Brokers are tipping BT shares as the firm reveals solid first quarter profits

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Brokers are calling BT shares a ‘buy’ as the telecommunications giant reports a 9% rise in first quarter pre-tax profits.

The firm also asserted that it was on track to meet its financial expectations for the year.

While revenues were flat during the three months to June, the total still marked an improvement on the 1.3% fall in the previous quarter.

However as the company gears up to take over the EE mobile network, BT revealed in its market update, that it has already signed up an impressive 100,000 customers to its new mobile service.

Despite a steep 22% share price rise over the past year the broker consensus towards the stock is a firm ‘buy’, with analysts at both Barclays Capital and Credit Suisse having recently issued upbeat notes on the FTSE 100 listed group.

Ian Forrest, investment research analyst at The Share Centre is also bullish and is tipping the firm as a ‘buy’ for medium risk investors. He noted that BT can now offer its super-fast fibre broadband to 80% of all UK households and the BT Sport TV offer will shortly be boosted by a new channel offering Champions League football.

He said: “These are good, solid figures from BT which show a continuation of the trends we saw in the previous quarter and point to the great potential for growth over the next few years with its new mobile and superfast broadband services. Subsequently, we recommend BT as a ‘buy’ as it continues to transform into the dominant telecoms provider in the UK, develops full value from the EE takeover and uses its strong cash flows to raise dividends well above inflation.”

Royal Bank of Scotland enjoys rise in profits on the back of strong performance from its personal banking arm

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Royal Bank of Scotland has reported a 27% rise in its second quarter profits helped partly by a strong performance across its personal and business banking divisions.

Following the news, shares in the group jumped 6p or 2% to 359.2p in early trading.

The still majority tax-payer owned bank posted an attributable profit of £293m for the period however overall it endured a loss of £153m for the first half. It said its mortgage business enjoyed a boost as borrowing applications jumped to £9.4bn over the quarter.

Litigation and conduct costs were lower too at £459m compared with £856m in the first quarter.

But restructuring costs rose to more than £1b, from £453m in in the first quarter, as the pace of change accelerated.

Commenting on the market update, RBS chief executive Ross McEwan said: “I think these results show we are making really good progress. We set out a very clear plan for the bank.

“We are going further than I think a lot of people thought we would have done in this short period of time but we have got lots to do.”

Barclays Bank sees profits rise 25% in second half but scales back dividend ambitions

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Barclays Bank has reported a 25% rise in statutory pre-tax profits to £3.14bn for the six months to the end of June.

Barclays has seen profits in the second quarter were £1.15 billion.

However the bank, while maintaining its dividend of 6.5p a share will abandon a target of paying out 40 to 50% of earnings. That move was announced by Executive Chairman John McFarlane, who has taken over the reins at the bank temporarily, having sacked chief executive Antony Jenkins earlier this month.

The bank is to move ahead with sales of non-core assets reducing their value to £20bn by 2017, but is not making any changes at the investment bank for now.

The bank has announced significant new provisions to cover legacy issues of £850m for possible payouts on packaged bank accounts and PPI, taking the total for PPI claims to a staggering £6bn.

McFarlane said: “There is more that can be done to deliver better returns for shareholders, faster, and that work has begun.”

The bank has already announced 19,000 job cuts.

ITV a buy for medium risk investors though future growth may be more ‘conservative’

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ITV continued to rebalance its business successfully with the broadcaster saying it was on track for another strong performance this year as net profits rose to £275m in the six months to 30th June. Revenue from external sources rose by 11% to £1.36bn as chief executive Adam Crozier transforms the group and he continues to ‘grow and rebalance the company creatively and commercially’.

Graham Spooner, investment research analyst at The Share Centre says: “Analysts have been encouraged by the improvement at ITV’s Studios business, as it continues to see a significant increase in new commissions and its digital offering. As a result, investors should note that ITV Studios saw revenue increase by 23% to £496m during the period.

“With so many options now available to consumers ITV has had to fight hard to maximise its audience share. In a fast changing environment, the changes that have been made in the group appear to have come in time to save what was once a troubled company. The debt situation has been addressed which has enabled the group to make a number of acquisitions, geared towards boosting its production business further and enabling strong dividend growth.

“As a result, we recommended ITV as a ‘buy’ for medium risk, growth seeking investors. Since we moved to a ‘buy’ recommendation on the shares in late 2009, the share price has risen by around 675%. Investors should therefore be aware that future growth is likely to be more conservative.”

 

Royal Mail is a hold for Share Centre

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As Royal Mail reports this morning Helal Miah, investment research analyst at The Share Centre, explains what it means for investors…

This morning, Royal Mail produced a Q1 trading update with no real surprises as the group revenue was flat. The group’s UK division saw revenues decline by 2% as parcels growth of 2% was offset by the continuous decline in the letters business which saw revenues fall by 4%. The smaller European parcels business saw an 8% increase in revenue. Despite the failure of other parcel businesses recently, the competition levels in the industry remain very high. Therefore cost control will remain a key focus to drive profitability and the group are hoping to keep costs at least flat or better compared to the previous year.

With the withdrawal of Royal Mail’s only competitor, Whistl, delivering door to door letters there is the possibility of Ofcom stepping in with more price controls. However, investors are reminded that this should not be feared so much as the price regulated part of the business only represent 5% of group revenues.

We currently recommend Royal Mail as a ‘hold’, as growth in some parts of the business will offset decline in letter volumes over the years. However, shareholders should be happy to take away the attractive dividend yield.

 

 

Shares in British engineering solutions provider Costain are a ‘buy’

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Graham Spooner, investment research analyst at The Share Centre, picks Costain as share of the week…

British engineering solutions provider Costain is a top choice for investors seeking a long term idea for a medium risk balanced portfolio. Investors should note that the group, based in Berkshire, stated last month that it remains on track to deliver results in line with management expectations.

