show homes and sales centres for pre-booked appointments from 22 May, after the government issued new guidance allowing people to view and move homes from today. That will mean the majority of sales staff will be recalled from furlough from 18 May. During the lockdown period the group has sold 408 homes net of cancellations, equivalent to a net average sales rate of 0.3 per site. Cancellation rates have averaged 27 per cent for the period, although represented 2.5 per cent of the order book.
Crest Nicholson (CRST) has announced plans to restart work on its construction sites from 18 May and said it had only made “moderate” sales and legal completions since sites were closed. Focusing on receipt collections, build spend reducing, and where possible deferral of land spend, boosted cash balances to £255m at the end of April, while net debt stood at £94m, an increase of around half, due to a lower contribution from joint ventures and partnerships.
OTHER COMPANY NEWS:
Marshalls (MSLH) has seen a sharp drop in demand with sales in the four months to 30 April down 27 per cent to £131m. The early part of May has seen some recovery although daily revenue is around half of that seen a year earlier. The group is now reopening plants as construction activity restarts and is proposing to restructure its operations through selective site closures and changes to its workforce. Having secured further revolving credit facilities with its banks, it now has total bank facilities of £255m, of which £230m are committed. It is also eligible for up to £200m from the Covid corporate financing facility. Excluding lease liabilities, net debt stood at £69m as at 30 April.
Ferguson (FERG) saw revenue from ongoing operations rise by just 0.9 per cent to $4.75bn (£3.86bn) in the third quarter to 30 April as federal, state and local restrictions in response to Covid-19 hit demand last month. Organic revenue decreased by 1.7 per cent while underlying trading profit came in 1.5 per cent lower at $334m. In the US, sales declined by 9.3 per cent in April with a more pronounced impact in states where lockdown measures are more severe. Over in the UK business – considered “non-ongoing” as it awaits a demerger – revenue plunged by 27 per cent in the quarter. Excluding lease liabilities, net debt stands at $1.8bn, equivalent to 1 times adjusted cash profits (Ebitda).
Stock Spirits (STCK) interim results brought an 80 per cent jump in pre-tax profits, as the manufacturer of premium spirits navigated excise duty increases in its key markets of Poland and the Czech Republic, along with the effects of coronavirus pandemic. The building of a safety buffer to ensure customer supply and the extension of payment terms to some customers drove a marked increase in working capital, which pushed free cashflow conversion down to 58.9 per cent for the period, compared to 93.5 per cent this time last year.
Ten Entertainment (TEG) reported an 11 per cent increase in full year pre-tax profits to £9m. The operator of entertainment centres is confident that it is sufficiently liquid to ride out a potential second wave of coronavirus, with house broker Peel Hunt estimating sufficient resources under closure to last until the third quarter of 2021 owing to Ten’s monthly cash burn of £1.4m.
Brewin Dolphin (BRW) has held its interim dividend at 4.4p per share, despite posting a 12 per cent dip in statutory earnings per share for the six months to March. Excluding acquired funds, the investment manager saw total assets under management decrease by 14 per cent in the period, largely due to negative market movements, though David Nicol said the last few months have been marked by increased client engagement and demand for financial advice. Offering both remotely has apparently been possible without a hitch.
Based on its “experience with past disruptive events”, microfinance provider ASA International (ASAI) expects total write-offs due to the Covid-19 pandemic will be “no more than 2-3 per cent” of its outstanding loan portfolio. However, the group has acknowledged that its collection capacity has been hampered by lockdowns, and that waivers and covenant amendments will be required from its own lenders.
Premier Oil (PMO) says Covid-19 measures will result in a later first-gas date for its Tolmount asset, which was expected to reach production this year. First gas is now expected by mid-2021. The North Sea company said in a trading update it was also “re-engaging” with the sellers in the $871m (£700m) deal to take over BP’s (BP.) Andrew Area and Shearwater operations and buy Dana Petroleum’s 25 per cent stake in the Tolmount Area field. A court approved the purchase last month but Premier creditor and short-position holder Asia Research and Capital Management (ARCM) has appealed this decision, meaning the sale cannot yet go ahead. There are also doubts over its ability to raise the cash needed. In the update, Premier also said it would likely be cash flow neutral this year because of its hedging. It will also try and push back debt maturities from 2021.
Software company Sage (SGE) has seen a slowdown in new customer acquisition due to coronavirus, with roughly half the level previously expected in April. The group said that it believes organic recurring revenue growth will be below the previously guided range of 8 to 9 per cent in the full year, and that decline in other revenue will ‘accelerate significantly’ in the second half. In the first half however, operating profit climbed by more than a third to £289m, underpinned by software subscription revenue growth.
