Lloyds, Burberry, Sophos & more

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Shares in London are fairly flat across the board. Click here for The Trader Nicole Elliott’s latest thoughts on the markets. 

IC TIP UPDATES:

Investors in Lloyds Banking Group (LLOY) can soon look forward to quarterly dividend payments, as the lender attempts to “provide a more regular flow of dividend income to all shareholders whilst accelerating the receipt of payments”. As of next year, the group will seek to make three equal ordinary dividend payments with quarters one, two and three – each equivalent to 20 per cent of the previous year’s total ordinary pay-out – followed by a larger final dividend for the fourth quarter of the year. The change will not affect the existing payment method for shareholders, though a Q&A has been provided on the bank’s website. We are buyers.

Tarsus’s (TRS) trading has been in line with management’s expectations since the publication of its annual results on 27 February 2019.  Forward bookings are towards the top end of its targeted growth range of 5-10 per cent. Trading for 2019 – which is the larger of the years in Tarsus’s biennial cycle – is “heavily” second half-weighted. Managing director Douglas Emslie said the group is expecting record events at its two major biennial shows – Labelexpo Europe and the Dubai Airshow – later this year. Buy.

Bosses at Burberry (BRBY) said the latest collection from chief creative officer Riccardo Tisci has drawn “very encouraging” reactions from customers. However, the group’s turnaround seems to be happening a little too slowly for investors, who sent the shares down three per cent in early trading. Revenues and adjusted operating profits were flat in the year to March, but management said comparable store sales were up 2 per cent, excluding the impact of the beauty wholesale business, which is transitioning to a licensed partnership with Coty. We are reviewing our buy recommendation.

Putting a disappointing first half behind it, Wincanton (WIN) saw a raft of new business wins in its six months to March, while good cash management and flat working capital – two important metrics for a logistics business – meant free cash flow came in just ahead of operating profits. That wasn’t enough to prevent a 2.6 per cent drop in the full-year top line to £1.14bn, though margins have held up, and earnings and dividends per share are up 37 and 10 per cent respectively. Buy.

Shares in Sophos (SOPH) climbed more than a tenth this morning, following release of its full-year numbers to March 2019. Constant-currency billings were flat year-over-year. This reflected a “challenging” comparative, but an improvement on guidance given within the third-quarter trading update. (At the time, it noted, “We now expect the trends in the third quarter to generally continue into the fourth quarter, which would result in a modest decline in full-year constant currency billings”). Statutory billings dipped 1.1 per cent, while revenues rose 11 per cent to $711m, supported by growth in subscription revenues. Pre-tax profits came in at $53.6m, against losses of $41m. Guidance is now focused on revenue and adjusted operating profit. Sophos views the billings metric as “becoming less indicative of the medium-term growth in our business”. Sell recommendation under review.

Grainger (GRI) reported 3.7 per cent like-for-like rental growth during the first-half, or 33 per cent after taking into account last year’s acquisition of private rented sector portfolio GRIP. Efficiencies from that purchase are running ahead of schedule, with a portfolio valuation increase of £4.1m on the purchase price. The adjusted net asset value of the group’s  overall portfolio was stable on the post-rights issue 270p a share, at 271p. Buy.

KEY STORIES:

Shares in Thomas Cook (TCG) have cratered 17 per cent this morning after it revealed widening losses and a £1.1bn impairment for the year to March 2019. The group has been under pressure for some time now, with repeated profit warnings and falling margins. The underlying gross margin continued to fall in this latest update, down 180 basis points to 19.8 per cent on a like-for-like basis. On top of all of this, an increase in non-cash items has pushed the net debt up 29 per cent to £1.2bn. Stay well away.

By yesterday’s deadline, just 53.5 per cent of shareholders in Provident Financial (PFG) had accepted the hostile takeover offer from Non-Standard Finance (NSF), far short of the 90 per cent threshold the latter had set at the start of its bid. However, Non-Standard last night said it had lowered the acceptance condition to 50 per cent (plus one Provident share), and continues its push to persuade remaining investors (and Provident’s board) to back the bid and find a “pragmatic and constructive dialogue”. Judging by the sub-prime lender’s response today, there can be little immediate hope of that. Provident points out that acceptances are currently insufficient to delist Provident or begin a compulsory purchase procedure, and re-iterated its numerous objections to the acquisition.

National Grid (NG.) has reported that statutory pre-tax profits fell by 31 per cent to £1.84bn for FY2019, impacted by a series of exceptional costs including the £283m settlement of a US labour dispute and £137m impairment of UK nuclear connection projects. Increased capital investment of £4.5bn did drive asset growth of 7.2 per cent, above the target range. With all US companies now operating under refreshed rates, return on equity (RoE) of 8.8 per cent represents 93 per cent of allowed returns. Targeting greater efficiency, £136m of restructuring costs in the UK are aimed at strengthening the group’s position ahead of RIIO-T2 where allowed returns are likely to be significantly reduced. Shares were down over 2 per cent this morning.

Premier Oil (PMO) shares were up 7 per cent after it upped guidance for 2019 to 75-80,000 barrels of oil equivalent per day (kboepd). This came after a strong start to the year, managing an average of 85kboepd due to “very high group operating efficiency of 97 per cent”, and UK year-to-date production climbing 47 per cent year-on-year to 57.4kboepd. As a result of the higher production and cashflow, the company said it would likely hit the upper debt repayment estimate of $350m by the end of the year, cutting its leverage ratio to 2.3x. At the same time, Premier hedged 42 per cent of its second half of 2019 oil production at $69 per barrel and 10 per cent of its 2020 production at $66. The company also said there would soon be progress on the Catcher satellite fields Catcher North and Laverda before the end of June.