Costain’s strategy aims on winning contracts in the water, energy and transportation sectors and has proved successful in gaining involvement with current high profile projects such as Crossrail and London Bridge station.

The latest contract win in July was for motorway improvement. Those interested should note that the current government wants to improve on UK infrastructure, which is something that Constain may benefit from.

Investors will appreciate that Costain’s management expects more predictable revenue in the future as a result of less risky forms of contract. The group has also been building on current blue-chip relationships, leading to 90% of revenue representing repeat business. We currently recommend shares in Costain as a buy for long-term investors.

 

Buy, sell or hold? Mindful Money’s weekly shares watch: Barclays, ITV & Diageo

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When ITV announces its second quarter update on Tuesday investors are likely to be looking at the performance of its studio business and will want an update on recent acquisitions.

The group’s first quarter trading update saw management forecasting 5% growth in Net Advertising Revenue for the first half and over the past six months its stock has risen by 17%.

Graham Spooner, investment research analyst at The Share Centre, who calls the broadcaster a ‘buy’ says: “Trading reports so far this year have been positive, especially with regard to advertising revenue. Other areas to focus on will be cost controls and the outlook for the second half, which will include the Rugby World Cup.”

Looking to this week’s report, Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers adds: “Management expects to outperform the market over the full year, with a mixture of comparatives with the 2014 Football World Cup and the pending Rugby World Cup providing the current financial year backdrop. Adjusted pre-tax profit is forecast to grow by around 9% to £340m.”

Overall, prior to the release, analyst consensus opinion currently denotes a ‘buy’.

Following the recent shock departure of its chief executive Antony Jenkins, Barclays reports its second quarter/half year results on Wednesday. The share price has been steadily rising this year – up 16% over six months – in hopes that the restructuring will continue at a faster pace and benefit in the longer-term.

For Spooner, the business is a ‘hold’. He says: “Regulatory issues often dominate the headlines and take the focus away from the changes that management have been making. As ever the performance of its investment banking business Barclays Capital will be important. The first quarter, reported in April was stated as being its best in years and investors will want that trend to have continued.”

Marginally slower activity for the investment bank and generally similar trends for its retail business are expected compared to the first quarter notes Hunter. He says: “An update regarding provisions for foreign exchange investigations, litigation and PPI could feature, while management’s renewed push to increase revenues, cut costs and enhance shareholder returns following the departure of its CEO could again be underlined.

“In all, with legacy issues slowly being resolved, diversity of business type and geography still enjoyed and no UK government share stake overhanging, analyst consensus opinion continues to point towards a ‘strong buy’.”

Global drinks giant Diageo, up 2% over 12 months, follows up with its full year results on Thursday. The firm, which counts Guinness and Smirnoff amongst its suite of brands, has seen sales in some of its markets, both emerging and developed, struggle this year but for Spooner, it remains a ‘buy’.

He says: “At its last trading update in April it forecast no change in that situation so investors will be very interested in how trading is going. Other luxury goods groups have reported poor sales in China recently so it will be no surprise if Diageo is in a similar position. Any change of strategy in North America, where the group has changed its management team, and the level of operating efficiencies achieved will also be of interest to the market.”

Hunter notes that organic net sales growth in the region of 0.2% is currently forecast, -0.3% as of nine months, and pre-tax profit is expected to decline by around 11% year-over-year to £2.79 bn. He adds: “More favourably, trading for the group’s African business is likely to have remained buoyant, whilst management focus on cost reduction could be further emphasised.” However, overall, the analyst consensus opinion currently points towards a strong ‘hold’.

Ladbrokes a ‘buy’ after it strikes merger deal with Coral

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Bookmakers Ladbrokes has announced it will merge with smaller rival Coral, in what analysts have said will be a ‘transformative deal’.

 

The merged business is expected to be valued at £2.3 billion and will surpass current high street leader William Hill as Ladbrokes’ has 2,100 shops and Coral 1,845.

 

Ladbrokes chief executive Jim Mullen will become the boss of the new company, called Ladbrokes Coral.

 

Ladbrokes chairman Peter Erskine said: ‘Together, we will create a leading betting and gaming business. The transaction will provide an attractive opportunity to generate considerable value for both sets of shareholders.’

 

Shareholders in Ladbrokes will be offering 93 million new shares, representing 10% of the company. Coral’s private equity owners will own 48.25% of the shares in the new company and the remainder will be held by Ladbrokes shareholders.

 

Ladbrokes share price fell 0.78% to 127p on the announcement of the deal but Peel Hunt analyst Nick Batram said it was still a ‘buy’.

 

‘Ladbrokes has made a company strategy announcement, regarding a merger with Gala Coral and a 9.99% share placing. The merger between the two companies is positive for shareholders, with potentially c.60% upside before any inevitable revenue synergies,’ he said.

 

‘The deal is supported by Playtech, which will take a c.22% stake in the placing, and we see this not only as an endorsement of the deal, but as reducing the medium-term execution risk for the merger, with a major supplier backing the group’s success. The £120 million break clause to Gala shows concern about a third party spoiling the merger. We put our forecasts and target price under review, but view this deal as transformational for Ladbrokes and see very material upside to the shares.’

 

 

 

Amazon shares surge 18% after surprise profit

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Shares in online retailer Amazon surged 18.5% after it reported a surprise profit.

 

After-hours trading on Wall Street overnight pushed up the share price to $571.24, after losing 1.3% during the day.

 

The retail giant reported a $92 million profit in Q2, compared to a $126 million loss over the same period a year ago. Sales also rose 20% to $23.2 billion in the three months to June.

 

The strong Q2 is expected to carry into Q3, with Amazon forecasting that sales will grow between 13% and 24% on last year.

