UK100

UK 100 equity research

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UK 100 Equity Research

Broker research, valuations, & analysis on the UK 100

13 Mar 19

Stronger earnings before demerger

Prudential announced operating profit of £4,827m (up 6% lfl) and net profit at £3,013m (up 30% lfl). Like other UK Life insurers, Prudential benefited from new longevity assumption changes (£441m). The Asian business was the major contributor to earnings (c. 38%) as the US operations were hit by equity market movements. The demerger process is progressing well. The insurer announced African acquisitions in Cameroon, Ivory Coast and Togo, but we do not expect a significant impact on the group’s figures.

Companies: Prudential

15 Mar 19

Mediocre H2 amid muted FY 19 guidance

Hikma’s H2 18 top-line missed our as well as the street’s expectations marginally. Revenue was up by 4.4% to $1.09bn, driven by the robust performance by the Generic segment (+14%). A decline in the Branded segment (-1%; FX headwinds played a major role), was compensated by a marginal increase in the Injectables (+1%). On the profitability front, the EBITDA margin was up by 5.6ppt to 27%, attributable to a reduction in COGS (47.8% of sales vs 50.3% in H2 17; due to the consolidation of the manufacturing facilities), S&M (6.9% of sales vs 10% in H2 17) and G&A (8.8% of sales vs 10.7% in H2 17), partially offset by an increase in R&D (7.7% of sales vs 5.6% in H2 17). All FY 18 sales numbers are at CER unless specified otherwise. Revenue was up by 8% to $2.07bn, driven by strong across the business segments – Injectables (+6%), Branded (+5%) and Generic (+13%). The core operating margin was up by 2.3ppt to 22.2%, benefiting from the closing down of the Eatontown plant and the integration of the Memphis distribution into the Columbus facility – largely pertaining to the generic business (core operating margin of 13.4% vs 3.6% in FY17), supported by a minor increase in the Branded margin (21.6% vs 21.3% in FY 17), partially offset by a marginal decline in the Injectables margin (40.3% vs 40.6% in FY 17). We expect the manufacturing efficiencies to help realise savings of $20-30m annually from 2019, implying a higher operating margin in the Generics business in the coming years (management targets mid-teens vs 13.4% in 2018). FX had a negative impact of 1ppt on sales. Geographically, the US (62% of total revenue) grew by 8% to $1.3bn, benefiting from the opioid drug-shortage and the strong uptake of new generic drugs, partially offset by a decline in the legacy injectables portfolio and the ongoing pricing pressure in the generic industry. MENA (32% of total revenue) was up by 4.1% to $656m, supported by the strong uptake of the Remsima (biosimilar) in the Injectables segment (+21%), and the solid performance of the Branded segment in Egypt, mitigated by a weak performance in Saudi Arabia and Algeria along with the FX headwinds of 4%. Europe and ROW (6% of total revenue) was up by 15% to $121m, driven by the recent launch of lyophilised products. Our concern was the weak guidance for FY19 — Injectables (revenue $850-900m; core operating margin of 35-38%), Generics (revenue $650-700m; core operating margin in mid-teens), and Branded (revenue growth in mid single-digit), implying group revenue in the range of $2.07-2.17bn.

Companies: Hikma Pharmaceuticals

08 Feb 19

Vaccines drive the strength in Q4; Advair an overhang for 2019 outlook

Strong end to 2018 for GSK, with a better than expected Q4 performance on the top-line as well as profitability. For the full year, it generated adjusted operating profit growth of 6% at CER on sales growth of 5%. The outlook, however, comes in weak, as the first generic competitor for Advair finally makes it through the FDA. Management continues to take bold steps and, although too early to conclude a success, the conviction and reactivity give positive signals.

Companies: GlaxoSmithKline

19 Dec 18

The beginning of an end

After averting the spin-off for years, GSK has finally made up its mind about letting go of the consumer health business. It has announced a JV of its consumer health business with Pfizer’s, which had repeatedly failed in securing a buyer for its consumer health business for quarters. The deal, expected to close in H2 19, is part of the bigger plan to offload eventually the business completely. Within three years of closing the transaction, GSK will look at a separate listing of the JV in the UK, leaving with it just the pharma and the vaccines businesses. GSK will hold 68% stake in the JV, with combined sales of £9.8bn ($12.7bn). The transaction will be accretive to GSK’s non-adjusted earnings in the second full year after the closing. The transaction will involve cash costs of £0.9bn (to be funded by divestment worth £1bn) plus non-cash charges of £0.3bn and aims at cost synergies of £0.5bn by 2022 (with a target of adjusted operating margin in the ‘mid-to-high 20s’ by 2022). To pacify the investors, it has confirmed a dividend of 80p per share in 2019 as well.

Companies: GlaxoSmithKline

14 Jan 19

UK Housebuilding Sector in 2018

‘From the deserts of East Ham to the gardens of Cottenham’, the UK Housebuilding Sector was whacked to the tune of 27% in 2018; and not one share price (out of 18) rose on the London Stock Exchange.

