Thursday’s Stock Market Report Featuring Auto Trader, Enquest, Next, Sky, Jimmy Choo and Xaar

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The Markets

Seven weeks until the general election and Liberal Democrat & Chief Secretary to the Treasury Danny Alexander unveiled an alternative to yesterday’s Budget. While the Budget was jointly agreed by the Coalition government parties, Alexander told MPs that his party would not cut as much as the Conservatives or borrow as much as Labour if they were in power. Alexander commented, “People want a strong economy, based on a credible plan but people also want a fairer society based on modern public services.” The speech came under criticism however, with shadow Treasury minister Chris Leslie calling the statement a “farce” and saying, “Can we all have a shot of using Parliament’s time and civil servants time for such purposes?”

It was the first day of conditional dealings on the London markets for online car marketplace Auto Trader, with the shares surging by 9% to 256p, up from the IPO price of 235p per share. The firm raised £437 million for itself million on listing, which it will use to pay down debt, along with £926.2 million for selling shareholders Apax Partners. The business, previously known for its used car magazine, closed its print operations in 2013 to focus on its online marketplace for second hand vehicles. In the year to March 2014 revenues rose by 8.6% to £237.7 million but operating profits fell by 10% to £98.7 million after booking in restructuring costs and impairments. The firm is now capitalised at £2.56 billion and should be eligible for inclusion in the FTSE 250 at the next reshuffle in June.

At the London close the Dow Jones was down by 128.97 points at 17,947.22 and the Nasdaq 100 was down by 1.10 points at 4,421.40.

In London the FTSE 100 closed up by 17.12 points at 6,962.32 and the FTSE 250 rose by 74.41 points to 17,438.15. The FTSE All-Share closed up by 10.71 points at 3,758.09 but the FTSE AIM Index slipped by 0.91 points to 714.61.

Broker Notes

Beaufort Securities has a “buy” stance on Galliford Try (GFRD) after yesterday’s announcement of its appointment to two major public sector construction frameworks. The broker believes that the construction group has added further to its impressive line of contracts, with its strategy for long-term collaboration and the recent surge in the house building and the construction business, driven by the government’s Help to Buy scheme, leading to a significant top-line growth. While Beaufort flags that we are witnessing some cooling in the UK housing markets it expects the company’s strong order book and solid land bank to uphold prospects. The broker believes that the firm still has the ability to generate meaningful returns, despite a recent good share price performance. Galliford Try shares closed the day down by 13p at 1,503p.

Westhouse reiterated its “buy” rating for EnQuest (ENQ) after the hydrocarbons producer revealed results for 2014. The numbers showed production of 27,895 barrels of oil per day (boe/d), which was within guidance, with forecasts for an average of between 33,000 boe/d and 36,000 boe/d in the current year. Post tax profits of $137.4 million were ahead of Westhouse’s estimate of $122 million. The broker sees the overall update as positive, noting that important development projects remain on track and Alma/Galia, which provides near-term production growth, remains on track for mid-2015 first oil. Westhouse has maintained its positive rating on the shares and thinks that EnQuest is a play on oil price recovery, with yesterday’s Budget tax cuts also having a positive effect on the valuation. EnQuest shares surged by 6.5p to 40.5p.

Blue Chips

Fashion retailer Next (NXT) continued its march in the year to January 2015, posting its sixth consecutive year of earnings and dividend growth above 15%. Total group revenues were up by 7%, breaking the £4 billion barrier for the first time, driven by a 12% rise in sales from the NEXT Directory. Pre-tax profits were up by 12.5% at £782 million. The firm also returned £572 million to shareholders through the year via a combination of dividends and shares buybacks. Next hiked the full year dividend payment by 16% to 150p per share, with a previously announced special payment of 60p due in May. Pre-tax profit guidance for the current year has been set at between £785-£835 million. The shares, on which broker Nomura has a 7,200p target, fell by 305p to 7,315p.

Drug giant AstraZeneca (AZN) announced a co-commercialisation agreement with global pharmaceutical firm Daiichi Sankyo for its opioid-induced constipation drug Movantik in the US. Under the deal Daiichi Sankyo will pay a $200 million up-front fee and subsequent sales related payments of up to $625 million for the drug, which is expected to be launched in the US in April. AstraZeneca will be responsible for manufacturing of the drug, will book all sales and will make sales-related commission payments to Daiichi Sankyo, but both companies will be responsible for commercial activities. AstraZeneca said that its guidance for the full year, issued to the markets earlier in the month, is not affected by the announcement. The shares rose by 35.5p to 4,785.5p.

Following the receipt of regulatory approvals, broadcaster Sky (SKY) has completed the sale of an 80% stake in its online betting and gaming business, Sky Bet, to certain funds and members of the Sky Bet management team. The deal values Sky Bet at £800 million, with Sky receiving £600 million and a vendor loan note as part of the deal. Sky will also be entitled to further consideration contingent on CVC Capital Partners, which advised the buying funds, achieving certain minimum return criteria on its investment. Sky retains a 20% in Sky Bet but made the sale to focus on growth in the pay TV markets. Shares in Sky closed the day up by 2p at 1,027p.

