Investors are in more circumspect mood with the FTSE100 and FTSE250 both selling off this morning. Our Trader writer Neil Wilson says: 'Markets remain choppy as investors play the waiting game, whilst oil prices have risen again as inventory data painted a bullish picture. PMIs from Europe this morning show improvement but coming off an exceptionally low base in April. Germany’s services PMI jumped from 16.2 to 31.4. France’s rose from 10.2 to 29.4. It’s a step in the right direction, but remember how these PMIs are calculated – respondents can only answer if the state of their industry is better, worse or the same as the month before. Contraction is still the state of play. Overnight data showed Japan’s exports down 21.9 per cent, the worst decline since 2009; whilst South Korean exports also plunged.
Stocks rose yesterday but eased back today as Asian trade data worried investors. The S&P 500 hit its best intra-day level since March 6th at 2980 (2985 on March 6th was the high), closing at 2971 vs the close of 2972 on that day. The 200-day simple moving average sits just above but the 100-day line has provided the topside resistance for the last two sessions. Futures indicate a lower open. The FTSE 100 rose 1 per cent on Wednesday but handed back the gains at the open as European stocks faded.' For Neil's full article, click here.
IC TIP UPDATES:
As of 30 April, Aviva (AV.) estimates Covid-19 has had a £160m claims impact on its general insurance division, net of reinsurance. The detail was revealed in an operating update in which the financial services giant reported a 28 per cent spike in new business sales of life insurance policies, a dip in the solvency cover ratio from 206 to 182 per cent, and a severe downgrade in its economic outlook. A bullish-sounding recommitment to a set of three-year targets should probably be seen in the context of the cancellation of dividends, which should make a debt reduction goal easier. Under review.
Knights Group (KGH) expects revenue for the year ending 30 April to come in at £74m, a 40 per cent increase from a year earlier and reflecting 10 per cent organic growth. Underlying pre-tax profit is guided to be around £13.5m, up 44 per cent with a “marked” improvement in the margin in the second half of the year. The group says it felt the impact of the Covid-19 lockdown in April with stalling of activity by counterparty law firms affecting its ability to transact on behalf of clients. There are early signs that market conditions are stabilising. Net debt is set to be £15.9m, equivalent to less than one times underlying cash profits (Ebitda). There will be no final dividend. Buy.
Restore (RST) says activity levels in April have stabilised after dropping off in the second half of March. Storage revenue streams in the largest business, records management, remain steady. After furloughing around 45 per cent of the workforce, some employees are being brought back in response to growing customer demand. The group says that stress tests indicate it will remain profitable for the year ending 31 December even if there is a “long and severe” impact from Covid-19, albeit at a lower level seen in 2019. Buy.
SIG (SHI) has announced that the deal to sell its building solutions business to Kingspan (IRE:KGP) for £37.5m has fallen through. The transaction had been referred for a phase 2 investigation by the Competition and Markets Authority which required the two parties to extend the expiry date of their sale and purchase agreement. Having been unable to agree to commercial terms for an extension, the deal has been terminated. Sell.
Intertek (ITRK) saw revenue dip 4.6 per cent year-on-year to £882m in the four months to 30 April, with organic growth down 4.9 per cent at constant currencies. This is versus consensus of a 10.7 per cent decline in organic sales. The impact was most severe in the products division. Analysts at Jefferies have called the overall performance “surprisingly resilient”. Having finished 2019 with £629m of net debt – equivalent to 1 times cash profits (Ebitda) – the group intends to pay a 71.6p final dividend on 11 June. Intertek sees opportunities post-pandemic, ranging from health and safety quality assurance in the workplace to increasing need for supply chain risk management. As such, it recently launched and end-to-end health, safety and wellness audit, inspection and certification assurance programme. Buy.
Energean Oil and Gas (ENOG) has pulled two proposals allowing it greater leeway in issuing new shares from its AGM after shareholder pushback. The gas developer said it would “undertake a detailed review of the feedback received on these resolutions to ensure it fully understands shareholders’ concerns”. Energean had said it would have used the greater fundraising flexibility to raise cash for acquisitions and other investments. The company will also ask shareholders to drop the ‘oil and gas’ part of its name at the AGM today. Buy.
Countrywide (CWD) has withdrawn financial guidance despite government guidance to reopen the housing market, as the impact on activity from Covid-19 is still too unclear. Sales and lettings income declined 5 per cent to £327m and financial services income also declined 2 per cent. However, the estate agency group reported a £38m pre-tax loss, down substantially on the loss of £259m reported the prior year, thanks to much lower impairment charges and restructuring costs. However, impairment charges could rise again to account for the impact of a further slowdown in housing market activity. Sell.
Henry Boot (BOOT) has recommended a reduced final dividend of 1.3p a share, resulting in an annual payout of 5p down from 5.8p in 2018. The land promotion and construction group also sold £67m of mixed-use portfolio of mainly retail assets, taking a £1.5m to annual rental income but boosting year-end net cash balances to £45m by the end of April. Last year’s pre-tax profits rose marginally thanks to a stronger performance from the land promotion business, which sold over 3,400 plots to housing developers. Under review.
With its shares having doubled since March’s sell-off, insolvency practitioner Begbies Traynor (BEG) says its revenues and profits for its April year-end are “broadly in line” with market forecasts. Gearing is likely to come in well below analysts’ expectations, however, thanks to strong operating cash flow in the final quarter. That bodes well for a business dealing with companies facing liquidity problems of their own, though expectations of a progressive increase in the number of insolvencies are coloured by the impact and timing of government support measures. Buy.
