Today's edition features:
• IG Design (LON:IGR)
• James Cropper (LON:CRPR)
"US equities remained in a downbeat mood on Tuesday. The IMF lowered its forecast for the country’s GDP growth this year to 2.1% from 2.3% while also slashing its 2018 growth outlook to 2.1% from 2.5%, both well below the President’s 3% target. The Fund pointed to rising uncertainties regarding Trump's ability to squeeze his ambitious goals on tax reform and spending through Congress for their change. The news, later compounded with the US Senate delaying his Healthcare Bill and the spread of the second global Cyber Attack, deflated what was otherwise rather upbeat news from the Conference Board which detailed an unexpected improvement in US consumer confidence for the month of June. The S&P 500 posted its biggest drop in six weeks, but major tech stocks like Alphabet, Microsoft and Amazon once again were the worst hit, with investors pointing at heady valuations and asking, ‘what if?’ for the first time. This followed Google being slapped with a record US$2.7 billion fine by EU regulators over claims the Group favoured its own comparison-shopping service in search results. In cash terms this is not significant for Google, but that is not the point. ‘What if’ is asking whether international governments just might decide the EU has fired the ‘starting gun’ for much broader round of litigation, whereby they pick up the underfunded baton largely dropped by multiple families and private interest groups trying to link online technology and, in particular, social media, with many global woes ranging from terrorism, fraud and abuse. The extent to which such actions could stick and the size of the potential penalties imposed, of course remains to be seen but holds potential to, temporarily at least, puncture their share price ‘balloons’. In that respect, Janet Yellen’s speech at the Royal Academy yesterday evening, suggesting technological change has been harmful to many will ring a bell. Most of the other major US sectors saw only modest moves on the day, although some weakness was visible among semiconductor and utilities stocks, which reversed some of Monday’s moves. Treasuries also pushed sharply lower over the course of the day, with yields on the benchmark ten-year note up by 3.8bp at 2.188%. Other than the S&P/ASX 200, which rose on firmer mineral prices, Asia ended mostly slightly weaker this morning. Picking up the US mood, the Korean and Taiwanese benchmarks, which are weighted heavily in tech issues initially led the way, although the momentum was then picked up by the Hang Seng and Nikkei 225. Europe’s principal bourses also all moved to the downside yesterday. A speech from ECB President Mario Draghi was widely interpreted as paving the way for a scaling back of monetary stimulus, lifting the Euro to a 10-month high against the US$ and government bond yields in the process. The STOXX Europe 600 ended down 0.81%, with the FTSE MIB hit the worst as it gave back most of Monday’s gains, while the German DAX and French CAC40 Indices ended not far behind. London equities suffered less due to the FTSE-100’s heavy weightings of miners and oils, as crude oil prices rallied further and US$ weakness gave commodity stocks a welcome boost. Supermarkets also outperformed following a survey suggesting the sector achieved its strongest growth in five years. The overall mood, however, remained sombre with the consumer sentiment index tumbling to 106.9 in June, its second-lowest level since the summer of 2013, having plunged to 105.2 immediately after the UK general election. The CBI’s Distributive Trades Survey by contrast reported its retail sales balance at 12% in June, against projections of just 6%, although just 3% of respondents were forecasting an increase in sales volume for July. Joining the chorus, the BoE’s Financial Stability Report highlighted concerns that domestic consumer credit is growing too "rapidly" and, as a result, required UK lenders to increase their counter-cyclical capital buffers by 0.5% amid spiralling personal borrowings and anticipation of higher base rates. UK macro data due for release today includes Nationwide Housing Prices for June and another speech from Mark Carney at 14:30hrs BST. The EU details May Private Loans and its M3 Money Supply data, which is also followed by a speech at 14:30hrs BST, this time by the ECB President. US data scheduled includes May Wholesale Inventories and Goods Trade Balance, Pending Home sales and weekly EIA Crude Oil Stocks Change. UK corporates due to release earnings or trading updates include Bunzl (BNZL.L), Dixon Carphone (DC..L), Tullow Oil (TLW.L), Stagecoach (SGC.L), Kier Group (KIE.L) and Xafinity (XAF.L). There appears little that will brighten the mood in London’s equity market today, as traders’ focus on possible European Central Bank actions bringing forward a response from Mark Carney. The FTSE-100 is seen opening down 15 to 20 points in early business. "
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday's session 0.17% lower at 7,434.36 whilst the FTSE AIM All-Share index was down 0.12% at 967.04. In continental Europe, the CAC-40 finished up 0.70% at 5,258.58 whilst the DAX finished 0.78% higher at 12,671.02.
Wall Street
In New York last night, the Dow Jones lost 0.46% to 21,310.66, the S&P 500 fell 0.81% to 2419.38 and the Nasdaq shed 1.61% to 6146.62.
Asia
In Asian markets this morning, the Nikkei 225 had fallen 0.34% to 20,157.33, while the Hang Seng lost 0.36% to 25,747.90.
Oil
In early trade today, WTI crude was down 0.43% to $44.05/bbl and Brent was down 0.24% to $46.54/bbl.
Headlines
Sir Philip 'sold BHS to dodge pension cost'
The controversial businessman Sir Philip Green sold the BHS business to dodge responsibility for its insolvent pension schemes if the firm should go bust, says the Pensions Regulator. The claim is made by the regulator in its report on the sale of BHS in 2015 and its collapse a year later. In February, Sir Philip finally agreed, after months of pressure, to pay £363m into the BHS pension schemes. A spokesman for Sir Philip said only "the matter is now closed". However the report gives, for the first time, some details of the warning notice that the regulator gave to Sir Philip in November last year as negotiations over resolving the BHS pension scheme deficits dragged on. "The main purpose of the sale [of BHS] was to postpone BHS' insolvency to prevent a liability to the schemes falling due while it was part of the Taveta group of companies ultimately owned by the Green family, and/or that the effect of the sale was materially detrimental to the schemes," the regulator says.