 

A big success for Amazon was ‘Prime Day’ on 15 July, where customers were offered special deals if they signed up to its fast delivery service that costs $99 a year. The special offer meant more new members signed up to the premium service than in any other day in the company’s history.

 

Brian Olsavsky, Amazon chief financial officer, said in a conference call: ‘Growth has been fuelled in large part by Prime growth and also item selection growth so it’s been a huge driver both in North America and international segments.’

 

Amazon also benefitted from increased sales in North America, which rose 25.5% to $13.8 billion in Q2, driven by purchases of electronic goods and general merchandise. It’s cloud computing division also saw sales increase 81%.

 

Pearson confirms it is selling FT Group to Nikkei

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Following wide media speculation Pearson confirmed on Thursday that it has agreed to sell FT Group to Nikkei Inc. for £844m.

The disposal of the FT Group marks the end of Pearson’s 58-year ownership of newspaper. In recent times Pearson has been moving more and more into the provision of education services in North America and emerging markets. Previously it was rumoured that German publishing group Axel Springer was the most likely buyer.

Notably the deal does not include FT Group’s London property at One Southwark Bridge and Pearson’s 50% stake in The Economist Group.

According to Pearson, at the FT total circulation across print and digital rose more than 30% over the last five years to 737,000, with digital circulation growing to represent 70% of the total, from 24%, and mobile driving almost half of all traffic.

In 2014, FT Group, which includes the FT newspaper, FT.com, Investors Chronicle and Investment Adviser, contributed £334m of sales and £24m of adjusted operating income to Pearson. At 30 June 2015, FT Group had gross assets of approximately £250m.

John Fallon, Pearson’s chief executive, said: “Pearson has been a proud proprietor of the FT for nearly 60 years. But we’ve reached an inflection point in media, driven by the explosive growth of mobile and social. In this new environment, the best way to ensure the FT’s journalistic and commercial success is for it to be part of a global, digital news company. Pearson will now be 100% focused on our global education strategy. The world of education is changing profoundly and we see huge opportunity to grow our business through increasing access to high quality education globally. Nikkei has a long and distinguished track record of quality, impartiality and reliability in its journalism and global viewpoint. The Board and I are confident that the FT will continue to flourish under Nikkei’s ownership”.

The transaction is subject to a number of regulatory approvals and is expected to close during the fourth quarter of 2015.

Pearson confirms it is in “advanced discussions” on possible sale of the Financial Times Group

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Pearson confirmed it “is in advanced discussions” regarding the potential sale of the Financial Times.

According to a report in The Guardian, German publishing group Axel Springer is emerging as the most likely buyer.

The disposal of the FT Group would mark the end of Pearson’s 58-year ownership of newspaper. It would also represent an expansive leap for the Berlin-based media group, whose flagship title is tabloid Bild. Last year it made €3bn in revenues.

Reuters first reported rumours over the sale on Thursday morning. Shares in the FTSE 100 listed group jumped by almost 2%, to 1,228p on Thursday afternoon following the news.

Commenting on the press speculation, Pearson issued a statement. It said it is “in advanced discussions regarding the potential disposal of FT Group although there is no certainty that the discussions will lead to a transaction. A further announcement will be made if and when appropriate”.

FT revenues pale in comparison to Pearson’s education business revenues but the sale of the FT, which dates back to 1888, could net Pearson up to £1bn.

According to the report a recent analyst note put the FT’s value at between £750m and £1bn, with the paper worth £500m. The biggest question mark is the value of its 50% stake in the Economis

Investors respond positively to improvement in Kingfisher trading

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As Kingfisher provides a trading update Ian Forrest, investment research analyst at The Share Centre, explains what it means for investors…

This morning, B&Q and Screwfix owner Kingfisher reported a healthy improvement in trading in its second quarter. Like-for-like sales were up 3.5%, compared to 0.8% in the first quarter. In the UK, B&Q also continued to perform well with its like-for-like sales up 3.4%, whilst Screwfix saw its sales rise 16.7%. The group said it is on track to have opened a further 11 Screwfix outlets in the second quarter.

The biggest improvement was in France where seasonal sales of Kingfisher’s DIY retail group Castorama rose 8.3%. Trading at Brico Depot remains subdued with sales rising just 0.7% due to a soft housebuilding market. Sales in other international markets also showed some good improvement, with Poland registering like-for-like growth of 16.5%. Kingfisher has also made a start on the new chief executive’s plan to unify the various businesses by starting a pilot of a new IT system in Ireland.

These good figures from Kingfisher were welcomed by the market although investors should note that the comparable figures from last year are a little kinder than those for the first quarter. We are maintaining our ‘hold’ recommendation on the shares, due to the good level of cash flow and the potential of the new strategy. We do however prefer Booker in the sector due to the proven track record of its management and the growth potential of its recent acquisitions.

 

B&Q owner Kingfisher sees strong sales across the UK and Ireland

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Shares in home improvement giant Kingfisher have risen in early trading as the group reports that like-for-likes rose 3.5% in the second quarter, helped by strong performance at B&Q and Screwfix.

The FTSE 100 firm saw its stock rise by 1%, or 4.6p to 371.6p, by 9:25am on Thursday.

In the UK and Ireland it announced that sales jumped by 5.5% in the 10 weeks to 11 July, well ahead of the 1.6% rise achieved during the first three months of the year.

Elsewhere sales in its French business improved markedly, with numbers up by 1.3%, compared to 1.2% drop in the first quarter.

In a statement, Véronique Laury, Kingfisher’s chief executive officer, said: “We have delivered a solid Q2 sales performance to date across all our major businesses, albeit against softer comparatives than in Q1. I am also very pleased to report that the pilot of our unified IT system, which is a key enabler of our ‘ONE’ Kingfisher plan, started on time in Ireland.