Sabre Insurance (SBRE) saw a 5 per cent dip in premium volume in its first quarter, as the motor insurer responded to volatile “consumer behaviour and competitor pricing activity” by doubling down on its profitable-over-volume underwriting standards. A sharp drop in car sales in April also hit new premiums, while the group has responded to a fall in driving frequency by reducing some of its prices – in a move no doubt aimed at responding to the refunds offered by Admiral and others. Despite this, investors will likely be encouraged by a resilient capital position and signals that an additional interim dividend is coming. Buy.
KEY STORIES:
Whitbread (WTB) has launched a £1bn rights issue alongside its annual results, which revealed a 28.4 per cent boost to pre-tax profits. Whitbread’s financial year runs to the end of February, so the full toll of coronavirus and the shuttering of the group’s hotels, pubs and restaurants was not reflected in its numbers. The group’s internal modelling includes the assumption that its hotels and restaurants will either be closed or at low occupancy until September. Whitbread shares fell 13 per cent in morning trading.
Pets at Home (PETS) full-year statutory pre-tax profits jumped from £49.6m to £85.9m. The group used its annual results to warn that its first half profits for 2021 will be materially below the prior year, with the spike in demand that came towards the end of its year having unwound combined with the impact of additional costs linked to social distancing. Pets at Home shares fell 11 per cent in early trading.
Assura (AGR) announced a 1.9 per cent in the quarterly dividend to 0.71p a share, effective from the first payment for the 2021 financial year in July. The healthcare centre landlord said rent collection had continued as normal this year and still expects to come on site with a further 18 developments within the next 12 months. The group reported a total property return of 5.3 per cent for the year to March, consisting of 4.9 per cent from net rental income growth and 0.4 per cent valuation rise in the assets.
OTHER COMPANY NEWS:
Cohort (CHRT) expects earnings for the year to 30 April to be in line with expectations, benefitting from a lower tax charge. Revenue is guided to be 10 per cent higher at £133m with an 11 per cent increase in adjusted operating profit to £18m. Net debt is set to fall to £5m versus £6.4m a year earlier, equivalent to less than 0.3 times cash profits (Ebitda). The closing order book is worth £186m, giving visibility on 60 per cent of revenue for its 2021 financial year. The Covid-19 pandemic has restricted access to customer premises and clients’ ability to place new orders. But the Ministry of Defence has accelerated payments to suppliers. Cohort currently expects trading for the year to 30 April 2021 to be in line with 2020.
Qinetiq (QQ.) saw an 18 per cent increase in revenue to £1.1bn for the year ending 31 March with 10 per cent organic growth. Underlying operating profit rose 7 per cent to £133m. Orders for the year increased by almost a fifth to £972m, benefitting from £168m of orders under the engineering delivery partner framework contract in the ‘Europe, Middle East and Africa’ (EMEA) services division. The group finished the year with £85m of net cash, down from £161m a year earlier. A decision on the final dividend has been postponed. The impact of Covid-19 has been limited on the EMEA services due to the critical nature of its work that is underpinned by long-term contracts. But the shorter-cycle products business is being affected by travel restrictions and social distancing.
easyJet (EZJ) shares lifted by nearly 4 per cent after the airline announced that it would resume some flights from 15 June, mainly comprising domestic flights in the UK and France.
Dart Group (DTG) has raised around £172m from a share placing. Dart shares are up 14 per cent this morning.
Tate & Lyle (TATE) saw its adjusted pre-tax profits grow 4 per cent to £331m in 2020, with profits in its Food & Beverage Solutions division climbing up a tenth to £162m. The group noted that at the start of its current financial year, trading in April was impacted by lockdowns in the US and Europe, with reduced out-of-home consumption affecting its Primary Products division. Given the uncertainty around the duration of lockdown periods, management has not issued guidance for 2021.
Eddie Stobart Logistics (ESL) has announced that Eddie Stobart Group – in which it owns a 49 per cent stake – has purchased the ‘Eddie Stobart’ and ‘Stobart’ brands from Stobart Group (STOB). The brands had previously been used under a licence agreement with an annual fee of £3m. The deal is valued at £10m, of which £4m is deferred. Stobart Group is required to change its name by 28 February 2021.
Like most UK banks, shares in Investec (INVP) have barely recovered since markets cratered in later February and March. That is also reflected in the lender’s economic outlook, outlined in full-year numbers today, which unsurprisingly points to higher impairments, and lower interest income. Neither are investors likely to be surprised by the cancellation of the final dividend, following regulatory guidance in both the UK and South Africa.
Financial adviser platform IntegraFin (IHP) saw growth in each of its key metrics for the six months to March, including client numbers, flows and pre-tax profits. Even funds under direction ticked up 1.7 per cent to £35bn, the sort of stickiness which helps to explain the shares’ forward earnings ratio of around 40, one of the highest in the FTSE 350. Analysts at Peel Hunt have lifted their full-year adjusted earnings forecasts from 11.3p to 11.8p per share.
“There certainly is no rule-book guiding leaders and businesses on how they should react to the Covid-19 crisis,” notes AJ Bell (AJB) founder and chief executive Andy Bell in his round-up of half-year results this morning. While a spike in trading volumes and revenues might have been expected, who would have thought a period marked by the arrival of unprecedented economic uncertainty would result in strong net inflows? Mr Bell has one interesting explanation – that lockdown has forced thousands to finally sort out their financial affairs.
