market rout continues, Morrison, Royal Mail & more

Shares in London subsided again, with the FTSE100 threatening to dip below the 5,000 level again. Our Trader writer Neil Wilson says: ‘Stocks are weaker, with European equities extending losses through the morning session to trade down 5 per cent on the day. US futures are limit down again after yesterday’s bounce on Wall St. The FTSE 100 broke down at the near term trend support around 5100 and is now testing and holding 5000 but could test 4900 if the US sessions turns south. The SPY S&P 500 was down 7.3 per cent pre-market, giving us our best indication of what looks set to be another day of turmoil on Wall Street. The 7 per cent circuit breaker could easily be triggered again.’ For Neil’s latest column, click here. 

IC TIP UPDATES: 

WM Morrison (MRW) has elected to defer its special dividend “given current unprecedented events around COVID-19,” its annual results read. Cost control and productivity initiatives helped the supermarket group grow its cash profits margin by 22 basis points to 5.9 per cent, which partially offset a tough sales environment that saw total revenue drop 1.1 per cent to £17.5bn. Coronavirus has driven significant stocking up and Morrison is expanding its online delivery capability in order to support rapacious customer demand. Buy.

Members of Royal Mail’s (RMG) biggest union, the Communications Workers’ Union (CWU), voted in favour of industrial action at a ballot on Tuesday. With a 63.4 per cent turnout, almost 95 per cent voted to strike, rejecting Royal Mail’s six per cent, three-year pay proposal tabled in February. Given what is currently happening with coronavirus, the CWU has decided to delay its industrial action until a later time. Sell. 

Restaurant Group (RTN) estimates a 25 per cent hit to its 2020 like-for-like sales from coronavirus, expecting a 92 per cent drop in its concessions over its second quarter with a corresponding 68 per cent decline in leisure, pubs and Wagamama. The group will accordingly cut its planned capital expenditure by at least £45m from its previously guided target of £75m. Sell.

Superdry (SDRY) withdrew its financial guidance for the year. It noted that 78 stores across Europe have been affected by government-led closures, with these stores accounting for around 40 per cent of its weekly sales forecasts. Footfall in the UK and US meanwhile has fallen by around a quarter on average week-on-week, with these markets making up around 50 per cent and 10 per cent of forecasts respectively. Sell.

Empiric Student Property (ESP) reported an 11 per cent rise in revenue for 2019 due to an increased number of beds and increased occupancy levels. The gross margin improved to 67 per cent, from 62 per cent the prior year, as bringing facilities management in-house helped reduce the average cost per bed by 9 per cent. Management said that despite the coronavirus outbreak, bookings for the 2020/21 academic year were in line with this time last year. Chief executive and co-founder Tim Attlee has also announced his intention to step down at the end of June. Buy rating under review. 

Restore (RST) saw revenue increase by 10 per cent to £216m in 2019, while statutory pre-tax profit rose by almost a fifth to £24.8m. The records management division increased sales by 11 per cent to £95.9m, with 2 per cent organic growth. Annual net box growth came in at 1.5 per cent while occupancy rates ended the year at 95 per cent, which the group considers optimal. The datashred business continued to see headwinds from low recycled paper prices pushing revenue there down by £0.8m to £41m. Excluding £134m in lease liabilities, net debt fell 20 per cent to £88.5m, equivalent to 1.6 times adjusted cash profits (Ebitda). Buy. 

Warehouse Reit (WHR) has suspended plans to raise up to £100m via a placing, open offer, offer for subscription and intermediaries offer under the timetable recently set out in its prospectus and adjourned the general meeting that was due to take place on 23 March. Management attributed the decision to the market uncertainty caused by the coronavirus outbreak and said any application monies will be returned as soon as practicable. We remain bullish towards the shares. 

Petropavlovsk (POG) says it has found a buyer for most of its stake in Russian iron ore miner IRC, which is chaired by its founder Peter Hambro. IRC has long been a millstone around Petropavlovsk’s neck, needing debt guarantees and loans as it built an iron ore mine in Russia’s far east. The buyer, a Liechtenstein-registered company called Stocken, will pay $10m (£8m). At current prices, 29.9 per cent of IRC is worth around $18m, although the company had $220m net debt at the end of 2019. Petropavlovsk is the current guarantor of these loans, and so Gazprombank has to sign off on the deal. Buy. 

Emis (EMIS), a healthcare software company whose customers include the NHS, posted a 9 per cent increase in adjusted operating profit in 2019. Sales were up by 7 per cent and recurring revenue, which accounts for almost 80 per cent of total sales, was up by 4 per cent. The group noted that there may be some new business revenue delay due to the coronavirus outbreak, but recurring revenues are not likely to be affected. Buy. 

HSBC (HSBA) has formally appointed Noel Quinn as chief executive, after seven months in the role on an interim basis. The news will serve as a rare source of optimism to investors who had questioned the board’s apparent reluctance to back the man in charge of a wide-ranging and extremely complex restructuring. Chairman Mark Tucker, who led the search, called Mr Quinn “the outstanding candidate to take on a role permanently that he has performed impressively” since August. Sell. 

Cello Health (CLL) saw a 6.7 per cent rise in net revenues to £108m for 2019, with headline pre-tax profits up by 6.6 per cent to £13.1m. Reported pre-tax profits tumbled by 24.2 per cent to £7.1m, after an impairment charge of £2.7m tied to the group’s Signal arm, which endured a difficult year of trading. Signal has been being repositioned towards healthcare. Cello has proposed a 7.2 per cent increase in the final dividend to 2.95p a share. The group said that it was very conscious of the uncertainty created by the coronavirus outbreak, which could disrupt client spend – but for now, it has not experienced any material client impact.

KEY STORIES:

Pub and brewing group Marston’s (MARS) said it was unlikely to recommend its interim dividend in May given the likely drop-off in consumer demand led by government advice over coronavirus, which will allow it to retain around £20m.

Rightmove (RMV) has said that while it is too early to assess the impact of coronavirus on clients, it is likely that some of its estate agency customer base will have concerns over their cash flow until the situation becomes clearer. For that reason, it announced a payment deferral plan of up to £275 a month for six months for qualifying agents. 

OTHER COMPANY NEWS: 

Judges Scientific (JDG) saw revenue increase by 5.9 per cent to £82.5m in 2019, with 5.6 per cent organic growth. Adjusted operating profit rose 18 per cent to £17.4m. It completed one acquisition during the year, purchasing Moorfield Nanotechnology for £2.3m in December. The organic order intake was up 3.3 per cent, but the group noted that momentum has decelerated with uneven demand – “periods of buoyancy alternated with spells of quiet”. It has also cautioned that the coronavirus pandemic will impact order intake, sales and installations. 

Currency risk management and payments group Alpha FX (AFX) has posted a 41 per cent rise in operating profit for its 2019 financial year, thanks to a surge in client numbers. This year, despite the unfolding impact on financial markets, the group says it remains confident it can grow business. Its shares are up 13 per cent in early trading.

Ailing car retailer Pendragon (PDG) returned to profitability in the second half of 2019, after  posting a significant underlying loss in the six months to June. Full-year numbers carried that hit, resulting in a £117m loss after tax and an axed final dividend.