The Times 19/02/19 - Vox Markets | Vox Markets

The Times 19/02/19

HSBC, one of the world biggest banks, has reported a 16% rise in full-year profits but weaker stock markets, the US-China trade war and a slowing global economy left growth below market expectations. Shares in HSBC Holdings (HSBA) fell 22p to 642p in early trading in London as the chairman, Mark Tucker, said: “Differences between China and the US will likely continue to inform sentiment in 2019”. HSBC has assets of $2.6 trillion, more than 39 million customers and employs 235,000 people around the world. It made 89% of its profit in Asia last year. Despite growing protectionism, an easing in global growth and the weakest Chinese economy in 28 years, Mr Tucker was upbeat about prospects. “The fundamentals for growth in Asia remain strong in spite of a softer regional economic outlook,” he said. The bank reported profit before tax of $19.9 billion for 2018, up from $17.2 billion the year before but below analysts’ average estimates of $22 billion. It maintained its full-year dividend at $0.51 a share and said that it was confident of keeping the payout at this level.

The company behind the Holiday Inn and Crowne Plaza hotel chains has reported solid growth at its Chinese subsidiary despite the trade conflict with the United States. InterContinental Hotels Group (IHG) said that sales in the world’s second largest economy grew by 22% last year, with profits up by a third after it opened 77 new hotels. Revenue per available room (revpar) rose by 2.5% last year across its chains last year — a slowdown from last year’s rate of 2.7%. Intercontinental reported a 7.7% increase in its reported operating profit to $816 million, which is slightly higher than the $807.54 million forecast by City analysts. Pretax profits fell by 26% to $485 million after the company booked $104 million in one-off charges relating to acquisitions and a cost-cutting programme. It lifted its dividend by 10 per cent to $1.14 a share. “The fundamentals of our business remain strong, and while there are macroeconomic and geopolitical uncertainties in some markets, we are confident in the year ahead,” said Keith Barr, 48, the chief executive.

A runaway train and problems at its copper mines have derailed profits and wiped out $1 billion in planned productivity savings at BHP Billiton (BLT). The world’s biggest listed miner reported an 8% drop in underlying net profit to $3.7 billion in the second half of last year as the disruption pushed up its costs. BHP had been targeting $1 billion in productivity gains over the year to June — down from an original target of $2 billion — but said that it now expected productivity to be “flat” for the year. The result was weaker than analysts had expected and BHP’s shares dropped by about 2% in early trading in London.

Barclays boss Jes Staley loses key supporter as Tiger bows out. An American hedge fund has wound down a stake of more than $1 billion in Barclays (BARC) as the bank fights off an attack from an activist investor. Tiger Global Management, which held a 2.5% stake, making it a top ten shareholder, has sold its entire holding over the past year, according to the Financial Times. The hedge fund was believed to have been a supporter of plans by Jes Staley, 62, Barclays’ chief executive, to revive the lender’s fortunes. However, the bank’s shares have lost about a third of their value over the past two years, prompting concerns about Mr Staley’s turnaround strategy.

Laing O’Rourke passes its own risk assessment. Britain’s largest private construction company said that a no-deal Brexit would pose a minimal risk, if any, to its present projects as it reported a £46.5 million post-tax loss for its latest financial year. Laing O’Rourke is filing its annual results today, more than four months after they were due — a delay, Stewart McIntyre, its finance director, said, that was down to the company’s lenders and auditors taking a more detailed look at the risks from its longer-term contracts, as well as the potential impact of Brexit. They also assessed potential cost provisions associated with fire safety and cladding upgrades. Laing O’Rourke found that Brexit had not caused a delay to any of its “live” projects. It faces the risk of increased costs for workers and materials that come from the European Union, but it said that of the 16.1% of its British-based workforce who were European Union citizens, almost a quarter were from Ireland and could continue to work in the UK.

Break-up issue set to top in-tray for next Reckitt Benckiser boss. Any break-up of Reckitt Benckiser Group (RB.) would be unlikely to happen before the middle of next year and therefore would be overseen by a new chief executive, the company indicated yesterday. The consumer goods group said that it continued to “evaluate the opportunities to maximise shareholder value” from a restructuring that is set to be completed in mid-2020. Chris Sinclair, 68, Reckitt’s chairman, also said that the successor to Rakesh Kapoor, the outgoing chief executive, would be “consistent with execution of RB 2.0” and that an update on the selection process would be given by its annual meeting in May.

JD Sports deal boots Footasylum stock higher. JD Sports Fashion (JD.) has snapped up a chunky stake in Footasylum (FOOT), prompting the Aim-listed trainer and sportswear retailer’s share price to almost double. JD Sports told the stock market yesterday that it had bought almost 8.7 million shares in Footasylum, equivalent to an 8.3% stake. The acquisition, worth about £2.5 million, fuelled speculation of a potential collaboration between the businesses. Investors quickly bought into that idea, sending shares in Footasylum bounding 26¼p higher to 55¼p, a surge of 91.4% that added more than £27.5 million to its market capitalisation.