Companies: BWY CRST BDEV WJG PSN RDW TW/ MCS CSP TEF BKG ABBY GLE

31 Jan 19

Q4: resilient despite the oil price drop

Being the first major to publish, the Anglo-Dutch group sets the bar high with adjusted earnings down 4% qoq (after a very strong Q3), despite a 9% decrease in the Brent price and about a 12-15% decrease in European refining margins (as reported by other companies in their trading update).

Companies: Royal Dutch Shell

21 Feb 19

Check-mate for Sainsbury’s?

CMA has released provisional findings on the proposed merger between Sainsbury’s and Asda, which states that the deal could: 1) push-up the prices and worsen the experience for in-store and online shoppers, 2) lead to a reduction in range and quality of products offered, and 3) the prices could also rise at a large number of Sainsbury’s and Asda petrol stations. The potential options set out by the UK regulator include blocking the deal altogether or requiring the merging companies to sell-off a significant number of stores or other assets (e.g. disposal of one of the brands). Sainsbury’s, which has been at loggerheads with the regulator for many months now, has strongly refuted these claims and reiterated that the combined entity will lead to cost savings, in turn resulting in price decline for customers (the opposite of what the CMA has assessed). The company’s spokesperson has also alleged that the CMA has ‘moved the goalposts’ and its analysis is inconsistent with comparable cases.

Companies: J Sainsbury

27 Feb 19

Ocado JV | It’s a Rights Issue and 40% Dividend Cut, that’s it

Today’s announcement of the up to £750m payment to Ocado for certain assets and rights in a 50:50 joint venture is the first step in the likely long and unprofitable development of national online coverage for M&S’s food business.

Companies: Marks And Spencer Group

14 Mar 19

No surprises in the preliminary results

The FY18 performance was in line with the street’s expectations. The key highlights were an increase in the special dividend and healthy free cash flows. However, lower capex in FY18 is attributable to the delayed timing of some investments and management expects higher cash outflow in FY19. We believe the company will remain healthy and well-equipped to sustain this performance (positive lfl and preservation of profit margins). No changes to our stock recommendation.

Companies: WM Morrison Supermarkets

09 Jan 19

Weak November impacts Q4 performance

Despite softer consumer demand in November, Morrison performed better during the Christmas period. Although the company has slashed prices of c.1,000 core products to remain competitive / improve customer perception, other players are also likely to follow suit. We expect increased pressure on the company’s profitability in the forecast years. We will be reducing earnings but maintain the stock recommendation.

Companies: WM Morrison Supermarkets

18 Jan 19

Robust Q3 FY18/19 performance

The Q3 results came in ahead of our expectations, gaining strength from the robust US performance. Also, the UK provided much-needed support to its topline, led by positive B2B growth and moderating B2C losses. LatAm and EMEA/Asia also remained positive. Moving forward, regulatory risk (dealing with data privacy laws) seems to be the only risk in the US, whereas in the UK, we maintain our cautious stance given Brexit-led uncertainty stretching further. We have revised our estimates upwards. No change in the stock recommendation.

Companies: Experian

19 Feb 19

Good finish to 2018

RB reported strong Q4/FY 18 numbers, trumping ours as well as street estimates. Q4 revenue grew by 4% lfl to £3.34bn. IFCN (baby food) was the standout, rebounding strongly from production disruptions in Q3. FY 18 revenue was up by 3% lfl to £12.6bn while operating income grew by 12% to £3.36bn. Full year dividend was raised by 4% to 170.7p per share. Management expects FY 19 growth of +3-4% and adjusted operating margin to remain similar to FY 18.

Companies: Reckitt Benckiser

20 Feb 19

Accelerated savings gains delivery

Second half operating trends were in line with plan, enabling management to reiterate its financial objectives for this year secured by accelerated savings gains delivery.

Companies: Lloyds Banking Group

21 Feb 19

Not exciting results

Financial overview Sales were £18.4bn, flat yoy and in line with the expectations Revenues were down 2% yoy Underlying EBITA was down 2% while operating profit (IFRS measure) grew by 13% to £1.6bn, in line with expectations Operating business cash flow was down by 43% while the IFRS measure of net cash flow from operating activities was £1.2bn, down by 37% EPS came at 42.9p, in line with both expectation and guidance Order intake grew by +40% to £28.2bn Order backlog reached £48.4bn vs. £38.7bn in 2017 (IFRS restated) For FY19 BAE sees its EPS growing by a mid-single digit range compare to FY18 and expected to reach more than £3bn over the next three years

Companies: BAE Systems

25 Feb 19

Act 1. New Disposal Programme.

Continental exposure protected Hammerson from a bloodbath (read Intu Latest). Nevertheless UK valuations are down by 9% on H2 2018.