“We look forward to updating on further progress against our first ‘sharp’ decisions in September. And we have to date returned £138m to shareholders via a share buy back since the year end.”

Earlier in 2015, the group confirmed it will shut around 60 B&Q stores in the UK and Ireland over the coming two years, although it also said it would open around the same amount of Screwfix shops.

 

 

 

 

Why Easyjet is a ‘buy’ for medium risk investors

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Ian Forrest, investment research analyst at The Share Centre, has highlighted Easyjet as his share of the week. He explains below why he is backing the discount carrier…

After reporting its first ever pre-tax profit at the interim stage in May, and with the shares still looking good value, Easyjet is our share of the week. The low cost airline moved from a loss of £53m in the first half of last year to a profit of £7m, with profits driven higher by the introduction of allocated seating for customers, amongst other competitive edges.

However, May’s good news for the group was also accompanied by a lowering of expectations for the second half due to a recent strike in France and higher regulatory fees in some of its markets. The shares dropped following these results although investors should note that this may have been driven by short term concerns.

Easyjet’s prospective dividend yield has risen to 3.5%, one of the best in its sector, and investors should be aware that this may be supported further by lower fuel costs due to the oil price remaining at low levels. This, combined with a new strategy, growing capacity and an effective management team supports our recommendation for investors to ‘buy’ into Easyjet.

We believe that these shares are for the medium risk investor looking to achieve a balanced portfolio.

Mindful Money’s weekly shares watch: Royal Mail, Unilever & Kingfisher

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Royal Mail shares have jumped almost 20% over the past six months helped partly by the problems being endured at competitors CitySprint and Whistl.

But on Tuesday the FTSE 100 group delivers its latest trading statement and shareholders will be very keen to hear about what Royal Mail has be doing to control costs, which has been a high priority for both managements and its investors.

Ahead of the market update, the general broker feeling has the stock edging into ‘buy’ territory, marking an improvement over the past three months. However Graham Spooner, investment research analyst at The Share Centre, is calling them a ‘hold’. Looking to this week’s statement he is anticipating that there will naturally be a keen interest to hear about parcel volumes and the possible effects of competition.

He says: “Any further pressure on margins will be worth noting and expect management to continue to describe trading conditions as ‘challenging’.”

Consumer goods giant Unilever is expected to follow-up with its second quarter/half-year results on Thursday. The firm’s stock has moved some 7% higher over the past six months but in this week’s update emerging market sales, in the wake of slowing growth, remains high on the agenda.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers highlights that growth of 5.4% for the first quarter was reported, down from 5.7% for the full year 2014. He says: “Performances across countries are likely to have remained mixed, with Russia, due to squeezed consumer incomes, a weak first quarter feature. More favourably, management may reiterate first quarter comments noting that ‘despite high levels of currency and commodity volatility, we are now starting to see more tailwinds than headwinds in our markets’.”

Ahead of the announcement, and with growth for its expanded emerging market exposure slowing, analyst consensus opinion currently points towards a ‘hold’.

B&Q and Screwfix owner Kingfisher, up 8% over the past six months, also reports its second quarter trading update on Thursday.

Spooner, who has the firm on his ‘hold’ list, says: “This statement comes ahead of interim results in September, but with inflation at very low levels the market will also be looking for any comments on whether profit margins have changed significantly.”

Bowman notes that French same store sales are expected to have remained in negative territory, having fallen by 1.2% in the first quarter.

“UK like-for-like sales are likely to have continued to grow, supported by its Screwfix business and the benefits it is enjoying from consumers’ ongoing demand for using trades people. An update regarding the Chief Executive’s reorganisation or ‘ONE’ Kingfisher strategic plan could also feature,” he adds.

Prior to the announcement, and with the company battling a number of headwinds, analyst consensus opinion currently signifies a ‘weak hold’.

M&S is a ‘buy’ after general merchandise shake-up

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High-street retail stalwart Marks & Spencer may benefit from the departure of head of general merchandise, making it a ‘buy’ for investors.

 

Marks & Spencer head of general merchandise John Dixon is to be replaced by Steve Row following repeated failures to improve sales, particularly in the womenswear section. Although the company saw small improvements in general merchandise over the last year, the most recent trading update show like-for-like sales fell 0.4%.

 

The Share Centre investment research analyst Helal Miah said hopes were now pinned on Rowe.

 

‘If his successor, Steve Rowe, can finally reach the potential of increased profitability in general merchandise, this could be positive news for investors,’ he said.

 

‘He has been with M&S for over 26 years and therefore brings significant internal knowledge to the role. We continue to recommend M&S as a ‘buy’ due to the strength of the growing food business, rising disposable incomes and healthy dividend.’

 

He added that lower oil prices and rising disposable incomes, alongside a growing UK economy, should all help.

 

‘The 2016 price/earnings ratio of 15.7x is slightly lower than the group’s peers, and the dividend is forecast to return to steady growth after remaining static for a number of years,’ said Miah.

 

‘The prospective dividend yield of 3.3% is better than average for the market, the dividend is well covered and forecast to grow above inflation over the next few years.’

 

 

Dixons Carphone marks “terrific” first year as profits jump 21%

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Dixons Carphone has announced that it enjoyed a 21% rise in pre-tax profits it is first annual results.

On Thursday the company, which was established with the merger of Carphone Warehouse and Dixons Retail last year, reported that sales across the firm rose by 8% over the period.

Shares in the group jumped by 4.9p or 1%, following the news. Sebastian James, group chief executive, said it had been “a terrific first year” for the group.

It proposed a final dividend of 6p, taking total dividends for the year to 8.5p, marking a 42% year-on-year rise.

In a statement, James added: “We have seen excellent increases in both sales and profitability and we have made very encouraging progress with the tricky job of integrating these two great companies. At the same time, we have continued to generate strong customer satisfaction numbers, made significant strides in our Connected World Services business including our agreement with Sprint, and launched a brand new mobile network.

