News & tips: Easyjet, Go-Ahead, Aga & more

Today’s market overview

The UK market continues to post strong gains following last week’s collapse. It’s a public Discount Holidays © holiday in China, so the source of recent turmoil is mercifully quiet.

IC TIP UPDATES:

Budget airline easyJet (EZJ1) was “best placed to maximise the strong late summer demand from UK passengers to get away to beach and city destinations across Europe,” said chief executive Carolyn McCall. In other words, the late-August rains prompted a dash south, and easyJet was the beneficiary, with a record 7.06m passengers flown in August and a record 94.4 per cent of seats flown occupied. The company now expects pre-tax profits of 675m- 700m for the year to September – effectively reversing the profit warning issued alongside the half-year results in May. Buy2. Our buy tip Barclays (BARC3) has continued with its plan to reduce its risk-weighted assets by selling perceived non-core businesses, this time offloading most of its Portugese operations. It has sold its retail banking, wealth and investment management and part of its corporate banking business to Bankinter, as well as offloading its insurance business to Bankinter’s joint venture.

The deal will reduce the bank’s risk-weighted assets by 1.7bn and slightly improve its capital ratio. Buy4.

Go-Ahead (GOG5) shares fell 7 per cent after it pushed back its timetable for achieving 100m in bus profits by a year to 2016-17. Management cited “lower passenger volumes and congestion in London as a result of infrastructure improvement works”. Otherwise the numbers were solid, with adjusted operating profits up 11 per cent to 115m. Our buy6 recommendation is under review. The Competition & Markets Authority yesterday cleared Booker Group‘s (BOK) acquisition of the Londis and Budgens businesses. The wholesaler took the opportunity to update the market on its trading. Like-for-like sales for the 10 weeks to 28 August were up 0.5 per cent excluding tobacco products, sales of which fell 6.5 per cent following restrictions on small stores displaying cigarettes.

Total sales were down 2 per cent. Our recommendation is under review. 7

Self-storage group Safestore (SAFE8) continues to grow by letting out vacant space. Occupancy at the end of the third-quarter was 72.2 per cent, up from 68.4 per cent a year earlier. That represented like-for-like revenue growth of 8.6 per cent – or 11.3 per cent excluding the impact of the weakening euro on its Paris arm. Growth has been particularly strong in the UK. Buy9. Niche engineer Carclo (CAR10) posted a broadly reassuring AGM statement. The LED business, which develops lighting technology for luxury car manufacturers, is exceeding expectations as various programmes transition to prototype or production phases.

But the board tempered any optimism by noting that spares orders in the aerospace components business had been soft. Buy11. Aim-listed professional services group Fairpoint (FRP12) has pivoted to legal services, which accounts for almost half of all revenues following last year’s acquisition of Simpson Millar and Fosters. Pre-tax profits rose by 21 per cent to 4.1m for the first half. Buy13.

Alumasc (ALU14) delivered its best performance since the recession as surging demand for the builders’ supplier’s niche energy and water management systems triggered 16 per cent growth in underlying operating profits. Together with an encouraging outlook for construction markets and a growing pipeline of new products, that sparked a 7 per cent rally in the shares in morning trading. Buy15.

KEY STORIES

The bidding battle for Aga Rangemaster (AGA16) continued as Middleby, the company that announced an agreed offer for the classic cooker manufacturer in July, issued an irritated reaction to Tuesday’s possible counter-bid from Whirlpool Corporation. Middleby encouraged Aga shareholders to “consider the motivations of the approach by Whirlpool, in particular why it has waited until this late stage in the process to approach AGA”. Investors should sit tight and wait for Middleby to improve its offer.

Shares in Lookers (LOOK17) accelerated 8 per cent in morning trading after the car dealer announced a 87.5m acquisition. The acquired company, Addison, generated pre-tax profits of 7m last year and is expected to immediately boost Lookers’ bottom line. Strong summer demand for the package Discount Holidays © holiday prompted tour operator Dart Group (DTG18) to post a very bullish notice to investors, with the board “optimistic that Group performance for the financial year ending March 2016 will materially exceed current market expectations”. Ticket prices have also been higher following the company’s decision to scale back capacity following last summer’s profit warning. The shares rose 11 per cent in early trading.

Total Produce (TOT19) seems unaffected by deflation in the UK grocery market. The fresh produce supplier posted like-for-like sales growth of about 2 per cent as a result of higher prices.

Add in acquisitions and the benefit of currency translation (the group reports in euros) and top-line growth totalled 9.2 per cent. Motor accident specialist Redde (REDD) posted annual results that go a long way to justifying its transformation into one of the largest companies on Aim. Adjusted pre-tax profits almost doubled to 22.7m, reflecting 17 per cent like-for-like top-line growth. The company, which provides cars and legal services to the victims of accidents, is also consolidating its market, and last month made a major acquisition for 43.2m.20

Convenience store chain McColl’s (MCLS21) continues to suffer from the effects of the supermarket price war, though there were signs of a modest improvement in the trend in its third-quarter numbers. Like-for-like sales were down 2.3 per cent – marginally better than the 2.5 per cent decline registered for the second quarter.

Total sales rose 3 per cent due to the acquisition of profitable stores.

A total of 46 outlets have been added year-to-date.

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References

  1. ^ EZJ (markets.investorschronicle.co.uk)
  2. ^ Buy (www.investorschronicle.co.uk)
  3. ^ BARC (markets.investorschronicle.co.uk)
  4. ^ Buy (www.investorschronicle.co.uk)
  5. ^ GOG (markets.investorschronicle.co.uk)
  6. ^ buy (www.investorschronicle.co.uk)
  7. ^ BOK (markets.investorschronicle.co.uk)
  8. ^ SAFE (markets.investorschronicle.co.uk)
  9. ^ Buy (www.investorschronicle.co.uk)
  10. ^ CAR (markets.investorschronicle.co.uk)
  11. ^ Buy (www.investorschronicle.co.uk)
  12. ^ FRP (markets.investorschronicle.co.uk)
  13. ^ Buy (www.investorschronicle.co.uk)
  14. ^ ALU (markets.investorschronicle.co.uk)
  15. ^ Buy (www.investorschronicle.co.uk)
  16. ^ AGA (markets.investorschronicle.co.uk)
  17. ^ LOOK (markets.investorschronicle.co.uk)
  18. ^ DTG (markets.investorschronicle.co.uk)
  19. ^ TOT (markets.investorschronicle.co.uk)
  20. ^ REDD (markets.investorschronicle.co.uk)
  21. ^ MCLS (markets.investorschronicle.co.uk)

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