The Times 14/08/19 - Vox Markets | Vox Markets

The Times 14/08/19

Father’s Day failed to deliver the same boost as Mother’s Day and Valentine’s Day for Card Factory (CARD) this year, the greeting cards retailer revealed alongside a rise in half-year sales. Sales at Card Factory rose by 5.5% in the six months to the end of July. Like-for-like sales rose by 1.5%. Despite other retailers closing shops as they battle rising business rates and the move of shoppers online, Card Factory plans to open 50 stores this year. The retailer said that its second-quarter performance had been “a little weaker in the season of Father’s Day, impacted by footfall”. Analysts at Investec said they estimated that this had knocked like-for-like sales to 0.7% in the second quarter.

The American short-seller targeting Burford Capital (BUR) has stepped up its campaign by issuing a second critical report on the litigation finance company and calling on the City regulator to launch a formal investigation. Muddy Waters said: “We believe that management’s conduct has possibly given rise to sanctions claims by the FCA. “Muddy Waters stands ready to assist the FCA in any inquiry and, as has been the case for the past nine years of our short activism, we have nothing to hide regarding our own actions.” Responding more fully to Burford’s counter-allegations, Muddy Waters said that the response had done nothing to dispel its view that Burford “aggressively marks its cases up to generate non-cash profits”, manipulates its return on investment metrics, “deliberately confuses investors about the extent of its fair value gains in each period, and has a fragile balance sheet with too much leverage, particularly given the excessive costs the business runs”. It claims that Burford has been expanding its portfolio because it has “so aggressively taken fair value gains that sap the business of future earnings power, and it therefore needs to add litigation assets to the balance sheet in order to take more fair value gains. In this way, we also see Burford as possessing the same illness that, in our view, brought Enron and Noble Group down.”

Sports Direct International (SPD) plans to extend its audit contract with Grant Thornton for at least another year, despite tensions over a €674 million tax claim. The publication of delayed Sports Direct’s annual results was further postponed for ten hours last month after the retailer said that it had discovered the tax demand from authorities in Belgium only at the “eleventh hour”. This led to reports of a row between Grant Thornton and Sports Direct. The retailer confirmed in its annual report yesterday that Grant Thornton had agreed to remain as its auditor and that shareholders would be asked to vote in favour of the move at its annual meeting.

National Grid (NG.) will need to pay for more batteries and gas engines that can compensate for sudden drops in electricity supplies to prevent further blackouts, according to experts. Aurora Energy Research, a consultancy, said that National Grid appeared to have had “insufficient flexible capacity” to cope with the sharp drop in supplies on Friday. The Little Barford gas plant and Hornsea offshore wind farm both disconnected from the grid, removing 1.4 gigawatts, or about 5% of supplies, shortly before 5pm. This caused a significant drop in frequency below the minimum 49.5Hz level that National Grid is required to maintain to ensure stable supplies, resulting in power cuts affecting a million homes, some train networks and a hospital. National Grid, which is responsible for keeping the lights on, is investigating the causes of the blackouts. It is understood also to be examining lightning strikes that affected the grid near Little Barford.

Europe’s biggest travel company reported a near-50% fall in underlying third-quarter earnings yesterday, but added that recent booking levels had improved and that it remained “in very good shape”. TUI AG Reg Shs (DI) (TUI), which has sought to distance itself from the travails of Thomas Cook, its closest rival, said that the grounding of its Boeing 737 Max fleet of passenger aircraft had taken a €144 million bite out of its profits, while customers had delayed booking their summer holidays. However, Fritz Joussen, its chief executive, pointed to improved booking levels in the third quarter. The 3% decline reported in the first half had narrowed to 1%, with average prices up 1%.

Profits have plunged at a financial betting company in the wake of a regulatory crackdown and a lull in markets that deterred traders from placing wagers. Plus500 Ltd (DI) (PLUS) yesterday reported an 82 per cent slump in first-half pre-tax profits in the six months to the end of June, to $63.9 million from $346.4 million a year earlier, while revenues fell by 68 per cent to $148 million. It follows the introduction a year ago of tighter rules on financial betting by the European Securities and Markets Authority. Asaf Elimelech, 38, Plus500’s chief executive, said: “The group performed well during what was a difficult period for the industry. Financial markets from February 2019 to April 2019 were very stable, providing a limited number of trading opportunities for customers.”

A no-deal Brexit would not lead to disorder and chaos, the chief executive of Next (NXT) has claimed after being encouraged by Boris Johnson’s contingency planning. Lord Wolfson of Aspley Guise said that the worst outcome of no-deal would be “mild disruption” because the new government had simplified customs and border procedures, which made the chance of hold-ups at ports far less likely. The Eurosceptic boss previously has warned that a no-deal Brexit would bring “chaos and disorder” and higher prices. However, yesterday he told BBC Radio 4’s Today that while he would still prefer a deal before the deadline of October 31, he was “much less frightened by no-deal if the government is prepared and there is every indication it’s taking it more seriously. I think the encouraging thing is that we are rapidly moving from the disorder and chaos camp to the well-prepared camp . . . The fact that HM Revenue & Customs has introduced these transition methods will make an enormous difference.”

