Top UK Stocks to Watch: Burberry proves resilient during pandemic

Burberry sales are knocked by lockdown, Pearson warns profits will fall by over 45%, Hochschild says it will significantly raise output this year, and Wetherspoon raises funds as pubs remain closed.

UK

Top News: Burberry sales knocked as store sales suffer during lockdown

Luxury fashion retailer Burberry said store sales fell 9% in the third quarter of its financial year as some of its outlets remain closed because of lockdown restrictions.

The company said comparable store sales were down 9% in the 13 weeks to December 26, pushing revenue down to £688 million from £719 million the year before. Burberry saw ‘high single-digit growth’ in full-price sales but this was offset by some stores having to close. It said 62 stores were closed during the quarter at its peak, representing about 15% of its network, while others were operating reduced opening hours.

‘Full-price sales were particularly strong in rebounding markets - Americas, Mainland China and Korea - where our efforts translated to double-digit growth,’ Burberry said.

Progress has been made online with full-price online sales rising 50% in the quarter, with digital sales in China rising by ‘triple digits’.

‘We expect the underlying performance in Q4 FY2021 will show a continuation of progress on strategic priorities. We currently have 15% of stores closed and 36% operating with reduced hours or restrictions and an uncertain trajectory given the spread of the more transmissible new variants of COVID-19. Given this outlook, we expect trading will remain susceptible to regional disruptions as we close the financial year,’ said Burberry.

‘In terms of full year trading, notwithstanding any incremental lockdowns, we expect gross margins to benefit from positive full-price, regional and channel mix and lower stock provisions. Cost savings are currently running in line with plan and we are on track to see inventory below last year's levels,’ it added.


Burberry shares price: technical analysis

Burberry shares saw a sharp drive higher from early November rallying 600p from 1320 to 1920. The price then broke out of the formed ascending channel to the downside and has trended lower since.

Today’s jump higher has seen the price push back above its 20 sma on the daily chart. It also trades above its 50 sma. The RSI is pointing northwards and above 50 so indicating further upside without coming close to overbought territory.

However, a move above resistance at 1850 (descending trendline) is needed to negate the current near term downward trend. Beyond here resistance can be seen at 1916 December’s high. 

On the downside immediate support is seen at 1775, the 20 sma and 1690 the January low.



FTSE 100 news

Below is a guide to the top news from FTSE 100 shares today.


Pearson’s profits hammered by coronavirus

Pearson said profits in 2020 fell by at least 45% as the coronavirus pandemic continues to disrupt the business.

The education specialist said revenue fell 10% in 2020 and that adjusted operating profit will fall to a range of £310 million to £315 million – compared to £581 million in 2019.

It said coronavirus has caused problems for its assessment divisions that grades exams and tests, with schools being closed during lockdowns and exams being cancelled. The International Assessment unit saw revenue fall 19% year-on-year whilst Global Assessments was down 14%.

One bright spot was Global Online Learning, which has benefited as learning has shifted online during the pandemic. Pearson said sales were up 18% in the year and that 70% of courseware sales in North America was made online.

‘Despite facing significant uncertainty, our teams have been laser-focused on closing out 2020, enabling us to report sales and profit for 2020 in line with expectations. Uncertainty remains in the near term as a result of the ongoing pandemic, with further lockdowns, exam cancellations and reduced global mobility. However, I am excited about our future given the shift to online learning and the huge opportunity to help more people develop the skills they need,’ said chief executive Andy Bird.

Pearson shares were up 7.8% in early trade at 728.0.


AstraZeneca’s Enhertu gets EU approval to treat breast cancer

AstraZeneca said it has secured EU approval for Enhertu to treat patients with HER2-positive metastatic breast cancer.

The company said around 531,000 cases of breast cancer are diagnosed in women in Europe every year, and that one in five of them are HER2-positive. The approval comes after a phase 2 trial showed ‘clinically meaningful and durable antitumour activity in patients with HER2-positive metastatic breast cancer who had received two or more prior anti-HER2-based regimens’.

AstraZeneca is working with Daiichi Sankyo on Enhertu and will pay its partner $75 million following the approval as a milestone payment.

AstraZeneca shares were down 0.2% in early trade at 7702.0.


Antofagasta hoping to bump up production in 2021

Antofagasta said copper production declined from the record levels seen in 2019 last year but that it hopes to significantly raise output in 2021.

The copper miner said production in 2020 amounted to 733,900 tonnes, down 4.7% from the record output recorded in 2019. The target is to produce between 730,000 and 760,000 tonnes in 2021. Antofagasta is assuming COVID-19 will disrupt work for the whole of 2021 and said it may have to change its guidance depending on how things pan out.

In terms of other commodities, gold production fell over 27% in 2020 204,100 ounces while molybdenum output grew 8.6% to 12,600 tonnes. Antofagasta is aiming to produce 240,000 to 260,000 ounces of gold this year and 95,00 to 11,000 tonnes of molybdenum.

