Monday, 13:15 GMT
Primark owner AB Foods was among the biggest FTSE 100 risers after a reassuring trading update. While headline numbers matched expectations, like-for-like sales at Primark turned positive in the last eight weeks of the period and margin commentary is encouraging, said JPMorgan Cazenove.
Ahead of results due tomorrow, Provident Financial dropped on a Sunday Telegraph report that it has sounded out shareholders about a rights issue to raise up to £500m. The cash would reportedly cover potential mis-selling fines and compensation related to its Repayment Option Plans (ROP), which the Financial Conduct Authority is investigating.
Liberum analysts had expected Provident to raise at least £235m — “enough to cover the potential funding shortfall at the end of 2019, plus enough to cover the potential fine and redress relating to the ROP product on top of this”. It called the timing of any cash call “interesting in our view, since there has been no communication from the FCA on the investigation into the ROP product as yet. We believe the discussion of a rights issue indicates that the company is expecting to pay a fine and compensation and likely a solution to a weakened balance sheet.”
Hiscox slipped after the insurer flagged headwinds from costs and capital requirements with mixed full-year results. A £68m second-half loss matched consensus forecasts, but came with a smaller than expected dividend.
In Europe, Nokia moved higher after chief executive Rajeev Suri gave an upbeat presentation and analyst update at the World Mobile Congress in Barcelona. Mr Suri said the introduction of 5G network technology was moving faster than expected, with network rollouts by the end of this year and large-scale deployments from 2020. He added that Nokia was well positioned to win contracts as its end-to-end product portfolio headed to market.
Qualcomm gained around 3 per cent in US pre-market trading after the chipmaker publicly urged Broadcom to sweeten its bid. In a letter to Broadcom’s board, Qualcomm said previous offers materially undervalued the company and proposed a meeting to talk price as soon as mutually convenient.
Dean Foods, the biggest US dairy group, dropped as much as 12 per cent after its fourth-quarter earnings came in at the bottom of previous guidance and set lower than expected targets for 2018.
● RBC upgrades BP to “outperform” from “sector perform” with a 570p target price.
“We think BP’s cash flow framework should improve in 2018, through a growing upstream base and favourable dynamics in the downstream. We think the latter in particular may be under-appreciated by the market.”
“The immediate questions following the company’s profit warning centred around a possible debt covenants breach, and the prospect of a dilutive rights issue to de-risk the balance sheet. We consider both options to be unlikely — the whole business securitisation debt structure was designed in such a way that the AA is more likely to continually refinance rather than significantly pay down its debts. Punitive early repayment costs (circa £550m) mean that a rights issue would be uneconomical. As a result, there is no quick fix for the AA’s substantial leverage, which we expect to remain a concern for several more years.”
● RBC upgrades Heineken to “outperform” from “sector perform”, in a note applauding management’s “less rigid approach to annual margin growth”.
“Heineken has become an exemplary exponent of the virtuous circle, using marketing, innovation and mix to drive revenue growth which in turn provides impetus for further revenue investment. The theory is straightforward; the practice much less so, as evidenced by the rarity of companies that have managed to accelerate both volume and margin growth, as Heineken has in recent years. The decline in marketing/sales in 2017 makes us a little wary, but we nonetheless feel that by abandoning the straitjacket of its 40 basis point annual margin target — which has served its purpose of convincing observers that Heineken is serious about margin growth — Heineken has ensured that it has the wherewithal to continue its pursuit of both revenue and margin growth.”
● In brief: Jupiter Asset Management cut to “sell” at UBS — Charles Taylor cut to “hold” at Peel Hunt — JPMorgan upgrades Suez to “overweight” — HSBC cuts Atos to “hold” and upgrades Tarkett to “buy” — Centrica raised to “outperform” at RBC — CaixaBank raised to “buy” at Jefferies — Eni cut to “sector perform” at RBC
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