Beaufort Securities Breakfast Alert: Aviva Sky Morrisons Ibstock
Date
3/14/2016 5:50:04 AM
(MENAFN- ProactiveInvestors - UK) Beaufort Securities Fri
The Markets
Market opening: The FTSE-100 is expected to start this morning's session around 80-points higher.
New York: Wall Street pared early gains to end broadly flat in a volatile trading session. The markets remained under pressure due to low oil prices. Moreover investors assessed the stimulus measures undertaken by the European Central Bank (ECB). The S&P 500 remained broadly unchanged with material sector leading gainers and industrials declining the most.
Asia: Equities are trading higher led by a stronger yuan and an improvement in commodity prices. Investors digested the stimulus package unveiled by the ECB. The Nikkei 225 added 0.5% while the Hang Seng was trading 0.7% up at 7:00 am.
Continental Europe: Markets ended in the red taking negative cues from the ECB President Mario Draghi's comment that the bank does not anticipate further rate cuts. The markets had initially gained after the ECB announced its stimulus package. Moreover a sharp fall in commodity prices dampened investor sentiment. Germany's DAX and France's CAC 40 shed 2.3% and 1.7% respectively.
Crude Oil: Yesterday Brent and WTI oil prices fell 2.5% and 1.2% respectively. The spread between the two varieties stood at US$2.2 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.24% lower yesterday at 697.64.
Today's news
ECB cuts interest rates and expands stimulus package
The ECB reduced its main interest rate to 0.0% from 0.05% and cut its bank deposit rate to -0.4% from -0.3%. The bank increased its monthly purchases under the asset purchase programme to 80bn from 60bn starting in April. In addition the ECB reduced the inflation forecast for 2016 to 0.1% from 1.0%.
Company News
Ibstock (LON:IBST 196.65p) - Buy
Ibstock a leading manufacturer of clay bricks and concrete products operating in the UK and the US yesterday announced its final results for the year ended 31 December 2015 (adjusted results). During the period revenue rose 10.6% to 412.8m (2014: 373.2m) driven by the stronger clay brick prices. The Group's EBITDA jumped by 64.7% to 107.0m (2014: 65.0m) and operating profit expanded by 280% to 164.0m. Profit before tax for statutory period (comprising 10 months of trading to 31 December 2015) were 94.7m and adjusted EPS were 16.2p. Net debt fell faster than anticipated to 145m (less than 1.4x adjusted EBITDA) due to strong free cashflow from operation of 69m. Cash and cash equivalent at the end of period were 51m. The Group recommended a final dividend of 4.4p per share in line with its dividend policy of 40-50% pay-out ratio of adjusted profit after taxation over a business cycle. On the operational front the UK business (81% of the Group) performed strongly with its revenue increased by +9% and adjusted EBITDA by +71%. This is due to strong pricing environment for clay bricks and good pricing for other process. New build housing related products performed well which were offset by lower activity in fencing and rail related products. The US business ('Gen-Gery': 19% of the Group) also performed well with its revenue at constant currency basis rose by +9.5% and EBITDA by 12.7% reflecting a combination of rising volumes and higher average prices including the benefit from a more favourable product mix despite poor weather and change in senior management in the early 2015. Its CEO Wayne Sheppard commented "2015 results are particularly pleasingdespite the CRH disposal and subsequent IPO we maintained our focus and delivered excellent growth. Our expectations for the full year remain unchanged despite a slower start for UK brick sales into the RMI market. The fundamentals supporting our business remain strong".
Our view: Ibstock delivered good result for the year-end 2015 very much in line with its expectation containing no surprises. Revenue were boosted amid stronger clay brick prices and the Group reduced its debt faster than the anticipated driven by strong free cash flow from operations. This remains reasonably impressive given the irregular headwinds that impacted activity levels during the period (May's general Election Q4'2016 rainfall etc). Post the year end despite witnessing slower UK brick sales (via distributors' yards) into the Repair Maintenance and Improvement market due to destocking the Group anticipates recovery to the extent it was willing to confirm that full year expectations remain unchanged. The Group has concluded price negotiation with all major customers and channels again in line with management expectations. Its two major capital projects the new Leicestershire brick plant (commissioning H2 2017) and the new concrete tile line (operational in H2 2016) are progressing to plan and on budget. Leicestershire brick plant is also expected to add UK capacity by 100 million bricks per annum (+13%). In view of the continuing strong market fundamentals both in the UK and US underwritten by robust demand for new housing Beaufort issues a Buy recommendation rating on the stock.