“The job is far from done. I am acutely aware that there is no room for complacency in a sector, which has seen unprecedented change, bringing both opportunities and challenges.”

Earlier this month the group announced it had agreed a deal with US telecoms firm Sprint, which could see it open hundreds of stores there.

Sports Direct shares are a ‘buy’ as the retailer beats market expectations in its full-year results

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As Sports Direct reports a 16% rise in full year underlying profits and 4.7% increase in sales Ian Forrest, investment research analyst at The Share Centre, explains what this means for investors…

Sports Direct beat market expectations today reporting a 16% rise in underlying profits to £383.2m compared to previous guidance of between £360m and £380m. Overall sales rose 4.7% to £2.8bn with the main sports clothing business seeing like-for-like sales up 7.4% during the year.

The company also announced it would be awarding around 5m shares to 2,000 staff members thanks to achieving a profit target established in 2011. Trading in May and June has also been in line with expectations, however Sports Direct lowered its forecast for underlying profits in the year to April 2016 from £480m to £420m as planned acquisitions have not happened as expected.

Sales through the group’s website rose 14% to £335.4m, boosted by the introduction of a “Click & Collect” service in the second half. These are good results and show the group is achieving healthy sales and profit growth despite some challenges such as unseasonal weather.

We retain our “buy” recommendation as we expect further growth in the UK, helped by rising wage levels, further expansion into several European markets and the company’s focus on offering a wide variety of value products and new services.

FTSE 100 enjoys gains as Greek deal leads shares higher

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The FTSE 100 closed 1% up on Monday following the news that Greece had managed to seal a deal with its creditors.

London’s blue-chip index finished the day’s session, 64.57 points ahead at 6,737.95.

The gains were echoed in France and Germany too.

In the UK, British Airways owner, International Consolidated Airlines, as well as supermarket Morrisons and B&Q parent Kingfisher led the top flight higher.

Following a marathon negotiations, news emerged on Monday that eurozone finance ministers had finally come to a unanimous agreement over a third bailout package for Greece.

European Union chairman Donald Tusk said that leaders have agreed “in principle” on the bailout, adding that this “means continued support for Greece”, according to the BBC.

European Commission head Jean-Claude Juncker, confirmed that there will be no so-called ‘Grexit’ from the eurozone currency bloc.

Greece now has until this Wednesday to pass the reforms put forward by its creditors. Parliaments across a number of eurozone states would have to agree to any new bailout terms.

Prime Minister Alexis Tsipras asserted that Greece had fought a “tough battle”, won debt restructuring, and sent a message of dignity to all of Europe.

He said: “The deal is difficult but we averted the pursuit to move state assets abroad. We averted the plan for a financial strangulation and for the collapse of the banking system.”

M&S is a ‘buy’ despite flat sales figures

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As Marks & Spencer reports mixed results this morning, Ian Forrest, investment research analyst at The Share Centre, explains what it means for investors…

This morning, a mixed trading update from Marks and Spencer did not prevent shares in the UK retailer from rising after the market opened. Overall like-for-like sales in the first quarter were flat, whilst the food division remained solid with a 0.3% rise and general merchandise fell back 0.4%. The company reassured investors that the gross profit margin in general merchandise was on track to reach the full year target.

In-line with general consumer spending habits, the group saw its online sales at M&S.com soar by 38.7%. While the sales performance in the general merchandise division is disappointing, the profit margin currently has more scope for improvement and that is still forecast to happen this year.

Marks & Spencer’s results reflect the ongoing progress general retailers in the FTSE 350 have made as consumer spending continues to improve. Those who reported in the first quarter saw revenues climb by 5.1% compared to a year ago, taking £7.1bn at the tills. However, profit margins have been sacrificed to achieve this growth. While sales rose in the sector, profits after tax were down nearly a quarter in the year – falling to just £177m.

Marks & Spencer maintained its overall guidance for the full year so we continue to recommend the shares as a ‘buy’ due to the strength of the group’s food business, the significant potential to increase profitability in general merchandise, rising disposable incomes in the UK and the healthy dividend.

 

 

Brokers tipping consumer goods giant Unilver as sales in the US and Europe rise

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With UK consumer spending set to hopefully rise from its current levels a number of brokers have come out in support of FTSE 100 giant Unilever and are calling it a ‘buy’.

The group, whose brands include house hold names such as Dove, Sure, Ben & Jerry’s and PG Tips, has enjoyed  a near 9% share price rise over the past year but over three months the stock is off by 4%, which may now be representing a buying opportunity.

While the market consensus has the stock down as a ‘hold’, analysts at Barclays Capital, RBC Capital Markets and The Share Centre have all just released positive notes on the firm.

Ian Forrest, investment research analyst at the latter firm is particularly upbeat on its prospects right now, given that as he sees it, “current consumer spending in the UK is on the rise and looks to be performing healthily, which should support the group’s desire to grow its sales”.

In addition, the company is also looking to improve in emerging markets. Forrest said: “Investors should appreciate that when looking at the group’s recent track record we can see that it has outperformed the market over the past year. Those more interested in income should also note that the group’s prospective dividend yield of 3.2% is reasonable and expected to rise well ahead of inflation over the next couple of years.

“With sales in North America on the rise and volumes across Europe generally picking up, investors can be encouraged by Unilever’s progress. The group’s large and diverse range of well-known global brands may provide some level of security for its investors.”

What the TSB takeover means for investors

Otmane El Rhazi from Mindful Money » Shares.

Now that the £1.7 billion cash takeover of TSB by Banco de Sabadell has been approved by regulators, Hargreaves Lansdown explains what the deal means for investors…

TSB shares are expected to delist from the London Stock Exchange on or around July 28, 2015. For TSB shareholders who have accepted the takeover offer, there is nothing to do; they will receive 340p for every TSB share owned.