Mid Caps

Luxury shoe seller Jimmy Choo (CHOO) saw its shares fall by 5p to 170p after releasing its first set of results as a public company. The firm grew revenues by 6.4% to £299.7 million in 2014, with adjusted earnings before interest and tax up by 0.9% at £35.4 million. The numbers were driven by an 8.8% sales rise in the core Retail division and an 11.1% rise in the Licensing business, which offset a modest 1.9% gain in Wholesale. Results would have been a lot better if it weren’t for negative currency movements, with revenues affected by around 6% on translation. Highlights of the year included the firm opening nine new directly operated stores and a successful start to the roll out of its new store concept with the opening of the New Bond Street and Beverly Hills flagships.

Also in the fashion industry Ted Baker (TED) reported on a strong financial year, with pre-tax profits surging by 25.3% to £48.8 million in the 53 weeks to January. Revenues grew by 20.4% in the year to £49.5 million on the back of Retail sales growing by 18.4% and Wholesale revenues rising by 28.5%. There was a particularly strong performance in the US and Canada retail business, which saw sales up by 25%, with E-commerce sales across all of Retail surging by 58%. Ted Baker hiked the total dividend for the year by 19.6% to 40.3p per share, with the payment being almost double that made four years ago. While the shares fell by 71p to 2,746p broker Canaccord Genuity upped its target price from 2,575p to 3,180p following the results.

In a brief statement housebuilder Crest Nicholson (CRST) said that the strong start to the Spring selling season has continued over the last six weeks. Cumulative reservations are 766 units from 44 outlets, representing an open-market sales rate per outlet week of 0.92, up from 0.84 last year. The firm added that it is continuing to make good progress towards its growth objectives. Crest Nicholson shares were up by 15.8p at 441p.

Small Caps

A brief AGM statement from Arden Partners (ARDN) helped to push the shares up by 0.5p to 51.5p. The financial services group has been encouraged by the level of equity commissions transacted in recent weeks, and while broker commissions in the sector remain under pressure, the firm said there continue to be fertile areas for the active broker to seek out. Arden has made several senior hires in its corporate finance business in recent times and entrepreneur Luke Johnson of Pizza Express fame will join the board as a non-exec upon receipt of regulatory approval.

Elsewhere in the finance world, Arbuthnot Banking (ARBB) reported on a strong performance in 2014, with pre-tax profits rising by 43% to £22.5 million. Across the group customer lending exceeded £1 billion for the first time, rising to £1.1 billion, up from £732 billion at the end of 2013. Private Banking business Arbuthnot Latham posted a pre-tax profits of £3.6 million, seeing customer loans up by 57% at £536 million and assets under management up by 26% at £666 million. Meanwhile, retail banking business Secure Trust Bank posted a pre-tax profit of £26.3 million as customer lending balances increased by 59% to £622 million. Arbuthnot will pay a total dividend of 27p per share for the year, up from 26p in 2013. The shares slipped by 24p to 1,380p.

Xaar (XAR) reported on a difficult 2014 financial year, which saw the inkjet printing technology announce a raft of profit warnings. Revenues fell by 19% to £109.2 million in the period, with pre-tax profits plunging by 40% to £24.6 million. The firm blamed the performance on a step-down in demand in the second half of the year from the ceramic tiles business due to the slowing property and construction markets in China. Despite the performance, Xaar ended the year with net cash of £47 million and increased the dividend by 1p to 9p per share. Into 2015 and beyond, the firm expects the current year to be one of stabilisation, before a return to growth is seen in 2016. Cuts made in the final quarter of 2014 (including 160 job losses) will see costs reduced £9 million this year. Xaar shares rose by 19p to 380.75p.

Results from pharmaceutical and consumer strategic marketing firm Cello Group (CLL) reported a 10% increase in headline pre-tax profits to £9.4 million for 2014. The numbers were driven by a 12% rise in gross profits in the Cello Health business and 4.2% growth in consumer business Cello Signal. Following the strong performance the firm increased its dividend by 15.6% to 2.6p per share. Cello added that 2015 has started with a good level of secured forward bookings and encouraging levels of new business wins. The shares fell by 4p to 89p.

Athlete representation and sports marketing group TLA Worldwide (TLA) has bought Elite Sports Properties, an Australian and UK based athlete management and sports marketing company, for a maximum of A25.5 million. TLA said that the deal broadens its international reach by establishing a firm foothold in the UK, adding Britain’s most successful Olympian, Sir Chris Hoy, and double gold medalist swimmer, Becky Adlington, to its roster as well as rights holders such as Rugby World Cup 2015. It also increases the client base by 250 to more than 700 and diversifies into new sports and business lines, including Australian Rules Football, cricket and merchandising. The deal is expected to be earnings enhancing from 2015. TLA shares were flat at 43p.

Chemring Group (CHG) saw its shares fall by 5p to 214.25p after revealing that revenues fell by 34% during the three months to January to £61.5 million. The defence and countermeasures business blamed the fall on delays in order intake in its Sensors & Electronics business, along with the conclusion of Husky Mounted Detection System deliveries in 2014. On the upside, order intake was up by 28% in the period, the order book standing at £530.2 million at the period end. This included an increased penetration of non-NATO markets and 52.4% is due for delivery in the current financial year. Broker Panmure Gordon has a 294p target on the shares.

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