Aviva (LON:AV 465.80p) - Buy
Yesterday Aviva announced its preliminary results for the year ended 31st December 2015. During the period the company's operating profit rose 20% to 2.7bn led by gains in its life insurance and fund management businesses. As a result operating EPS rose 2% to 49.2p. However Aviva's profit after tax fell to 1.1bn from 1.7bn in 2014 mainly due to increased investment costs. Net asset value per share rose 14% to 389p. Value of new business (VNB) increased 24% to 1.2bn marking 12 consecutive quarters of growth. The combined operating ratio (COR) for Aviva improved 1.1 percentage points to 94.6%. The company ended the year with an estimated cash surplus of 9.7bn which translates into a 180% cover ratio. In 2015 total remittances stood at 1.5bn compared with 1.4bn in 2014 while excess centre cash flow totalled 699m as against 692m in 2014. On the operational front Aviva completed the acquisition of Friends Life and is in the process of its integration. The company completed the internal loan plan reducing the loan from 5.8bn to 1.5bn at end of February 2016. Aviva proposed a final dividend of 14.05p taking the full-year dividend to 20.8p 15% higher than that of 2014. After the period the company announced the acquisition of RBC General Insurance Company in Canada.
Our view: Aviva delivered strong performance in FY 2015 despite the ongoing market volatility and uncertainty. The company's growth was driven by the life insurance segment which recorded a 20% rise in operating profit. Aviva's asset management segment also fared well with an increase in funds under management. The company has recorded improvement in COR and solvency capital ratio which are the key performance indicators in this industry. The company's VNB has risen across geographies with the UK Life business recording maximum gains. The acquisition of Friends Life has been beneficial for Aviva delivering 168m in savings in 2015. The company expects to generate synergies of 225m in 2016 one year ahead of schedule. Meanwhile Aviva continues to improve the digital experience witnessing 27 million visits to its website up 35% from 2014. The company's solid cash position allowed it to increase the dividends payable to shareholders. Overall Aviva is well placed on financial and operational aspects to deliver long-term growth. Therefore we maintain a Buy rating on the stock.
Sky (LON:SKY 984.50p) - Buy
Yesterday Sky informed that it invested US$6m in fuboTV a US-based video streaming service. FuboTV provides subscribers with a premium sports TV channels bundle and is the second-largest aggregator and distributor of linear OTT sports content in the US.
Our view: Sky is Europe's leading entertainment company with 21 million customers across five countries. The company continues investing in digital media that complements its linear TV channels. FuboTV has more than 40000 US customers and offers live soccer and other sports content in English Spanish and Portuguese from channels such as Univision Networks beIN Sports and BenficaTV. With more customers switching to the Internet for viewing sports and entertainment FuboTV's prospects are good. FuboTV plans to use the funds to expand its programming offer new features and attract new subscribers. Earlier this week Sky invested US$45m in iflix a leading Southeast Asian streaming TV service. Both parties plan to work together to look for areas of future collaboration across high-growth emerging markets in which iflix operates. We are encouraged by the recent developments and look forward to further updates from Sky. Therefore we maintain a Buy rating on the stock.
Morrisons (LON:MRW 192.90p) - Hold
Yesterday WM Morrison Supermarkets declared its preliminary results for the year ended 31st January 2016. During the period total turnover fell 4.1% to 16.1bn with like-for-like (LFL) sales down 2%. The company's reported pre-tax profit stood at 217m compared with a loss of 792m in 2014. Underlying pre-tax profit fell to 242m from 345m in 2014. Consequently underlying EPS fell to 7.8p from 10.9p in 2014. Net debt contracted by 594m to 1.7bn while capital expenditure fell to 365m from 520m in 2014. The company generated 257m in cash post-dividend and pre-property disposals. On the operational front WM Morrison closed 21 supermarkets while opening one with supermarket net space declining by 206000 square feet. In addition the company recently announced the proposed closure of another seven stores (111000 square feet). WM Morrison proposed a final dividend of 3.50p bringing the full-year dividend to 5p compared with 13.65p in 2014.
Our view: WM Morrison reported below-par performance in 2015 recording lower sales and LFL sales growth. The company is finding it difficult to maintain its position in the market which is flooded with a lot of online discounters. WM Morrison's weak bottom line has forced it to decrease the dividends payable to shareholders. However the company has remained focused on maintaining capital discipline and delivering robust free cash flow. WM Morrison undertook several initiatives to reduce costs including the restructuring of the head office closing underperforming stores and selling M local stores. The company has established a leaner more focused management team with many key roles broadened to enable the business to simplify and expedite decision-making. WM Morrison continues to grow Morrisons.com and recently signed an agreement with Ocado to expand its online delivery service. Nonetheless the company lags behind in key performance metrics; therefore we need to monitor the company's performance in the near term. Therefore we maintain a Hold rating on the stock.
Beaufort Securities