In addition, private investors who bought TSB shares during the IPO, and have held their shares continuously, will receive an additional cash payment in lieu of their bonus share entitlement. Bonus shares were available on the basis of one share per ever 20 allocated up to a maximum of £100 worth of bonus shares rounded down to the nearest whole share (max 38 shares).

The cash for the takeover is expected to be paid out by July 14 and the cash for bonus shares by July 17.

Investors who have not yet accepted the offer have a decision to make. If they wish to accept the offer, they can still do so. TSB will give 14 days notice when the offer will close.

WARNING – Investors who do not accept the offer may be left with unlisted shares. If Sabadell gains acceptances totalling at least 90% of the TSB shares in issue then it has the right, which it will take up, to compulsorily purchase all of the remaining shares in issue. If Sabadell does not receive sufficient acceptances then, following delisting, investors will hold an unlisted share and it may be difficult to realise any value from their holding in future.

Investor profits

The IPO share price was 260p and the takeover price 340p. Here are some examples of profits assuming TSB shares bought at IPO and held until now:

 

Application value	Shares allocated	Total cost	Bonus shares	Total shares	Cash proceeds	Profit
£750	288	£748.80	14	302	£1,026.80	£278.00
£1,000	384	£998.40	19	403	£1,370.20	£371.80
£1,500	576	£1,497.60	28	604	£2,053.60	£556.00
£2,000	769	£1,999.40	38	807	£2,743.80	£744.40
£2,500	826	£2,147.60	38	864	£2,937.60	£790.00
£3,000	884	£2,298.40	38	922	£3,134.80	£836.40
£5,000	1115	£2,899.00	38	1,153	£3,920.20	£1,021.20
£10,000	1692	£4,399.20	38	1,730	£5,882.00	£1,482.80

 

Mindful Money’s weekly shares watch: Burberry, Dixons Carphone & Sports Direct International

Otmane El Rhazi from Mindful Money » Shares.

With Burberry shares down by some 13% over the past three months investors will be eager to hear some positive news when the group reports its first quarter trading update on Wednesday.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers notes that after the firm, famous for its distinctive check design, delivered some broadly cautious full-year 2015 outlook comments, comparable sales are expected to slip to between 6% and 7%, from 9%.

Graham Spooner, investment research analyst at The Share Centre highlights that confidence is being sapped as China experiences weaker growth rates and a fairly severe stock market correction. Spooner, however is calling the shares a ‘buy’, while the analyst consensus opinion currently points towards a ‘strong hold’. He adds: “Retail investors losing on their investments could cut back on luxury spending. Other than this, investors may want to hear of plans for the remainder of the year, such as store openings and progress made in newer areas such as perfumes and men’s accessories.”

Electronics retailer, Dixons Carphone, up 3% over the last three months, reports its full year results on Thursday. These upcoming numbers will be keenly watched as they represent the first 12-month figures following the merger of Dixons and Carphone back in August 2014.

Spooner, who has the firm down as a ‘buy’ notes the business reported strong fourth quarter trading at the beginning of June and followed that with good news on a joint venture with US telecoms group Sprint last week.

He says: “With these results investors will be interested to see whether the company can meet its forecast profit guidance, which is slightly above the top end of the £355m-£375m range previously suggested. There will also be interest in the level of TV sales following news of a poor performance in that area from some rivals recently, and any news on trading in Europe will attract attention given events in the Eurozone at present.”

The general outlook for the group remains bullish. Bowman says: “With market share gains recently achieved and the company seen as a likely beneficiary of the expected growth in the so called ‘internet of things’, analyst consensus opinion currently signifies a ‘strong buy’.

Sports Direct International also publishes its own set of full-year numbers on Thursday. Looking ahead to the update Spooner asserts that first and foremost the market will want to see where the EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) figure comes “in relation to the forecast it provided at the end of May for £360m to £380m”. The Share Centre, in line with the market consensus is calling the retailer a ‘buy’. Spooner says: “There will also be interest in how trading has performed in May and June, especially in the group’s European stores. Any update on the strategy to expand into overseas markets and news on the level of online sales will also be a major focus for investors.”

Unclaimed shares: does Standard Life owe you £1,270?

Otmane El Rhazi from Mindful Money » Shares.

A total of 65,000 have just a year to claim the shares and even cash owed to them by Standard Life.

 

When The Standard Life Assurance Company demutualised in 2006 around 2.4 million policyholders were entitled to cash or shares.

 

Of these 280,000 policyholders failed to claim shares they were due and another 24,000 failed to claim cash owed to them. Standard Life is still trying to reunite individuals with their assets.

 

Last year it undertook a tracing programme and reunited 10,000 more policyholders with their assets, including a claim worth £109,300.

 

However, there are still 60,000 people are still to claim shares and another 5,000 who have an unclaimed cash entitlement. They now have just a year to claim what is theirs.

 

The average value of unclaimed shares is around £1,270 and the last day to make a claim I 9 July 2016.

 

Paul McKenna, deputy group company secretary, said: ‘We’ve been working hard to trace those with a valid claim and have united more than 235,000 people with their unclaimed assets.

 

‘With a year to go, our efforts are continuing and we would urge anyone who receives a communication from our registrars, Capita Asset Services, to respond to it before time runs out.’

 

To make a claim call Capita Asset Services on 0345 608 1478

 

 

Summer Budget accused of ‘stifling aspiration’

Otmane El Rhazi from Mindful Money » Shares.

The chancellor has been accused of ‘stifling aspiration’ by restricting dividend and buy-to-let allowances in the summer Budget.

 

Karen Clark, a tax expert at accountants Baker Tilly, said simplification of the tax system for basic rate taxpayers was an ‘emerging theme’ from the Conservatives but it was coupled with ‘significant further complexity for companies and high-income individuals’.

