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What’s happening

Imperial Brands slipped after the tobacco company posted first-half results showing weaker than expected sales of its next-generation products due largely to slow take-up of its Blu e-cigarette in the US.

Better than expected margins on cigarettes meant earnings beat consensus and management reiterated full-year guidance, despite a 6.9 per cent drop in cigarette volumes. However, US next-generation sales of £61m were 45 per cent from the second half of 2018 and the company cautioned that last year’s total e-cigarette revenue was boosted by pipeline effects and non-recurring licence fees.

“We think Imperial’s miss on the top line is more important than the beat on margins and earnings per share, as it suggests Imperial is struggling to compete in next-generation products in the US . . . We believe that if the company can start to demonstrate better growth, there would be considerable upside in the stock. However, the first-half results haven’t done that.”


ITV was the FTSE 100’s sharpest faller after its first-quarter results flagged a sharper than expected deterioration in advertising sales.

Group revenue beat consensus forecasts at £743m, but ad revenue weakened 7 per cent to £417m. Blaming “economic and political uncertainty” as well as tough year-on-year comparisons, management guided for a 6 per cent decline in first-half ad sales.

In response, Liberum took ITV off its “buy” list, where the stock had been for more than a decade. The broker said it had downgraded “because we do not see a material improvement in conditions any time soon and we are having to put through another material downgrade to forecasts. There are many things to be positive about ITV, especially on its viewing performance, and the shares are undoubtedly cheap but, with an uncertain political environment and a continuing pattern of downgrades, it is hard to push a buy case now.”

Siemens jumped in response to the engineer’s announcement overnight that it would split out its Gas & Power division, with a separate listing targeted by September 2020. The plan involved Siemens transferring its 59 per cent stake in wind turbine maker Siemens Gamesa to the spinout and retaining partial control with a minority stake of at least 25 per cent.

As part of the announcement, Siemens also revealed a restructuring and set new long-term targets including an aim to save €2.2bn by 2023, which involved about 12,500 redundancies. Management also reiterated a goal of focusing Siemens around an “industrial core” that included industrial software, process automation and smart infrastructure such as distributed energy systems. Second-quarter results from Siemens beat forecasts and came with unchanged 2019 guidance, so did nothing to steal the attention from the strategy plan.

“The announced steps should support a reduction in Siemens’ sizeable conglomerate discount (25 to 30 per cent at the peak) and reduce the drag from Gas & Power on group valuation given its prominence within Siemens’ industrial set-up and market sentiment. The announcement of a headline cost-savings target, missing in the original August strategy launch, should also be taken positively.”

Societe Generale

Sellside stories

● Citigroup downgraded EssilorLuxottica from “neutral” to “sell” with a €100 price target.

First-quarter results from the glasses maker were “uninspiring”, with 3.7 per cent sales growth at the bottom of the full-year target range and Luxottica frames selling better at retail than through wholesale channels, said Citi. Since wholesale “is a better indicator to gauge how cylinders are firing”, the results suggested management would struggle to deliver merger revenue synergies above the bottom of the range, it said.

“While we are agnostic on governance concerns until it is clear who will push the button to integrate ‘two legal entities fully empowered to run their own business autonomously’, we fear that synergies (including low-hanging ones) are likely to remain on paper and little value created. Trading at 23.4 times 2019 earnings, investors might need more than 3.7 per cent growth to be excited in the short term.”


● Exane BNP Paribas advised buying Asos, Hennes & Mauritz, Next, B&M, Fnac-Darty and Maisons du Monde in research starting coverage of the European retail sector. Its note was based around a consumer survey that led it to conclude that shops have a future. “Consumers prefer multichannel to online and the economics are better too,” it said.

H&M “is the least-liked stock on the sellside, but we expect a multichannel sales-led recovery to gather pace,” said Exane. “Margins and cash flow should also improve, more than offsetting currency headwinds. We see evidence for a recovery in better trends in their key markets, think their catch-up with peers online is taking shape, and are encouraged by the brand health in our survey of shoppers. We think the sector-leading dividend can be held and expect the stock to track earnings upgrades.”

Asos should rebuild margins as warehouse costs drop away and US delivery charges reduce, Exane said. It also argued that Asos was cheaper than German peer Zalando, which was rated “underperform” on “ambitious” margin targets and “structurally weak profitability outside its domestic markets”.

Next offered an attractive free cash flow yield as well as inflecting growth as online overtook high street retail, with the stock cheaper than Marks and Spencer, Exane said. It rated M&S “underperform” due to structural pressures on the clothes business and food margin investment.

● In brief: ASMI cut to “hold” at Kepler Cheuvreux; Alpha Financial Markets rated new “outperform” at RBC; Baloise cut to “neutral” at JPMorgan; Daily Mail rated new “buy” at Investec; DWS raised to “neutral” at JPMorgan; Do & Co rated new “buy” at Berenberg; Euromoney rated new “buy” at Investec; Hexagon raised to “buy” at Handelsbanken and Kepler Cheuvreux; Home Invest Belgium cut to “reduce” at Kepler Cheuvreux; Infineon downgraded to “hold” at Société Générale; Informa rated new “buy” at Investec; Kloeckner cut to “reduce” at Kepler Cheuvreux; Paddy Power raised to “outperform” at Davy; Restaurant Group downgraded to “hold” at Peel Hunt; River & Mercantile rated new “outperform” at Macquarie; J Sainsbury cut to “neutral” at Merrill Lynch; Saab raised to “buy” at Jefferies; Smart Metering rated new “buy” at Liberum; Swatch upgraded to “equal-weight” at Morgan Stanley; Victrex cut to “neutral” at UBS; Westwing cut to “neutral” at Citigroup.

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