Centrica, Royal Mail, Dart Group & more

Click here to read this morning’s Market Outlook from The Trader.

IC TIP UPDATES: 

A trading update from Knights Group Holdings (KGH) indicates the first half of the year will be in line with market expectations, with double digit organic revenue growth and the benefit of prior year acquisitions. Characterised as “a period of investment”, the group has recruited net 43 new fee earners compared to 46 for the whole of last year. Half year results are due on 15 January. Buy.

Centrica (CNA) has continued to see a drop in energy supply customers, with the loss of a further 107,000 accounts in the four months to October. However, the rate of net losses is lower than the first half of the year. Trading since half year results in July has been in line with its expectations with growth in total customer accounts, higher North American margins and accelerated cost efficiencies offsetting ongoing nuclear power station outages. Adjusted earnings are expected to be weighted towards the second half with adjusted operating cash flow in the lower half of the £1.8-2.0bn target range. Full year net debt is projected to be between £3.0-3.5bn. Shares are up 8 per cent. Sell.

Severn Trent (SVT) has seen revenue rise by 3.2 per cent in the first half of the year to £910m, benefitting from higher tariffs in the regulated water and waste water businesses. However, underlying profit before interest and tax (PBIT) has fallen by 4.3 per cent to £286m on the back of increased infrastructure renewal expenditure, deferred outperformance delivery incentives (ODIs) and lower property disposals. Net capital expenditure has jumped by 10 per cent to £374m and net debt (excluding £129m in lease liabilities) has increased by 8 per cent to £5.8bn. The interim dividend has been raised by 7.2 per cent to 40.03p. Shares are down almost 3 per cent. Under review. 

Shares in Charles Stanley (CAY) are up a fifth this morning, after the wealth manager’s half-year results gave investors encouragement that its re-pricing strategy is working. Though funds under management edged up just 2.1 per cent in the six months to September, underlying pre-tax profit rocketed 72 per cent to £9.8m. A three-year restructuring programme, launched earlier this year, has so far cost £1.2m, but yielded £0.8m in annualised savings. Our sell call is under review.

After the annus horribilis of FY2019, spread-betting group CMC Markets (CMCX) appears to be back on its feet, as a 45 per cent rise in revenue per active client more than offset a seven per cent dip in client numbers. Investors have been rewarded for keeping the faith with a 111 per cent jump in the interim dividend, while chief executive Peter Cruddas even thinks a looming regulatory overhaul of the contract-for-difference market in Australia will be a positive. Under review. 

Merchant banking firm Close Brothers (CBG) reports that trading slowed in its first quarter. Its loan book edged up just 0.9 per cent and saw a “modest” increase in the bad debt ratio, and there were strong net flows to the asset management division. But investor activity remains depressed in the group’s capital markets arm. Under review.

Helical (HLCL) secured 133,218 sq ft of new London office lettings during the first-half, at an average 5.9 per cent above March 2019 estimated rental values and adding contracted rent of £9.8m. However. pre-tax profits were lower due to a lower revaluation gain on its investment portfolio. The office developer and landlord also purchased 33 Charterhouse Street, London EC1, a 200,000 sq ft office development site next to Farringdon station, in a 50:50 joint venture with AshbyCapital. Buy. 

Shares in Royal Mail (RMG) have dived 17 per cent this morning after the group said it expected a 6-8 per cent decline in letter volumes in the coming year, outside of elections. The warning mars what has been a strong half-year update for the group, with sales up 5.1 per cent to their highest level in five years, driven in large part by sales from parcel delivery. Sell.

Countryside Properties (CSP) reported a 33 per cent rise in completions during the year to September, although a greater focus on partnership work meant that the adjusted operating margin declined by 70 basis points to 16.5 per cent. The private average selling price also reduced by 9 per cent to £367,000 due to a shift to the regions outside London. Buy. 

Retail like-for-likes at William Hill (WMH) have fallen sharply since the gambling group’s half-year results. The group’s plans to mitigate the introduction of the £2 stake limit saw the closure of around 700 shops, while retail like-for-likes fell 16 per cent in the three months to October. However, the group is trading in line with expectations, and net revenues rose 1 per cent in the period. Buy.

Shares in Johnson Matthey (JMAT) have dipped 7 per cent this morning, as pre-tax profits fell 8 per cent for the six months to September. Management attributed this to one-off costs arising from manufacturing inefficiencies in the clean air division during the period. Management expects the second half to come in stronger, and said it would meet market expectations for the full year. Under review.