 

In particular she points to the radical overhaul of the dividend tax regime. The current regime is being scrapped and replaced by a tax-free dividend allowance of £5,000, with higher taxes on dividend income above the allowance.

 

Those who receive dividends at the moment benefit from a 10% tax credit. As the tax on dividends for basic rate taxpayers is 10%, dividends are tax free.

 

The credit  means the 32.5% paid on dividend income by higher rate taxpayers is reduced to 25% and for additional taxpayers it is reduced to 30.6%. Under the new system, everyone who receives dividend income will not pay tax on the first £5,000, basic rate taxpayers pay 7.5% tax on additional dividend income, higher rate taxpayers pay 32.5% and additional rate taxpayers 38.1%.

 

‘It is worth asking whether the bundle of tax changes for individuals proposed by the chancellor risks stifling aspiration,’ said Clark.

 

‘While the dividend tax allowance will benefit those with only modest savings income, holders of larger investment portfolios will find their tax bills rising as the new dividend tax regime takes effects. While the dividend tax allowance will benefit those with only modest savings income, holders of larger investment portfolios will find their tax bills rising as the new dividend tax regime takes place.’

 

Clark said higher dividend tax was coupled with the restriction on buy-to-let property that will reduce post-tax return on rental income by reducing mortgage interest relief. From April 2017, the higher rate reliefs available to landlords will be reduced to the basic rate over four years.

 

‘Even in the current relatively low-interest environment, that may feed through to increases in rents,’ said Clark. ‘When interest rates begin to rise, it’s almost inevitable that rents will do likewise in response to the tax changes.’

 

She added: ‘Once they have come to terms with the changes, high-earners who contribute to pension plans will quickly come to the view that they are simply one tax-preferred means of providing for post-retirement income. Once tax limits have been reached, it’s necessary to pursue other investment policies.’

 

 

The Share Centre tips St James’s Place

Otmane El Rhazi from Mindful Money » Shares.

Wealth manager St James’s Place has been picked as share of the week by the Share Centre due to strong dividend growth and Asian expansion plans.

Graham Spooner, investment research analyst, says: “With products including pensions, offshore products and mortgage advisory services, the company has increased its funds under-management by 22% over the last 12 months.

“Investors should be pleased that the final dividend was increased 50% to 14.37p per share, which is higher than the board’s initial prediction.

“Another positive is that the group’s cash generation remains strong, and it is investing in its back office infrastructure to enhance its UK and overseas distribution capabilities. Those interested should also note that changes to ISAs and pension legislation in 2014 should be a positive for the group going forwards.

“We are currently recommending St James’s Place as a ‘buy’. This is due to impacts from the improving UK economy, as well as the group’s expansion into Asia where it could benefit from the country’s growing middle class. We recommend this stock for investors looking to take a medium level of risk, and for those who are looking for both income and growth potential.”

 

 

Central London property Reit launches on AIM

Otmane El Rhazi from Mindful Money » Shares.

A central London-specific real estate investment trust (Reit) has launched on the alternative stock market (AIM) today.

 

The K&C Reit will start trading today under the ticker KCR. Reits are closed-ended companies that issue shares that are traded on a stock exchange. They invest solely in property, with the K&C Reit only planning to purchase central London residential property, which it believes represents ‘scalable business model’ and has the objective ‘to build a substantial residential property portfolio’.

 

The company said it will generate income and capital growth through the tax-efficient acquisition of residential property ‘special purpose vehicles’ (SPVs) ‘with inherent capital gains and then add value to the portfolio post-acquisition’.

 

The directors of the company said they have already identified SPVs they believe are suitable acquisition targets and ‘non-binding letters of intent are in place for opportunities of over £40 million’.

 

As well as the IPO the company announced it will acquire Silcott Properties for £3.6 million. The copany owns 25 Coleherne Road – a residential building in Chelsea, London comprising 10 studio apartments. The property was valued at £4 million on 22 June.

 

K&C chief executive Tim James, said: ‘Our plans have advanced, with our first acquisition of Silcott announced alongside our admission to AIM. Our attention is to provide investors with an opportunity to gain exposure to the Central London residential property market, one of the resilient sectors of the UK housing market over the past few decades, and to that end, we have identified, and have letters of intent in place, for properties worth in excess of £40 million.

 

‘We know the opportunity is there.’

 

He said the Reit structure means ‘we will have the ability to purchase properties at a discount to market value and will look to increase value through active asset management, aiming to generate growth in capital values and rental yields’.

 

He added: ‘Our management team will use their many years of expertise and will exploit our long-term relationship in the Central London residential market to build a portfolio in excess of £500 million.’

 

BP reaches record $18.7bn settlement for 2010 Gulf of Mexico disaster

Otmane El Rhazi from Mindful Money » Shares.

Five years on from the Deepwater Horizon accident and spill in 2010, BP has reached an agreement to settle all federal and state claims arising from the event.

The oil major is set to pay a record $18.7bn in damages to the US government and five Gulf states as a result of the incident, which is widely regarded as one of the worst environmental disasters in US history.

BBC News reported that the agreement with the US Department of Justice came as a US federal judge was forecast to rule on how much the oil major owed in Clean Water Act penalties following the incident, which saw more than 125mi gallons of oil spill into the Gulf after an explosion at the Deepwater Horizon oil rig.

BP has said its costs have already surpassed $42bn without the Clean Water Act fine.

In a statement Bob Dudley, BP’s group chief executive, said: “This is a realistic outcome which provides clarity and certainty for all parties.

“For BP, this agreement will resolve the largest liabilities remaining from the tragic accident and enable BP to focus on safely delivering the energy the world needs.