Companies: Hammerson

02 Jun 15

Swoon Editions - ELITE at London Stock Exchange

05 Feb 19

Consumer Staples: Our Best Ideas We expect sector rotation into defensives: Buy ABI, Imperial, Reckitt

Premium

14 Feb 17

London Stock Exchange Group - Your Guide to ESG Reporting

23 Jan 19

Contact General Retailers - Rating recovery amidst downgrades

Premium

02 Jun 15

I Nexus - ELITE at London Stock Exchange

20 Apr 17

Geoff Drabble, Ashtead Group CEO

Premium

09 Sep 15

Alkane Energy - Interim Results

03 Jun 15

Guidance Marine - ELITE at London Stock Exchange

06 Jul 15

Alkane Energy - Trading update

02 Jun 15

Independent Vetcare - ELITE at London Stock Exchange

03 Jun 15

Celtic Renewables - ELITE at London Stock Exchange

02 Jun 15

BE-Thinking - ELITE at London Stock Exchange

14 Jun 17

NHAI - Market open

02 Jun 15

Marmalade Technologies - ELITE at London Stock Exchange

16 Sep 15

Alkane Energy - Recommended cash offer

Latest Content

Hikma Pharmaceuticals

Mediocre H2 amid muted FY 19 guidance

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15 Mar 19
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WM Morrison Supermarkets

No surprises in the preliminary results

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14 Mar 19
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Prudential

Stronger earnings before demerger

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13 Mar 19
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Aviva

New management, same issues

Aviva posted record cash remittances at £3.2bn, but without reaching the £8bn targeted for 2016-18. The capital position remained solid with a Solvency II ratio at 204%. The Board decided to distribute a final dividend of 20.75p/share, bringing the dividend for the whole year to 30p. The IFRS profit after tax, up 2% to £1,687m, was better than expected, with a significant release of longevity provisions (£728m). The new management will continue to focus on debt reduction (£1.5bn) thanks mainly to internal sources.

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07 Mar 19
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Legal & General Group

Better earnings, in part thanks to life expectancy changes

L&G reported FY18 operating profit from divisions of £2,231m, 1% above estimates. All business lines posted an improvement in profitability, mainly L&G Retirement which recorded a 21.8% increase in its operating earnings to £1,115m. AuM crossed the threshold of £1tn. Net profit reached £1,827m, -3% yoy, as the prior year recorded a one-off US tax benefit of £246m, and perfectly in line with estimates. The proposed final dividend is 11.82p. We keep our positive opinion on the company.

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06 Mar 19
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AAL BAY CNR CAS IRR KEFI KRS THR TSTR

SP Angel – Morning View

Anglo American (AAL LN) – De Beers diamond sales | Aston Bay Holdings* (BAY CN) – Aston Bay Announces Exploration Agreement for Gold Exploration Property in Virginia, USA | Condor Gold (CNR LN) – Permitting application underway for the America and Mestiza pits | Crusader (CAS LN) – Suspended on AIM – Copulos potentially rushing asset sale ahead of 249d shareholder meeting on 22nd March | Crusader (CAS AU) – ASX listing also suspended | IronRidge Resources* (IRR LN) – Cape Coast Ghana lithium intersections | KEFI Minerals* (KEFI LN) – PM expresses support for the Tulu Kapi project | Keras Resources* (KRS LN) BUY, Target price 1.04p – 10,000t bulk sample completed and stockpiled ready for shipping | Thor Mining* (THR LN) – Plan to list Enviro Copper | Tri-Star Resources* (TSTR LN) – Goynuk sale completed

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05 Mar 19
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GTE PTAL POE XOM SEN GKP AOI GBP RDSA

GMP FirstEnergy ― UK Energy morning research package

Gran Tierra Energy (GTE CN/LN); HOLD, C$4.75: Reports 4Q18 FFO below estimates, updates 2019 guidance | PetroTal (PTAL LN/TAL CN)1; BUY, £0.40: Second production well spudded in Peru | Pan Orient Energy (POE LN) (not covered): Thailand L53-DD4 Well Confirms L53DD Oil Field Extension | ExxonMobil (XOM US) (not covered) finds gas in Cyprus Block 10 | Serinus Energy (SENX LN/CN)1; Speculative Buy, £0.25: TEG Unit Enroute to Moftinu in Romania | Gulf Keystone Petroleum (GKP LN) (not covered): Payment in Kurdistan | Africa Oil (AOI CN/SS): BUY, C$2.20: 4Q18 results | Global Petroleum (GBP LN)1; Speculative Buy, £0.05: Work commitment in Namibia | Royal Dutch Shell (RDSA/B LN) (not covered): To be prosecuted over Nigeria licence

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04 Mar 19
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Rolls-Royce

Good FY18 results, lackluster 2019 outlook

Rolls Royce reported better than expected FY18 results. Civil Aerospace and Power systems have experienced solid progress. The positive news also came from strong FCF at £641m, above consensus expectations. On the other hand, RR increased its T1000 charges by £236m due to customer disruption costs. RR posted encouraging results but the 2019 outlook is not surprising. We prefer to remain cautious on the stock at this stage.

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01 Mar 19
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RSA Insurance Group

More time is needed to recover

Higher weather-related costs and large loss challenges in Commercial Lines have driven down RSA’s underlying result (-20% to £492m). Scandinavia remains the largest contributor to the Group’s operating earnings (59%). Net profit stood at £326m, lower than our estimates (£355m). The insurer proposed a final dividend of 13.7p (vs. 14.2p expected by us). The capital position was above the targeted range (130-160%) at 170%. In total, RSA’s figures disappointed and confirmed the difficulties in its home market.

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