Rotork (ROR) anticipates “modestly lower” 2019 sales on an organic basis, owing to order phasing, changes to the industrial flow specialist’s products and portfolio, and “the impact on the prior year from delivery of several significant projects and sales to countries subsequently placed under sanction”. The shares fell by around 4 per cent. Rotork’s growth acceleration programme remains on track, however, while it retains a strong balance sheet with a net cash position of £66.9m as of 27 October. Buy.

KEY STORIES:

NewRiver Reit’s (NRR) underlying funds from operations rose by 3 per cent to £26.4m during the first-half, covering the dividend payout for the period – which was held at 10.8p – by 80 per cent. The third quarter dividend will also be held at 5.4p a share. 

Shares in Blue Prism (PRSM) were up by around 30 per cent this morning after the robotic processing automation group said that it had seen a significant acceleration in sales in the second half of the year to October 2019, contributing to a “very strong” full-year performance. Sales volumes, particularly upsells, have been high, with larger deal sizes. The group has entered 2020 with a record order book. For FY2019, the total contract value from new customers, upsells and renewals landed at £181m, up from £143m. The group expects to report 2019 revenues of at least £98m, up from £55.2m, and closed the year with cash of £74m, up from £50.5m. 

Naked Wines (WINE) – formerly Majestic Wine – has issued its first results since it rebranded to reflect its transformation into a pure-play online business. The disposal of the retail business has been used to strengthen the balance sheet as promised, and management said disposals would lead to a “strong net cash position” once completed. Sales were up 13 per cent on an underlying basis, with the US leading the growth.

OTHER COMPANY NEWS: 

Judges Scientific (JDG) announced a special dividend of £2 per ordinary share, which will come at a cost of £12.4m. “The special dividend will absorb a modest proportion of the resources available to conduct acquisitions,” the company said, adding that it is “confident that this special dividend will not interfere with the execution of Judges’ unchanged buy-and-build strategy”.

With its shares hovering at multi-year lows, the market was not expecting Investec (INVP) to show big improvements in its interim results. Despite a decent outing from the specialist banking arm, and a rise in assets under management, deposits and loans, headline figures for the sprawling financial services group did not fail to underwhelm. So while the half-year dividend has been held at 11p per share, basic earnings per share dropped 10.5 per cent to 24.7p. All eyes are now on the demerger of the group’s assets management arm in the second half.

Shares in insolvency litigation funding group Manolete Partners (MANO) have whipsawed in early trading, as revenues climbed just 15 per cent to £7.5m. In a bid to reassure investors about the timing of case realisations, the group pointed to 32 live investments scheduled for trial, dispute resolution or settlement “over the coming months”.  An interim dividend of 0.5p per share may also have fallen short of shareholder expectations.

Mitie (MTO) has recorded an 11 per cent increase in revenue to £1.1bn in the first half of the year, with 1.9 per cent organic growth. Adjusted operating profit has risen by 5.4 per cent to £33m, benefitting from the Vision Security Group acquisition and detention and escorting services contract but partly offset by lower renewal margins. The secured order book has expanded by 1 per cent since the year end to £4.1bn. Looking ahead, the group expects full year revenue growth will be held back by broader economic uncertainty which will impact its variable works and projects business. Shares are down over 2 per cent. 

Dart Group (DTG) has seen revenue increase by 16 per cent to £2.62bn in the first half of the year with pre-tax profit rising by 2 per cent to £340m. The group said that the “modest increase” in overall profitability reflected a later customer booking pattern in the leisure travel business with demand strengthening throughout the summer season. Losses are expected in the second half due as it invests in expanding its UK operating bases ahead of the summer of 2020. As leisure travel bookings continue to strengthen and with the post-Christmas booking period still to come, Dart expects full year pre-tax profit at constant currencies will “significantly” exceed expectations. Shares are up over 7 per cent this morning.

Euromoney Institutional Investor’s (ERM) reported full-year results to September “slightly above” management’s expectations. Revenues rose by 5 per cent to £256m, reflecting the impact of acquisitions. Underlying revenues were flat, with 4 per cent growth from the pricing, data and market intelligence (PDMI) business offset by ongoing challenges within the asset management segment. As announced in September, Euromoney is conducting a strategic review of asset management; the segment has been presented within the results as being held for sale. Underlying pre-tax profits rose by 9 per cent, helped by PDMI subscription revenue growth, while statutory pre-tax profits fell 72 per cent to £29.5m – largely due to a gain on the disposal of the Dealogic business last year. 

Chemring (CHG) has completed its exit from commoditised energetics, agreeing the sale of its US subsidiary Chemring Ordnance to Norwegian aerospace and defence business Nammo Defense Systems for $17m. The sale is expected to complete before the end of Chemring’s 2020 second quarter.