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What’s happening

Plus500 slumped on a profit warning, which was due to its clients not losing enough. The contracts-for-difference bookmaker said the effect of European leverage regulations in combination with maintained marketing spend was “likely to result in 2019 profit being materially lower than current market expectations”.

Full-year results from Plus500 showed revenue up 65 per cent to $720m on a 20 per cent higher cost base, resulting in profit nearly doubling to $503m. But analysts highlighted that the average user acquisition cost rose more than 400 per cent year on year in the fourth quarter to $1,489 each.

“The reason for the warning is that Plus500 considers its revenue run-rate to be currently around $100m, having disclosed that revenue from client losses in the fourth quarter was $56m and was achieved primarily given the bearish — but volatile — market, where clients are generally long. This has never been disclosed and to some extent makes more visible the inherent uncertainty in forecasting.”

Peel Hunt

Michelin led the Stoxx 600 gainers after its fourth-quarter results beat consensus forecasts, which had been lowered in response to a third-quarter profit warning. The tyremaker’s US volumes and pricing were ahead of forecast, while 2019 guidance for demand and raw materials costs was as expected.

“Michelin is able to sustain premium price points, while concurrently gaining market share — this is the perfect recipe for earnings growth . . . Given the combination of a lowly valuation and robust earnings outlook, we expect the company will relaunch its share-buyback at the upcoming capital markets day.”


Coty, which was last year’s worst performing S&P 500 member, surged after JAB Holdings, which owns a 39 per cent stake in the cosmetics maker, launched a tender offer to increase its shareholding to up to 59 per cent.

Omnicom gained after the US advertising agency reported its best US organic growth in the past 10 quarters. Group fourth-quarter earnings per share were $1.77 compared with a $1.66 consensus, though the beat was powered largely by non-operating items such as interest, tax and investment income.

Sellside stories

● Goldman Sachs upgraded Rio Tinto to “buy” and cut BHP to “neutral” in a mining sector review.

The outlook for mining equities remains positive in spite of lowered expectations for global demand growth as there remains a lack of meaningful supply growth, either now or in the medium term, said Goldman. The big-four European miners are generating significant free cash flow and have few capital expenditure commitments, suggesting the majority will be returned to shareholders, it said.

Goldman’s advised switching from BHP to Rio was on the back of the disaster at Vale’s iron ore dam in Brazil, and the uncertainty it creates in the market. Rio will be looked upon more favourably by investors as iron ore will provide more than 70 per cent of its 2019 operating earnings, said the broker.

As part of the same research, Goldman downgraded First Quantum to “neutral” on valuation grounds. Anglo American was its top pick in the sector as it “is one of only a few high-quality companies for which we expect positive earnings momentum this year, benefiting from the return of Minas Rio to operation”.

● Credit Suisse downgraded Spire Healthcare, the UK private hospital operator, to “underperform” from “neutral” with an 85p target price. It predicted that Spire would this month scrap its 2022 target of £200m in operating earnings.

“We expect UK hospital market conditions to worsen in 2019 and temper Spire’s nascent progress in private pay growth. Further, soft NHS revenues should impair fixed-cost absorption. The structurally lower profitability prompts us to cut the market value of Spire’s property from £1bn to £500m.”

Credit Suisse

Credit Suisse said that deteriorating profitability affected the likelihood of another bid from Mediclinic, Spire’s biggest shareholder, which made a 315p-a-share takeover offer in October 2017. Mediclinic said in June that its long-term intention was to fully own Spire or to fully sell down its stake. That outcome looks “closely linked to its ability to shore up its margins under current management”, said Credit Suisse.

● In brief: BE Semiconductor cut to “hold” at Kepler Cheuvreux; Bankia downgraded to “underperform” at Jefferies; Borregaard rated new “buy” at Berenberg; British Land rated new “sector perform” at RBC; Britvic cut to “equal-weight” at Morgan Stanley; Derwent London rated new “underperform” at RBC; GB Group upgraded to “buy” at Stifel; GEA downgraded to “sector perform” at RBC; Galp raised to “neutral” at Goldman Sachs; Hammerson rated new “sector perform” at RBC; Land Securities rated new “outperform” at RBC; Polymetal upgraded to “neutral” at JPMorgan; Telenor upgraded to “overweight” at JPMorgan; Tritax Big Box rated new “outperform” at RBC; Unipol raised to “buy” at Kepler Cheuvreux.

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