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

Otmane El Rhazi from Mindful Money » Shares.

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

Otmane El Rhazi from Mindful Money » Shares.

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’

Otmane El Rhazi from Mindful Money » Shares.

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

Otmane El Rhazi from Mindful Money » Shares.

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’

Otmane El Rhazi from Mindful Money » Shares.

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

Otmane El Rhazi from Mindful Money » Shares.

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

Otmane El Rhazi from Mindful Money » Shares.

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

Otmane El Rhazi from Mindful Money » Shares.

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.