Cash costs before by-product credits fell to $1.56 per pound in the year and that is expected to edge up to $1.65 in 2021.

The miner said it intends to spend $1.6 billion in capital expenditure this year as it accelerates spending after suspending investment last year, pushing around $200 million worth of costs from 2020 into 2021.

Antofagasta shares were up 0.6% in early trade at 1516.5.


IAG halves equity value of Air Europa acquisition

International Consolidated Airlines Group (IAG) said it will now pay just EUR500 million for Air Europa – half the original EUR1 billion sum.

IAG’s subsidiary Iberia agreed to buy Air Europa in November but have now amended the price as the aviation industry suffers from a major crisis during the pandemic. IAG said it will also not have to make payment until six years after the deal is completed, when it hopes to be back on its feet.

‘Both Iberia and IAG are demonstrating their resilience to face the deepest crisis in aviation's history. Being part of a large group is the best guarantee to overcome current market challenges which will also benefit Air Europa once the transaction is completed. I am pleased that we have reached agreement with Globalia to defer payment until well into the expected recovery in air travel following the end of the pandemic and when we expect to be realising significant synergies resulting from the transaction,’ said chief executive Luis Gallego.

IAG said it still believes the acquisition is important for the business by bolstering its hub in Madrid and allowing it to rival other hubs in Amsterdam, Frankfurt and Paris. It also expects to deliver significant synergies and cost-savings.

It is hoping to complete the deal in the second half of 2021, ‘at a time when air travel recovery could be meaningful as the rollout of COVID-19 vaccines proceeds worldwide,’ it said.

IAG shares were up 0.8% in early trade at 160.85.


FTSE 250 news

Below is a guide to the top news from the FTSE 250 today.


WH Smith recovery derailed by latest lockdown

WH Smith said its high street stores staged a recovery in December but warned the latest lockdown has caused further problems.

It said revenue from high street stores was only down 8% year-on-year in December as lockdown restrictions were eased, but revenue has since plunged since new rules were introduced. It said high street revenue was down 30% in January so far.

Its travel outlets, in the likes of train stations and airports, have continued to struggle with revenue down 70% in January so far – its worst performance in the financial year so far.

In the financial year to date, WH Smith said overall revenue was down 41% - with high street sales down 13% and travel down 63%. Some stores have been able to remain open, including stores with Post Offices and those situated in hospitals.

The bright spot for WH Smith was its online division, including brands like funkypigeon.com and cultpens.com, which ‘performed very strongly with record performances and sales significantly ahead of the prior year’.

WH Smith warned it expects to burn through £15 million to £20 million each month throughout January to March on the assumption existing rules will remain in place. However, it said it finds itself in the ‘same liquidity position’ it was in before the pandemic after cash generation was stronger than expected in November and December.

WH Smith will release interim results on April 29.

WH Smith shares were up 6.5% in early trade at 1660.0.


Hochschild says output will rise significantly in 2021

Hochschild Mining said production came in at the top end of forecasts in 2020 and that it expects to deliver a substantial lift in output this year.

The company said it produced 289,293 gold equivalent ounces in the year, at the upper end of its 280,000 to 290,000 target range. It produced 24.9 million silver equivalent ounces, also at the top end of its 24 million to 25 million ounce target range.

It is aiming to produce 360,000 to 372,000 gold equivalent ounces in 2021 and between 31 million to 32 million silver equivalent ounces.

All-in sustaining costs in 2020 averaged somewhere between $1,200 to $1,250 per gold equivalent ounce and $14 to $14.50 per silver equivalent ounce. That should stay broadly stable in 2021.

Hochschild Mining shares were up 6.5% in early trade at 206.2.


Diploma sees improvement across the board

Diploma, which provides specialist products and services, said underlying trading improved across all three of its divisions in the three months to the end of September.

Revenue rose 24% in the quarter, driven by one of its newly-acquired businesses Windy City Wire ‘trading very well following a smooth transition into the group.’ However, underlying revenue was flat.

Revenue in Life Sciences jumped 10%, Controls soared 71% and Seals remained flat.

‘Diploma has made a strong start to the year with improved trends in underlying trading across all of the group's three sectors in the first quarter. The group delivered underlying revenues in line with last year's pre-Covid comparative, reflecting strong execution of our organic growth initiatives,’ said Diploma.

‘Inevitably uncertainties remain with respect to the duration and impact of the Covid-19 pandemic. However, while the pandemic may modestly affect Q2 revenues, we are pleased with the group's trading performance. Excluding the contribution from the acquisitions completed in the quarter, full year expectations for the underlying business remain positive and unchanged,’ it added.

The company spent £48.8 million in the most recent quarter on three bolt-on acquisitions. These were Danish healthcare business Simonsen & Weel, seals maker FITT Resources and US outfit Power Dynamics.

Diploma shares were up 3.7% in early trade at 2210.0.


JD Wetherspoon raises £93 million to survive latest lockdown

JD Wetherspoon said it has raised £93.7 million through a share placing to help it weather the latest lockdown that has forced pubs to close.