Source: BBC News
Company news
IG Design (LON:IGR, 355.00p) – Speculative Buy
IG Design Group, a leading designers, manufacturers and distributors of gift packaging, greetings, stationary and play products, yesterday announced its preliminary results for the 12 months ended 31 March 2017 (‘FY2017’). During the period, revenue advanced by +31% to £311m, gross profit margin improved by +2.3% to 20.6%, resulting underlying operating profit rose +29% to £17.5m, against the comparative period (FY2016). On a like-for-like basis (excluding acquisition), revenue grew by +11% and underlying operating profit increased by +6%. Pre-tax profit increased by +32% to £13m leading to diluted earnings per share of 15p, up +25%. On an underlying basis, pre-tax profit jumped by +51% to £16.3m and earnings per share climb +38% to 18.2p. Operating cash flow increased by +52% to £31.5m leading to the Group turning into net cash position for the first time in well over a decade of £3m (FY2016: net debt £17.5m). Average debt to EBITDA was 2.3x, much improved from 3.2x at the end-FY2016 and meeting its target range of less than 2.5x two years ahead of schedule. On the operational front, the Group changed its name to IG Design in June and acquired The Lang Companies Inc. (‘Lang’) in July with its integration completed successfully. IG Design’s CEO, Paul Fineman commented “It is a great pleasure to once again be reporting a year of tremendous progress, with many record outcomes achieved throughout our business. We are very well placed to continue to grow organically and through product development and innovation, well-considered acquisitions, capitalising on our growing market share and the excellent momentum prevailing throughout the Group”. The Group declared a final dividend of 2.75p per share, bringing total full year dividend to 4.5p, up +80%, to be paid on 7 September 2017.
Our View: IG Design greeted investors with strong FY2017 financial and operational results. Beside encouraging organic growth (revenue +11%), the Group’s results were strengthened by the acquisition of Lang (revenue +8%) and as 73% of revenues being non-UK (FY2016: 63%), it further boosted by translational benefit from weaker Sterling (revenue +12%), marking total revenue growth of +31% which beats the consensus forecasts. The USA and Continental Europe showed excellent performance during the year. Europe saw record profitability, while in the USA, its strong organic growth of +27% was achieved across all channels of business. Lang contributed +8% to the Group’s revenue and the Board said operating margin will improve going forward as synergies from acquisition (for buying) are expected to realise in FY2018 while the it will also change product mix to increase own products sale. Operationally, the Group are already enjoying the payback from years of investments in number of its manufacturing facilities which brought enhanced capabilities to drive further growth. Looking ahead, having raised dividend by +80% in FY2017, the Board confidently stated that there should be scope to increase dividend further, given strong cash generation and now that the Group achieved its average debt to EBITDA target of 2.5x two years ahead of the original plan. The management noted that such future dividend increase will be delivered at the same time as continuing its investment, while managing average leverage within target (long-term target: 2.0x-2.75x average net debt to EBITDA). The shares are valued at FY2018E and FY2019E P/E multiples of 17.8x and 16.0x with dividend yields of 1.5% and 1.9%, respectively. The Shares have performed extremely well with approximately +150% growth year-to-date. Considering the Group continuing to demonstrate strong LFL growth momentum with confident outlook statement, Beaufort reiterates its Speculative Buy rating on the Shares.
James Cropper (LON:CRPR, 1,660.00p) – Buy
James Cropper, a maker of fine paper and Technical Fibre Products, yesterday announced its preliminary results for the 52 weeks ended 1 April 2017 (‘FY2017’). During the period, revenue advanced by +5.1% to £92.4m, adjusted operating profit rose +9.5% to £6.9m and adjusted pre-tax profit grew +26.9% to £6.6m, against the comparative period (FY2016). Pre-tax profit was £5.6m, up +43.6%, leading to diluted earnings per share of 50p (FY2016: 31.8p). On the operational front, James Cropper 3D Products has commenced commercial production. The Group continue to invest in R&D across its businesses to support increased growth, while also increased investment in overseas to support a focus on higher export sales. James Cropper’s Chairman, Mark Cropper, commented “I feel this year has represented something of a watershed for the Group. We have built on prior successes and are beginning to deliver a level of potential we have felt possible for so long”. The Group declared final dividend of 9.3p, bringing total full year dividend to 11.8p, up +27%, to be paid on 11 August 2017.
Our View: James Cropper delivered good results for the FY2017. Sales was higher in every division with Technical Fibre Products (‘TFP’) division up +14%, James Cropper Paper division up +3%, while its third division, James Cropper 3D Products (‘3DP’) contributed first revenue of £7k since formal launched in September 2016. Looking ahead, the management noted that margin, cash flow and EBITDA is stronger and more reliable, while witnessing scope for further improvement. Moreover, it confirmed at the full year trading update on 22 March 2017 that the outlook for FY2018 is “encouraging” with growth expected across all three businesses. Management further demonstrated its confidence by stating that the Board is now more comfortable to focus on longer-term, looking at strategies to “ensure growth beyond the customary three years”. In light of this positive progress and outlook, Beaufort reiterate its Buy rating on the shares.