Ex-Jardines boss to take wheel at Pendragon. Pendragon (PDG), the struggling car retailer that trades as Stratstone and Evans Halshaw, has found a new chief executive. After Trevor Finn announced in December that he would be leaving after 30 years of running the company, Pendragon said yesterday that it had appointed Mark Herbert, formerly of Jardine Matheson, the Hong Kong trading house that is controlled by the Keswick family. The car retailer, which operates 200 dealerships, had a difficult year in 2018. There was disruption in the car market because of a fall in diesel sales, while new emissions regulations led to delivery backlogs for manufacturers. Mr Finn had announced plans last year to pull back from the new car market because of shaky consumer confidence and difficulties dealing with some manufacturers. Towards the end of 2018, six weeks before news of his resignation, he revealed that profits for the year would be £10 million lower than the previous results at £50 million.

No-deal Brexit would be more than inconvenient for McColl’s. A convenience stores chain has become the latest retailer to warn that its sales will suffer in the event of a no-deal Brexit. McColl’s Retail Group (MCLS), which manages 1,550 newsagents and shops around Britain, said that it expected an 11% drop in sales in April and May if Britain does not negotiate a trade deal with the European Union. It based its forecast on product shortages and supply chain disruption. The company said that it also was reviewing plans for a “far more challenging Brexit”, which could result in a dividend cut and even may force it to renegotiate its banking covenants. However, it added that a divorce deal would result in no material impact to trading and reported its first rise in quarterly sales in a year.

Chapter is over for Pearson. Pearson (PSON) offloaded its American schools textbook business yesterday, more than 18 months after it effectively put it up for sale. The education publisher said that it had agreed to sell its K12 courseware business to Nexus Capital Management, a private equity firm, for $250 million as part of its plans to create a digitally focused business. Under the terms of the transaction, Nexus will pay only $25 million initially, with a further $225 million to be paid via a vendor note due in the next three to seven years. Once the note is repaid, Pearson is entitled to 20% of all future dividends to equity-holders and will receive 20% of net proceeds if the business is sold by Nexus.

The share price of the Queen’s carpet maker tumbled by almost 15% after the company warned that its recent pursuit of a bigger slice of the market would come at a short-term cost. Victoria (VCP), a 124-year-old business that counts Buckingham Palace and John Lewis among its customers, said that its efforts to gain market share by cutting prices and focusing on volume products would hit its earnings this year. In a trading update yesterday, the Kidderminster-based business said that it had 18 months left on its bank facilities and would update its shareholders soon on its plans for longer-term financing. It expects earnings before interest, tax and other charges for the year to the end of March to be between £95 million and £97 million — about 9% below present estimates, according to Berenberg Bank.

Spirax-Sarco Engineering (SPX), the valve and pumps manufacturer, added 75p to £67.55 after its proposed £139 million acquisition of Thermocoax, a French cable maker, was well received by investors. Spirax-Sarco said that the purchase would enhance its electrical process heating business, with particular potential to expand in the United States.

Drax Group (DRX), the power station operator, rose 6½p to 378¾p despite a downgrade to “sell” from “neutral” by Citigroup. Analysts at the bank pointed to falling commodities prices and argued that the company had overpaid for the UK generation asets that it acquired from Iberdrola, the Spanish utility company.

City of London Investment Group (CLIG) rose 21½p to 399½p after the asset manager maintained its dividend of 9p a share and declared a special dividend of 13½p per share, despite suffering almost $42,700 in net outflows in the first half, mostly from its emerging market strategies.

Odey Asset Management, the hedge fund run by Crispin Odey, 60, has increased its stake in Plus500 Ltd (DI) (PLUS) at the same time as brokers at Canaccord cut their target share price in half and criticised the company over “disturbing” revelations. Odey’s stake in the Israeli spread betting company is now worth almost £133 million by yesterday’s share price, having increased its holding by more than 1% to 14.5%.

Tempus – Micro Focus International (MCRO): Avoid. It’s all too easy to make slip-ups in this complex and highly competitive market

Tempus – Vesuvius (VSVS): Avoid. A quality performer but the backdrop is uncertain

 

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Mentioned in this post

BARC
Barclays
BLT
BHP Billiton
CLIG
City of London Investment Group
DRX
Drax Group
FOOT
Footasylum
HSBA
HSBC Holdings
IHG
InterContinental Hotels Group
JD.
JD Sports Fashion
MCLS
McColl\'s Retail Group
MCRO
Micro Focus International
PDG
Pendragon
PLUS
Plus500 Ltd (DI)
PSON
Pearson
RB.
Reckitt Benckiser Group
SPX
Spirax-Sarco Engineering
VCP
Victoria
VSVS
Vesuvius