The company said it has issued 8.4 million new shares at a price of 1,120 pence each, representing a 5.3% discount to its mid-market closing price yesterday. The new shares account for just under 7% of the issued share capital of the company before the placing.

Wetherspoons shares were up 5.7% in early trade at 1252.5.


Dixons Carphone sees online sales more than double

Dixons Carphone said sales have continued to grow strongly and that online sales more than doubled in the 10 weeks to January 9.

Electrical like-for-like sales jumped 11% in the period, driven by demand for large screen TVs, smart tech, kitchen appliances, health and beauty, and computing and gaming. LfLs were up 8% in the UK and Ireland, up 19% in the Nordics and down 13% in Greece.

Online sales jumped 121% year-on-year in the period and Dixons Carphone said it gained 6% in online market share.

‘We're winning online, where we're the biggest and fastest-growing specialist technology retailer in all our markets. And even where stores have been closed, our work to bring the best of digital and physical shopping to every customer has borne fruit in such innovations as our 1-hour drive-thru Order & Collect and ShopLive. Our flexible infrastructure and accelerating transformation mean we've been able to react ever-faster to changing trading restrictions, while building more lasting and valuable customer relationships,’ said chief executive Alex Baldock.  

Dixons Carphone said many of its stores remain closed and that it does not know when it can fully reopen its network, but that it had proven its ability to succeed online. It said annual results should be in line with previously announced guidance.

In a separate statement, the company said Bruce Marsh will become its new chief financial officer on July 12. Marsh will be leaving his current role as finance director of Tesco’s UK and Irish operations.

Dixons Carphone shares were down 1.2% in early trade at 121.85.


Aggreko expects big jump in 2021 profits after beating expectations

Aggreko said profits beats expectations in 2020 and that it expects to stage a strong recovery in 2021.  

Aggreko said pretax profit will be ‘slightly ahead’ of its £80 million to £100 million target range. That will be down from £199 million in 2019. However, Aggreko said profit should recover quickly to a range of £170 million to £190 million in 2021.

It said strong cashflow in the second half of the year also allowed it to pay down debt by around £200 million, with net debt now less than 1x annual earnings before interest, tax, depreciation and amortisation.

Aggreko will post annual results on March 1.

Aggreko shares were up 2% in early trade at 653.5.


IWG says latest lockdown will delay recovery

Office operator IWG said the latest lockdown measures will delay its recovery this year as people continue to work from home.

IWG said revenue in 2020 is expected to be £2.4 billion, down from £2.65 billion in 2019.

‘The continuation of the coronavirus pandemic, including new or extended preventative measures in most of the group's markets, is now expected to prolong the impact of the pandemic on our business. Following early signs of recovery during the fourth quarter of 2020 with improved sales activity, we now expect our anticipated recovery in 2021 to be delayed,’ it said.

IWG is now aiming to cut further costs and said it had provided a further £160 million to rationalise its network, which will weigh on its 2020 results in addition to the previously allocated £155.8 million. It said the cost benefit of the new rationalisation will be between £325 million to £375 million.

IWG shares were down 0.5% in early trade at 333.


Grafton reinstates suspended dividend

Grafton Group said it will now pay a dividend to shareholders for the second half of 2019 after it previously suspended the payout as the pandemic erupted.

Grafton Group took action to preserve liquidity as the pandemic started to take hold when it released its annual results for 2019, which included the second-half interim dividend of 12.5p being suspended. Grafton will now pay that dividend at a cost of £30 million on April 6 to shareholders on the register on January 29.

Grafton shares were up 2% in early trade at 927.8.


Cairn Energy warns production will fall in 2021

Cairn Energy said production will fall in 2021 after meeting expectations last year.

The oil company said net production averaged 21,000 barrels of oil per day in 2020 but said this is expected to fall to just 16,000 to 19,000 barrels a day in 2021 because its North Sea assets are due to experience a natural decline in output.

Cairn said it will pay a special dividend of 32p to return $250 million to shareholders after recently selling its Senegal assets.

Cairn Energy shares were up 1.1% in early trade at 191.2.


Petropavlovsk notes former CEO arrested in Russia

Petropavlovsk released an update today to highlight that its mines continue to operate during the pandemic and to note that its former chief executive was arrested in Russia last month.

The company will release its fourth-quarter and annual sales and production report on January 26, and said its ‘mines continue to operate as normal, despite the significant ongoing challenges presented by the COVID 19 pandemic.’

It also said that tense relations with a ‘small group of senior employees’ surrounding legal hearings in Russia had ‘improved markedly’ in recent weeks.

Petropavlovsk also noted that Pavel Maslovskiy, its former CEO, was arrested in Russia on Christmas Eve in relation to allegations of embezzlement during a real estate transaction in 2018. ‘The proceedings will be monitored and, to the extent that they impact on or involve the group, we will update the market accordingly,’ the company said.

Petropavlovsk shares were up 2.2% in early trade at 32.08.


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