Sluggish cargo volumes and disruption to flight schedules caused by the grounding of Boeing 737 Max aircraft has led to Menzies(John) (MNZS) reporting a loss for the first half of the year. The aviation company said that it had taken cost-saving measures and had restructured commercial operations to offset market conditions. Menzies has said previously that its cargo volumes had a slow start this year. Yesterday it said that the market remained challenging amid declining British exports and poor ecommerce performance in the United States. Conditions in South Africa and Australia were said to have improved. In March the Boeing 737 Max aircraft were grounded, which Menzies said had disrupted flight schedules. Giles Wilson, 45, chief executive, pointed to contract wins, such as the renewal of its largest global cargo deal with Cathay Pacific in Australia and New Zealand. He added that an efficiency scheme should lead to £10 million in savings.

The government faces fresh calls to intervene in the £4 billion takeover of Cobham (COB) by an American private equity firm amid concerns that ministers have “abandoned” the British aerospace and defence company. Chuka Umunna, the Liberal Democrat MP, has written to Andrea Leadsom, the business secretary, to ask her whether the government is assessing the national security implications of the sale of the company to Advent. It comes after the founding family of Cobham wrote to the government this month to raise concerns the deal was not in the “national interest”. Silchester International Investors, Cobham’s biggest shareholder with a stake of more than 11%, has also criticised Advent’s 165p-a-share cash offer as being too low.

Buying rivals is doing a good job of hiding the real state of Britain’s stop-start construction market, latest figures from a leading supplier to the industry suggest. Polymetal International (POLY) reported an 8% rise in profits for the first half of the year on revenues up 6%. However, stripping out the impact of acquisitions, like-for-like revenues from housebuilding were up by only 0.8%. After price rises were stripped out, volumes in the residential market were down by 2.2%. In the commercial building sector and infrastructure projects, Polypipe said that comparable growth figures were only 1.1% year-on-year. Martin Payne, chief executive, admitted that Polypipe was not expecting any upturn through the scheduled Brexit date of October 31 to the end of the year.

Aston Martin Holdings (AML) skidded after hedge funds took record short positions in the company’s debt and equity. A profit warning last month, which the luxury carmaker blamed on falling sales in Britain and Europe as well as on wider economic uncertainty, also led analysts at Credit Suisse to downgrade their rating and to slash their price target by more than two thirds to 529p. Shares in Aston Martin on loan exceed 8%, compared with about 5% at the start of the year, in an indication of short positions against it, the Financial Times reported.

Investors ordered a delivery of Just Eat (JE.) after Deliveroo, its rival, said that it was pulling out of the German market to focus on other European and Asian areas. Analysts at ING said that this was good news for Takeaway.com, the Dutch group that hopes to merge with Just Eat to create the world’s biggest takeaway group outside China. Analysts at Deutsche Bank raised their price target for Just Eat from 690p to 750p.

Rolls-Royce Holdings (RR.) took another dive in morning trading after Moody’s, the credit rating agency, downgraded its rating of the aerospace engineer, citing “unsustainable” expected working capital gains. The shares were already in reverse after molten shards of one of its Trent 1000 engines rained down over Rome from a Boeing 787 Dreamliner.

Fitch downgraded Vodafone Group (VOD), noting that foreign exchange effects, the sale of its Qatar business and competition in Italy and Spain from Iliad, a new rival, put pressure on the FTSE 100 group’s annual earnings. However, Fitch expects the pace of decline to slow in the next year before reversing to mild growth in 2021.

Oilex Ltd. (OEX) nearly doubled after it requested a halt in the trading of its shares on the Australian Stock Exchange over a proposed acquisition. The company then issued more than 257 million shares on Aim to raise capital.

Transense Technologies (TRT), a sensor systems producer whose technology measures the torque, temperature and pressure of industrial tyres, added 9½p to 70½p after it announced a collaboration with Bridgestone, one of the world’s largest tyre manufacturers.

Macroeconomic uncertainty has created a golden opportunity for Britain’s biggest pawnbroker. H&T Group (HAT) said that its pre-tax profit had risen by 7.9% to £6.8 million in the half-year to June, with revenue rising from £68.5 million to £70 million. Customers use pawnbrokers by handing over personal items, often jewellery, to secure short-term loans. Typically H&T charges between 8% and 9% a month on cash loans and if the customer fails to repay after an allocated time, the items are sold. John Nichols, chief executive, said that the robust gold price was good for business, noting that it had increased by 5.4% from £958 per troy ounce in the first half of last year to £1,010 per troy ounce in the first half of this year. Supposedly a safe haven, the yellow metal attracts investors in times of turmoil and is at a six-year high. “The demand for small-sum, short-term cash loans remains strong,” it said in a statement.

Tempus – Watches of Switzerland (WOSG): Hold. Good growth potential in a resilient corner of the retail market but risks remain

Tempus – Jackpotjoy (JPJ): Buy. Well-run company with strong cashflow set to return to growth in the UK

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Mentioned in this post

AML
Aston Martin Holdings
BUR
Burford Capital
CARD
Card Factory
COB
Cobham
HAT
H&T Group
JE.
Just Eat
JPJ
Jackpotjoy
MNZS
Menzies(John)
NG.
National Grid
NXT
Next
OEX
Oilex Ltd.
PLUS
Plus500 Ltd (DI)
POLY
Polymetal International
RR.
Rolls-Royce Holdings
SPD
Sports Direct International
TRT
Transense Technologies
TUI
TUI AG Reg Shs (DI)
VOD
Vodafone Group
WOSG
Watches of Switzerland