Monday 13:00 GMT

What’s happening

● British Airways’ owner IAG slumped after its investor relations team emailed analysts and investors to “clarify comments” on free cash flow made at a post-results conference call last week. IAG said to “expect equity free cash flow to be lower in 2019 than in 2018 based on our guidance of operating profit being similar in 2019 compared to 2018 and on an increase in net capex [capital expenditure] from €2.2bn in 2018 to €2.6-€2.7bn in 2019”.

The email appeared to contradict guidance from Enrique Dupuy de Lôme, IAG’s chief financial officer, who said on a Thursday call that the company was “forecasting for ’19 an increase in free cash flow” based on the same capex range given in the email. Challenged by HSBC analyst Andrew Lobbenberg on how steady earnings and flat capital expenditure could deliver a year-on-year improvement in free cash flow, Mr de Lôme said operating earnings before interest, tax, depreciation and amortisation would be “some millions above last year” because of “the way the net financial expenses are going to be reallocated”. He added that “at the end of the day, we are foreseeing improvement in free cash flow in the range of €200m”.

Daily Mail and General Trust gained after the publisher said it would give shareholders its remaining 49 per cent stake in Euromoney and £200m in excess cash.

DMGT also set out a share reduction to avoid dilution to earnings per share. The Rothermere family would not participate in the process, meaning its overall control of DMGT would rise from circa 24 per cent to 36 per cent.

“The manoeuvre is designed to remove the holding discount on Euromoney shares. Euromoney had represented up to 40 per cent of the market value of DMGT but DMGT did not have full management control. It turns DMGT into a smaller group but one with full control of its assets.”

Morgan Stanley

Ted Baker edged higher after founder Ray Kelvin resigned as chief executive. The fashion label, which had launched an investigation two months ago to look into allegations of misconduct, said Mr Kelvin would stay on until no later than November 2020 to support acting CEO Lindsay Page.

“We believe Lindsay Page and team can ably lead Ted (as they have done in the past) but anticipate that the board will undertake a thorough review and search for potentially new management to lead Ted in its next stage of growth.”


Sellside stories

● Citigroup downgraded Victrex, the polymer maker, to “sell” from “neutral” with a £20 target price. It worried that growth was diluting the quality of Victrex’s earnings and saw competition developing for its key product, a high-resistance plastic known as Peek that has qualities similar to metal.

A decline in medical sales has already eroded Victrex’s gross margins over the past eight years, said Citi. Much of Victrex’s growth will come from industrial sectors so margins may decline further, while the capacity additions required to supply these markets increases capital intensity and dilutes sales growth, it said.

On competition, Citi saw Victrex’s Peek maintaining its market-leading position and premium price because alternatives were limited. But it highlighted Solvay as a strong competitor given the Belgian group’s 20 per cent cheaper product and expertise in the electronics markets.

“Given the margins and returns potential of high-performance polymers, we have long expected for the Victrex advantage to be competed away,” it said. “Whilst the market remains in its infancy, we think these are the first steps in competition materialising and they could intensify.”


Finally, Citi argued that even though growth looked to be slowing, Victrex was trading at a 20 per cent premium to history based on operating earnings.

● RBC downgraded Heineken to “sector perform” and raised Carlsberg to “outperform” as part of a review of the European consumer staples sector. Its study found that companies that increased revenue reinvestment in marketing had enjoyed sector-leading revenue growth, whereas those that had cut marketing were laggards.

“Strong revenue growth, and associated operational gearing, are the prerequisites of a virtuous circle business model, the holy grail of consumer staples management. Campari, L’Oréal and Diageo are all well placed, but . . . that’s reflected in their share prices. Carlsberg might be clambering on to the virtuous circle . . . Conversely, Heineken has been cutting marketing; sales growth remains robust, but for how much longer without incremental revenue investment?”


● In brief: Acacia Mining rated new “add” at Peel Hunt; Accesso Technology downgraded to “add” at Peel Hunt; Acciona cut to “neutral” at Citigroup; Ageas upgraded to “hold” at HSBC; Casino downgraded to “hold” at Société Générale; Euronext raised to “buy” at Commerzbank; Knorr-Bremse downgraded to “hold” at Kepler Cheuvreux; Novozymes cut to “reduce” at Kepler Cheuvreux; Prosegur Cash downgraded to “neutral” at Citigroup.

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