Markets
Europe
The FTSE-100 finished yesterday's session 0.25% lower at 6,820.79, whilst the FTSE AIM All-Share index closed 0.07% higher at 793.40. In continental Europe, markets ended in the green, as a weak euro led to gains in export-driven stocks, offsetting the losses in basic resource stocks. Germany's DAX and France's CAC 40 advanced 1.1% and 0.8%, respectively.
Wall Street
Wall Street ended in in the red, as the US dollar strengthened amid increased possibility of an interest rate hike by the Fed. Additionally, positive consumer confidence data released would encourage the Fed to raise rates. The S&P 500 fell 0.2%, with the utilities sector dropping the most.
Asia
Equities are trading mixed, as investors await US non-farm payroll data to gauge the possibility of a rate increase by the Fed. The Nikkei 225 gained 1.0%, as a weaker yen bolstered export-driven stocks. The Hang Seng was trading broadly flat at 7:00 am.
Oil
Yesterday, Brent oil prices decreased 1.8% to US$48.37 per barrel, while WTI prices fell 1.3% to US$46.35 per barrel.
Headlines
Mortgage approvals in UK drop sharply in July
As per data from the Bank of England, mortgage approvals for house purchases in the UK fell to 60,912 in July from 64,512 in June, the lowest level since January 2015. The total amount lent for house purchases stood at £10.4bn in July, down from £11.1bn in June.
Consumer confidence in UK gains in August
As per GfK, the UK's consumer confidence improved to -7.0 in August from -12.0 in July, marking the highest monthly rise since June 2015. The gain in consumer confidence was primarily driven by the Bank of England's decision to reduce the rates to record lows. However, the gauge remains below its 12-month average of -1.0.
Company news
Bunzl (LON:BNZL, 2,413.0p) - Buy
Bunzl announced its results for the six months ended 30th June 2016 (H1 2016). Revenue increased 10% y-o-y to £3,446.8m and adjusted operating profit rose 13% to £235.1m. Pre-tax profit gained 6% to £155.6m, leading to an EPS of 33.8p, up 5% from H1 2015. Net debt at the end of June was £1,168.8m compared with £1,107.2m at the end of 2015. Bunzl declared an interim dividend of 13.0p, up from 11.75p in H1 2015. Separately, the company informed it completed two acquisitions in Canada, and entered into an agreement to acquire a business in Hungary.
Our view: Bunzl performed strongly in H1 2016. The company continued its growth momentum in the US (which contributes 58% to total turnover), aided by recent acquisitions. The Continental Europe market reported solid revenue and profit growth, with continued expansion across countries. Bunzl continued on its plan of acquiring quality firms to expand. The company has announced eight acquisitions to date in 2016, with a total commitment spend of £101m. Moreover, Bunzl has an active pipeline for acquisitions and expects to complete further acquisitions in H2 2016. We expect the company's strong competitive position to remain intact due to the significant acquisitions thus far. We believe more opportunities could emerge and consolidate the fragmented markets. Bunzl plans to focus on further expansion by investing in IT and digital projects, and increasing the sharing of best practices across its businesses globally. We remain confident that the company would continue to grow robustly in H2 2016, led by the success of its recent acquisitions. Therefore, considering the positive indicators, we maintain a Buy rating on the stock.
IG Design (LON:IGR, 237.0p) - Speculative Buy
IG Design, is a designers, manufacturers, importers and distributors of gift packaging and greetings, stationary and play products. The Group yesterday provided its trading update for the first quarter ended 30 June 2016 ('Q1 FY2017'). The Group said its Q1 performance was consistent with management and market expectations and also reaffirmed it is on course to deliver full year result in line with market expectations, with potential for "incremental growth" in the H2. The Group achieved growth across all regions. In Americas, the Group expanded its product offering, increased sales volumes and extended customer base. Integration of recently acquired Lang Companies Inc. ('Lang') is proceeding well and exports to Mexico are on track to double to exceed US$2m during the year. In Australia, the Group has won a major new contract to supply greeting cards with estimated volume in excess of 10 million cards per year, for the three year period starting end of 2016. In UK, increased volumes of party ware products led the growth, while in continental Europe, Group has achieved record sales and production levels for its core gift packaging product categories. IG Design's CEO, Paul Fineman commented "Early indications [of Lang integration] are positive and we are confident of future growth opportunities. This is particularly pleasing alongside the robust organic growth that we are achieving throughout the Group."
Our view: The announcement was confident, with Q1 performance in line with expectations. Current order book stood at record level and the Group is on track to meet full year market forecast. In the FY2016, the Group has delivered strong growth with its financial, commercial and operational goals exceeded its guidance. Since then, on 11 July, the Group announced that it acquired entire share capital of Lang, a US-based supplier of high-quality gift and speciality products. The acquisition is highly complementing as it adds a new category to IG Design's portfolio of licences through Turner Licensing (one of Lang's brand), which is an industry leader in licensed sports calendars, stationery, back-to-school and gift products, featuring over 200 sports teams. The Group has identified number of synergy opportunities which looking to realise during FY2018. The acquisition not only brings management and sourcing synergies, but also opens up IG Design to Lang's consumer sales channel, which contains over 150,000 direct customers, for cross-selling opportunities. Crucially, Lang's trading relationships with multi-US based national chains and over 3,000 specialist gift stores will accelerates IG Design's strategy to broaden its channels and regional presence in the US. In Q1, IG Design has extended its sales to regional grocery and drug stores in the US. We are excited by the further growth potential the acquisition creates. IG Design has a strong balance sheet with a significant debt facility already in place and sees no major impact from BREXIT. The share price has performed extremely well post the BREXIT vote, up by +58%, traded at a FY2017E P/E multiple of 16.6x and we still expect further upside. Beaufort reiterates its Speculative Buy rating on the shares.
Inspired Energy (LON:INSE, 13.75p) - Speculative Buy
Inspired Energy declared results for the half year ended 30th June 2016 (H1 2016). During the period, revenue surged 56% y-o-y to £10.16m and gross profit increased 62% y-o-y to £7.95m. Adjusted EBITDA rose 52% to £3.75m and adjusted pre-tax profit soared 44% to £3.31m. Pre-tax profit gained 9% to £1.93m, resulting in an EPS of 0.33p, up 3% from H1 2015. Cash generated from operations increased 34% to £2.55m. Procurement corporate order book stood at £25.70m, up 69% from H1 2015. Net debt dropped 9% to £8.08m. On the operational front, Inspired Energy successfully integrated WPUK and STC. The company also completed the relocation of WPUK and the procurement function of STC to its head office. Inspired Energy proposed an interim dividend of 0.13p, 30% higher than H1 2015.
Our view: Inspired Energy performed robustly in H1 2016, recording strong revenue and higher margins. The procurement corporate order book, which provides strong visibility of revenue and is a reliable indicator of the future performance of the corporate division, reported a sharp rise. The company continues to deliver robust organic growth and the corporate division has established itself as a leading energy consultant for UK-based corporations, providing a range of innovative and cost-effective solutions to a variety of clients and sectors. The SME division continued to record solid growth in revenue, profit and cash in H1 2016, with a minimal increase in headcount. Revenue for the division in H1 2016 stood at £2.6m (H1 2015: £2.1m). The company successfully completed the integration and relocation of the acquired businesses of WPUK and STC within the target and budget. We believe the stock is on a sub market rating and yield and its track record deserves a re-rating: there is plenty of upside. We are buoyed by Inspired Energy's performance in H1 2016, and maintain a Speculative Buy rating on the stock.