OTHER COMPANY NEWS:

Keller (KLR) has announced that overall trading for the first four months of 2019 has been lower than anticipated, signalling “materially lower” results for the first half. They expect an improvement in margin to drive a recovery in profit in the second half of the year. Although debt leverage will likely rise to over 2.0 times at the half year stage, the group believes this will fall within the target range by year end. At around £1bn, the order book is slightly lower than the same point last year owing to restructuring in APAC, despite growing in North America and EMEA. Share were down a little over 2 per cent this morning.

Accesso Technology (ACSO) has agreed a new three-year partnership agreement with the National WWII Museum in New Orleans. Implementation is scheduled for August 2019. In a “combined implementation”, the museum will use accesso’s ‘accesso siriusware’ offering to deliver a “hassle-free ticketing experience for guests”. The ‘accesso passport’ offering will provide advanced e-commerce capabilities, engendering up-sell and cross-sell opportunities. The shares were up 3 per cent this morning.  

Shares in Just Group (JUST) are off 7 per cent this morning, after the specialist pension provider unveiled further painful adjustments to trading under a new regulatory regime. In the first quarter of 2019, retirement income sales fell 59 per cent, defined benefit sales dropped 90 per cent, guaranteed income for life products down 23 per cent, and lifetime mortgage advances of £79m were 47 per cent short of last year’s comparator. As such, total new business sales are down 55 per cent to £276m. To achieve “capital neutrality by 2022”, the group is moving ahead with efforts to control costs, close loss-making operations in the US, and shifting “towards more capital efficient assets”.  

Microfinance outfit ASA International (ASAI) saw modest growth in the first quarter of 2019, as client numbers climbed two per cent to 2.22 million, the outstanding loan portfolio rose four per cent to $394.2m, and the proportion of the portfolio at risk “remained stable” at 0.5 per cent. Over the medium term, the group continues to target earnings of 20-25 per cent a year.

Driven by a good outing from its infrastructure assets, portfolio growth and profitable asset flipping, listed private equity outfit 3i Group (III) saw its net asset value increase 18 per cent in the year to March. Capital deployment of £332m during the year included two new investments, though the 3 per cent increase in net cash during the year meant the group was a net divestor in 2019. Chief executive Simon Borrows said the current year has been marked by similar themes to last, with political and market uncertainty serving as little deterrent to the “growing tide of funds looking to invest in our markets”.

Though its numbers were negatively impacted by the depreciation of the rand to sterling exchange rate, Investec (INVP) saw an increase in operating profits in the 12 months to March. Reassuringly, the credit loss ratio markedly improved, though the cost-to-income ratio still rose. On an adjusted basis, the average return on shareholder equity ticked up from 12.1 to 12.9 per cent. Joint chief executive officers Fani Titi and Hendrik du Toit also reassured investors of their commitment to the demerger and listing of Investec’s asset management business.

Wilmington (WIL) has announced that Mark Milner will join the board at the beginning of July 2019 as chief executive. At the same time, the current executive chairman Martin Morgan will move back into his previous role of non-executive chairman. Mr Milner joins the group from the Daily Mail and General Trust (DMGT) where has held various senior roles since 2001 including (from 2013-18) as chief executive of its property information division, Landmark Information Group.

Micro Focus (MCRO) expects to report half-year results in line, at constant currencies, with management’s guidance delivered at the time of the full-year results announced in February 2019. The collection of aged trade receivables has carried on in line with management’s expectations. Since the end of last month, the group has implemented a ‘return of value’ of $1.8bn, using the proceeds of the SUSE business disposal (completed in March). Micro Focus still targets a mid-term net debt/adjusted cash profits ratio of 2.7 times, and is still guiding to a full-year constant-currency revenue range for its continuing operations of -4 to -6 per cent.

Euromoney’s (ERM) revenues dipped by 2 per cent to £185m over the half-year to March 2019. The group said this was largely due to the sale of Mining Indaba last October, and the end of the five-year contract to run the major structured finance event SFIG. Statutory pre-tax profits declined by 59 per cent to £49.3m, predominantly because of the gain on disposal of Dealogic in December 2017. Underlying pre-tax profits rose 13 per cent, supported by subscriptions growth in pricing, data and market intelligence (PDMI) and savings made within asset management.  Notwithstanding the fact that the “UK’s exit from the EU may lead to foreign exchange volatility and general business uncertainty”, management continues to anticipate delivering profit in line with management’s expectations.

New Aim dividend payer Anglo Asian Mining (AAZ) will hand back a final dividend of 4c (3.1p) per share for 2018, taking its total cash return for the year to 7c per share, or $4.6m. The Azerbaijan gold, silver and copper miner generated free cash flow of $28.9m in the year, a 49 per cent year-on-year increase. The company has five years of reserves at the Gedabek project but says drilling at its open pit operation had “confirmed the existence of further mineable copper and gold extensions”, and has further exploration targets within its licence area. Anglo Asian’s shares were up 5.6 per cent in morning trading.

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