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News & Tips: stocks hold on, GlaxoSmithKline, easyJet & more

London shares are holding on to recent gains, with small caps surging
May 28, 2020

Shares across London are generally holding on to recent gains, despite concerns around US-China relations with UK small caps, and the Aim index in particular has pushed on strongly this morning. Our Trader writer Neil Wilson says, 'Shares in Hong Kong and Taiwan fell, whilst Japanese equities rose by more than 2 per cent in a mixed session overnight in Asia. The FTSE 100 rallied towards 6200 on the open, but shares in Standard Chartered and HSBC fell, signalling investor concern about what’s going on in Hong Kong. Nevertheless, equity markets continue to strengthen and move out of recent ranges and clear important technical resistance. Confidence in equity markets is strong thanks to more stimulus and signs economies are reopening quicker.' For Neil's full article, click here. 

*From next week we are retiring this News & Tips article in its current form to allow our writers to concentrate on publishing more analysis on the stories that matter earlier in the day. We will still round up the most important stories of the morning and incorporate them in Neil Wilson's Market Outlook which will be published by 10am every morning. Click here to sign up to receive the daily Market Outlook email, or update your preferences in the My Details area of the website.' *

IC TIP UPDATES:

GlaxoSmithKline (GSK) plans to make 1bn doses of its pandemic vaccine adjuvant next year, with a view to supporting several Covid-19 vaccine collaborations. Adjuvants can enhance the body’s immune response to a vaccine. GSK believes that its adjuvant technology could help to make a “significant contribution” against Covid-19 – claiming that it can reduce the amount of vaccine protein required per dose, which allows more vaccine doses to be produced. The pharma giant believes that more than one vaccine will be needed to fight the virus. Buy.

Cineworld (CINE) has managed to lift its leverage covenant to a net debt multiple of nine times cash profits, while its lenders have also agreed to waive the June 2020 covenant test for its credit facility. Cineworld has also secured an additional $110m in liquidity from its revolving credit facility and approval to apply for loans via UK and US government initiatives. Sell.

After raising gross proceeds of £80m from a firm placing, Costain (COST) has now raised its desired £20m from an open offer. It received valid acceptances under basic entitlements representing 83.4 per cent of the open offer, and including the use of the excess application facility, this increased to 140.1 per cent. Applications under the excess application facility cannot be satisfied in full and will be scaled back accordingly. Sell.

How have recent months affected the valuations of high-growth private technology companies? “Not much” appears to be the answer from listed venture capital firm Draper Esprit (GROW), which has seen an £80m decline across its portfolio in the six months to March despite adopting “an appropriately stringent approach” to its accounting. Limited reaction in the share price today suggests investors want more concrete evidence than Draper Esprit’s own assertion that its NAV per share has only dipped 4 per cent in the second half of its financial year. Buy

PureTech (PRTC) is advancing its wholly-owned clinical-stage product ‘LYT-100’ (deupirfenidone) as a potential treatment for serious respiratory complications including inflammation and fibrosis that persist after resolving Covid-19 infections. The placebo-controlled trial is expected to start in the third quarter of this year and will evaluate the treatment in non-critical Covid-19 patients with respiratory complications. Patients will continue treatment for up to three months. Buy.

KEY STORIES: 

easyJet (EZJ) will consult on slashing its staff numbers by up to 30 per cent, with the airline expecting to fly around 30 per cent of its 2019 fourth quarter capacity for its coming Q4. “easyJet believes that the levels of market demand seen in 2019 are not likely to be reached again until 2023,” the company said this morning.

IWG (IWG) has raised gross proceeds of £320m through a non-pre-emptive placing and retail offer. The majority of the funds – which will be used to fund organic growth and potential acquisitions – were from the placing, although up to €8m (£7m) of shares were made available to retail investors through the ‘PrimaryBid’ platform. The 239p placing and retail offer price is an 8.1 per cent discount to the closing price on 27 May. This comes as the flexible workspace provider saw revenue from open centres rise 17.7 per cent at constant currencies to £685m in the first three months of 2020, slowing to 6.5 per cent in April. Excluding new centres opened in 2019, revenue dropped 2.9 per cent in April. The group expects a greater impact in the second quarter from more severe lockdown measures. Excluding lease liabilities, net debt stood at £321m as at 30 April, equivalent to 0.8 times cash profits (Ebitda) over the last 12 months.

Amigo Holdings (AMGO) has received an informal 20.9p-per-share takeover offer from an unnamed party. However, the guarantor lending group has been unable to “engage constructively” with founder James Benamor, whose majority stake looks set to determine the pace of the formal sale process. Given the group’s cash balance of £115m exceeds the present market capitalisation – and apparently bolstered by “strong” cash collection since 1 April – one would expect Mr Benamor is looking for a better deal. 

Boohoo (BOO) has bought out the remaining 34 per cent of shares available in PrettyLittleThing.com, having acquired an initial 66 per cent stake in 2017. The deal was announced just days after Boohoo was subject to criticism from short seller Shadowfall over its accounting arrangements with regards to PLT. The acquisition has been agreed for an initial £269.8m, which could rise to £323.8m.

OTHER COMPANY NEWS: 

An update from Contour Global (GLO) indicates it is seeing only a minimal operational and financial impact from Covid-19. As it is not involved in the distribution of power, it has limited exposure to merchant markets and energy pricing. Having commenced a £30m share buyback programme in April, £5.5m worth of purchases have been conducted so far. The group intends to accelerate this strategy through minority asset disposals and is exploring the sale of its Brazilian portfolio. It continues to expect adjusted cash profits (Ebitda) of between $710m-745m in 2020, up from £703m in 2019, and is targeting a 10 per cent increase in the annual dividend.

Shares in Daily Mail and General Trust (DMGT) fell 4 per cent in morning trading, after the publisher reported a 28 per cent drop in operating profit to £65m in its first half ended in March.  Management said that its consumer media division, which includes newspaper titles the Daily Mail and The Mail on Sunday, saw underlying revenues fall by a third in April. Its events division and UK property information business have also been affected by lockdown, as gatherings were cancelled and property transactions fell. Still, DMGT increased its interim dividend by 3 per cent to 7.5p. 

Rio Tinto (RIO) has extracted a rare earth oxide from a waste product at one of its Canadian operations, it has announced. Rare earths have become a focus of US-China relations as they are needed for electronics and military applications, with China the centre of mining and processing. Rio said it managed to get scandium from a waste product from its titanium oxide processing plant in Quebec. The major miner has also been under scrutiny this week after blowing up a sacred Aboriginal site in Australia. While the demolition, part of a Pilbara iron ore mine expansion, was legal, it destroyed caves where important archaeological finds had been made in recent years and was against the wishes of the local Puutu Kunti Kurrama and Pinikura Aboriginal Corporation.