Key announcements 12 - 16 May

Announcements during the week 12-16 May 2014

During last week while I was away there were ten announcements of note for shares that I hold:

     Anite issued a trading update on the 12 May and stated that trading in the final quarter of the year was encouraging and reflected the improvement anticipated at the time of the third quarter IMS.  Management therefore expects to report full year results in line with expectations.  They also stated that cash generation in the second half was stronger than expected, due to improved working capital management.  Group net cash at 30 April 2014 stood at £6.0m compared to a net debt position of £6.0m at 31 October 2013.  


Diploma issued their interim results on the 12 May with revenue showing an increase of 6.4% to £148.6m, adjusting for acquisitions and currency effects revenue increased by a very respectable 9%. Reported operating profit increased by 0.8% to £24.4m, with adjusted operating profit increasing by 3% to £27.8m.  EPS grew by 1.4% to 14.9p, with adjusted EPS up 2.9% to 17.5p. The interim dividend was increased by 8% to 5.4p.  Free cash flow was strong at £14.8m compared to £12.7m last year, although £11.1m spent on acquisitions and a £12.1m dividend payment were the main causes for the net cash declining from £19.3m at the end of last year to £8.0m at this interim stage. The Board stated that they remain confident of future growth, as the recent Investment for Growth programme provides the platform to benefit from continued underlying growth, supported by attractive and value creating acquisitions.






Glaxo on the 13 May issued results of a phase III trial for Darapladib informing the market that it did not achieve the primary endpoint of a reduction of major coronary events, versus placebo when added to standard of care. Glaxo will conduct further analysis, but this looks like the end of the road for this drug.  The drug comes from the Human Genome Sciences pipeline - a $3bn Glaxo acquisition from July 2012. Let's hope the rest of HGS's pipeline is more productive.



  On 13 May Diageo announced that they had launched and priced €1.7bn of fixed rate Euro denominated bonds.  The issue consisted of €850m 5 year bonds at 1.125% and €850m 12 year bonds at 2.375%.  That's low-cost borrowing and compares to an average interest cost of 4.9% for the Group last year.  NB I have been buying DGE for my income portfolio since late April when the share price dipped to below 1825p.

  Melrose Industries issued an IMS on 13 May stating that trading remains in line with full year expectations with order intake in the period from 1st January to 13 May up 3% over the same period last year.  The Elster Gas business has achieved a 10% increase in order intake, although underlying sales year to date were down 1% year on year.  The Elster Electricity business shows encouraging signs of significant growth for the year though trading is, as usual, weighted to the second half and notably the final quarter.  Elster Water continues to show a much improved performance since acquisition.  Brush is trading in end markets for power generation which have been slow for a while; consequently revenue was down in the period as expected.  The order intake for Brush though was up 8% in the period.  Bridon is still being held back by a tough mining end market and consequently order intake is down 3% in the period.  Continued current forex rates will likely have an adverse effect of 6% on Group profits.  A bit of a mixed performance, but overall positive, although with the usual forex headwind for international companies.

   

 Compass Group announced their interims on 14 May 2014.  Although revenue fell by 1.6% to £8,659m it grew by 4.2% on an organic basis, driven by North America and Fast Growing & Emerging growing by 6.6% & 9.7% respectively, partially off-set by Europe & Japan declining by -1.6%.  Operating profit at £634m was similar to last year, but on an underlying basis grew by 5.5% to £647m.  EPS grew by 7.4% to 24.7p and on an underlying basis grew by 10% to 25.3p with the interim dividend being increased by 10% to 8.8p.  Free cash flow was £319m for the six months compared to £265m last year.  The Board stated that they believe it is appropriate to increase the balance sheet leverage through returning £1bn of cash to shareholders by way of a special dividend and share consolidation (that's a return of capital not a special dividend).  Management state that following the proposed return of cash, the Group's pro forma balance sheet leverage as at 31 March 2014 would have been approximately 1.5 times, which the Board believes is consistent with its policy of maintaining strong investment grade credit ratings. Looking out to the second half of the year, management's expectations for the full year remain positive and unchanged, notwithstanding the translation impact of ongoing movements in foreign currencies.  The return of capital will be about 56p per share, so depending on the share price at the time, might equate to a share consolidation of about 50 for 53.

 

   ICAP issued their preliminary results on 14th May.  Revenue at £1,397m was below last year by 5.1% and trading operating profit 4.2% below last year at £295m, with reported operating profit (including exceptionals and acquisition & disposal costs) at £140m compared to £91m last year.  Reported EPS was 15.4p an increase of 133% and normalised EPS was 32.6p an increase of 0.3%.  The final dividend was maintained at 15.4p making a maintained 22p for the full year.  Free cash flow was weak at £74m compared to £233m last year.  In addition management state that market conditions remain very challenging.  Regulatory change continues to create uncertainty within the marketplace and they expect this challenging environment to endure.  In the circumstances I was surprised the share price was not weaker following this outlook, although I guess the yield at 5.8% gives some support and their profits came in as expected.

 

 

 Restaurant Group issued an IMS on 15 May that covered the first 19 weeks of the year.  Management stated that trading has been strong with total sales 11% ahead of the previous year and like-for-like sales 4% ahead.  During those first 19 weeks they opened 15 new restaurants and in total they expect to open between 36 and 43 new restaurants this year, roughly half of which will be Frankie and Benny's.  Interestingly they state that the quality of their new site pipeline over the next three years is the strongest they have seen since before the onset of the financial crisis.  The Group is trading in line with expectations, and they state that they are on track to report a very satisfactory first half performance.  This is a solid update from a very well run restaurant chain. 

 

  On 15th May Synergy health stated that they acquired Bioster S.p.A. and associated companies for a cash consideration of €29.0m (£23.6m) on a cash and debt free basis.  Bioster operates ethylene oxide and electron beam sterilisation facilities in Italy, Slovakia, and the Czech Republic.  In the year ended 31 December 2013, Bioster had revenues of EUR 20.2m (£16.4m), and underlying EBIT of EUR 2.6m (£2.1m).  The cash consideration equates to a 6.2x EBITDA multiple and is expected to be earnings enhancing in the current financial year.  Looks like a good fit at a very reasonable price.




    

On 15th May Halma announced that they had made two acquisitions - the first Advanced Electronics Ltd manufactures networked fire detection and control systems. The initial cash consideration for the share capital of Advanced was £14.1m.   There is deferred consideration of up to £10.1m payable based upon earnings growth for the period to March 2015.  Unaudited accounts for the year ended 30 April 2014 report revenue of £14.6m for the business.  The second acquisition was Plasticspritzerei located in Wolfhalden, Switzerland at the same facility as another Halma subsidiary company, Medicel AG.  Plasticspritzerei manufactures plastic components including critical parts for Medicel's ophthalmic products.  An initial cash consideration of CHF 8m (£5.4m) was paid for assets which included CHF 0.3m of cash.  Halma then immediately sold the industrial segment of the business to a third party, resulting in a net cash cost to Halma of CHF 4.8m (£3.2m).  These transactions have resulted in Halma owning only those assets which support Medicel's business.  Unaudited accounts for the financial year ended 31 December 2013 show revenue of CHF 3.6m (£2.4m) for the business retained.