“For the United States and the Gulf in particular, this agreement will deliver a significant income stream over many years for further restoration of natural resources and for losses related to the spill.

“When concluded, this will resolve not only the Clean Water Act proceedings but also the Natural Resource Damage claims as well as other claims brought by Gulf States and local government entities.”

Shares in Persimmon are a ‘hold’ as the house-builder reports figures in-line with market expectations

Otmane El Rhazi from Mindful Money » Shares.

As Persimmon updates the market, Helal Miah, investment research analyst at The Share Centre, explains what it mean for investors…

Persimmon’s first half trading figures proved to be in-line with expectations and continue to reflect the buoyant market for new homes. Total revenues increased by 12% to £1.34bn, as legal completions rose by 7%, while the average selling price for each home rose by 4% to £195,000.

Investors should acknowledge that visitor numbers remain high, similar to last year’s levels, while customer demand has been supported by an increasingly competitive mortgage market. Despite the slowdown in planning applications prior to the general election, the group still opened a further 122 new sites taking the network of active sites to 395 across the country.

Going forward, the house builder is looking to open another 125 new development sites during the second half of the year and is actively looking to strengthen the land bank. We believe this strategy is in-line with the ongoing strong demand for housing as the UK economy and population grows.

We currently recommend Persimmon as a ‘hold’ for medium risk investors seeking growth, but would not discourage investors buying on dips in the share price. However, our preferences in the sector are Taylor Wimpey and Berkeley Group.

Five European share tips to beat the Greek gloom

Otmane El Rhazi from Mindful Money » Shares.

Tim Crockford, co-manager of the Hermes Sourcecap Europe ex-UK Fund, believes revitalised European companies can defy the pervading Greek gloom…

Europe’s private sector exposure to Greece has been reduced significantly since the last Greek drama in 2012, with European banks, in particular, reducing their holdings of Greek government debt to immaterial levels. The contagion threat is that fear spreads to the periphery of Europe, pushing up yields and potentially de-railing the recovery that is underway in the region.

We expect that the European Central Bank will continue to stand behind markets, and while European yields have climbed since their trough, they continue to remain well below historic levels.

Revitalised European corporates

Since the onset of the crisis, European corporates have diversified their revenue bases at a domestic European level and internationally.  We continue to like those firms that have reinvented their product lines and are reducing their fixed costs – which has driven profitability ahead of improving revenue growth.

These companies offer flexibility if the European recovery stagnates and exposure to the improving macro via increased operational leverage if it continues. We have been using the recent volatility to increase our exposure to these companies.

Renault 

Renault is a great example of these companies. Owned across all three of our strategies, the French automaker is driving earnings and freeing up cashflow for investors from the cost side, as it migrates production to its new Common Module Family platform and increases the commonality of parts shared between different models. Naturally, a continuation of European auto sales gains following a recent pause would benefit Renault to a greater extent than German car manufacturers, which have also been reliant of China for sales growth. A healthy new model pipeline will also help Renault’s relative sales gains.

Legrand

Legrand has actively cut out low-profit margin product lines, increasing its margins in the process, while expanding into the US organically and in the Far East by acquisition. As the company increases its market share in these regions, so too is its pricing power increased, as retraining acts as a barrier to their electrician customers switching to other brands. However, Legrand still generates more than half of its revenues in Europe, and margins are significantly higher in these regions due to their dominant market shares. Following 14 consecutive quarters of declines in Italy and 13 in France, a turnaround in these countries will therefore have a disproportionately positive effect on profits, when these markets do eventually turn. In the meantime, the company continues to grow revenue by increasing prices in markets where they see relative strength.

Sartorius

Europe is not all about restructuring, however, and there are still some high-growth areas that particular European companies are exposed to, such as healthcare companies that are in the biological drug space. Although only about a quarter of treatments currently available are biologics, this emerging class of drugs accounts for over half of the global pharmaceutical pipeline. We expect Sartorius to continue to benefit from this shift towards increased manufacture of biologics, as one of the leading manufacturers of equipment that is used in the manufacturing process. In addition to enjoying double-digit sales growth, the company also benefits from high visibility towards future sales growth, since once a particular piece of equipment that makes up one of the stages of biologic manufacturing is approved at inception, it is extremely difficult for the manufacturer to change supplier. Hence, Sartorius will enjoy an annuity stream from consumable products that are sold to drug manufacturers using their equipment.

ASM International

Dutch semiconductor equipment manufacturer ASM International remains a core holding with its prospects tied into a number of trends that are driving adoption of its key technology, Atomic Layer Deposition, or ALD.  We expect the ALD market to be more than double the size it was at the end of 2014 by 2017. With a clear technology advantage after a 20 years research and development head-start, ASM has a market share of over 75% in the leading-edge ALD space, which will drive an acceleration of revenue growth at the company as chipmakers continue to miniaturise. However, on a 13x 2016 earnings valuation and a 6% free cashflow yield, ASM International’s valuation is hardly pricing in this structural growth opportunity, and it remains at a significant discount to many of its closest peers, despite the company’s dominant market position.

Cerved Information Solutions

Our latest addition to the portfolio is Cerved, the leading credit information supplier in the Italy, selling credit data analyses reports to financial institutions and increasingly, corporate customers. The business model is hugely attractive; with a primarily fixed cost base, the company’s credit information division makes 85c on every euro of additional sales, and sales volumes are just starting to pick-up, thanks to Italian loan growth moving into positive territory. Their scalability is matched with impressive free cashflow generation, with conversion rates of over 80%, putting them on a free cashflow yield of 6%. At an unstretched valuation, investors are “paid to wait” for volumes to pick-up in the credit information market as lending increases in the country. In the meantime, reforms to the Italian bankruptcy law will have a positive effect on their credit management business, and we expect that increasing improvement in Italian lending will drive more investors to focus on this highly consolidated market.