Top UK Stocks to Watch: Card Factory shares drop despite strong recovery since reopening

Card Factory shares take a knock as it warns it will raise equity, Biffa shares pop as it buys Viridor’s waste collection business, Carnival prepares to restart cruises in the US, Japan approves AstraZeneca’s coronavirus vaccine, and Close Bros performs well as the UK economy reopens.

UK

Top News: Card Factory welcomes back customers and completes refinancing

Card Factory said trading has been ahead of its expectations and better than after it reopened after previous lockdowns since it started to welcome customers back to its stores across the UK and Ireland, and said it will be raising equity after refinancing its debt.

The company reopened its stores in England and Wales on April 12, in Scotland on April 26, in Northern Ireland on April 30 and in the Republic of Ireland on May 17. Card Factory said like-for-like sales were ‘marginally down’ in the first five weeks of trading compared to pre-pandemic levels in 2019.

‘Initial store sales performance exceeded both our expectations and the sales performance realised after reopening following the first and second lockdowns,’ said Card Factory.

Although footfall is still slightly lower than before the pandemic, Card Factory said this has been largely offset by higher spending as people appear to be shopping less frequently but buying more.

Online sales have also taken a knock since its stores reopened as people head back to the high street, but they still exceed pre-pandemic levels.

Separately Card Factory said it has refinanced £200 million worth of financing and bank facilities into a new £225 million package with its existing lenders. The new facilities will last for the same time as the previous ones, through to September 2023, but said there is also an option to extend this further.

The company had alerted investors that it was in discussions with its lenders earlier this year. Although it believed the £200 million debt was enough to see it through until stores reopened last month, it expected to breach covenants, prompting it to start talks.

The new facilities include a £100 million revolving credit facility, a £75 million term loan and £50 million through various coronavirus loan schemes. Card Factory had £110 million worth of net debt at May 16, down from £132.5 million a year ago.

Card Factory said the refinancing is designed to encourage to pay down debt early because there is £5 million in fees if pre-payments are not made on time, and said it plans to raise £70 million in net equity to make some of these repayments, so long as market conditions allow at the time.

Where next for the Card Factory share price?

Card Factory share price has fallen below its ascending trendline dating back to early March. The price briefly pierced through its 50 sma on the daily chart at 79p hitting a session low of 77p, before rising back over it.  

The RSI is in bearish territory and pointing southwards so supportive of further losses. 

A break below the 50 sma and horizontal support at 77p could prompt a deeper selloff towards 65p the late March low. 

Any recovery in the share price would need to retake the ascending trendline support turned resistance at 86p in order to look back towards the all time high at 98p.

Biffa shares pop on deal to buy Viridor’s UK collections business

Waste management firm Biffa has agreed to buy the waste collection business and certain recycling assets from its rival Viridor for £126 million in cash, which should immediately boost earnings and deliver synergies.

Biffa shares were trading 4.5% higher in early trade this morning at 290.0, marking their highest level since March 2020.

Biffa is buying the whole of Viridor’s nationwide collections business comprised of 270 vehicles collecting waste from industrial and commercial customers and 15 depots across the country. The business serves 21,000 customers and makes around £85 million in annual revenue.

That will bolster Biffa’s existing business serving industrial, commercial and public sectors. For context, the existing business generated around £871 million in revenue during the last financial year before the pandemic hit. 

The addition of Viridor’s business will deliver at least £10 million in synergies while also improving efficiency and scale.

As for the recycling assets, Biffa is buying a portfolio of recycling and treatment facilities that book annual revenues of around £39 million, underpinned by long-term contracts with local authorities.

‘This acquisition expands Biffa's collections business and recycling capabilities while solidifying its leading position in UK sustainable waste management,’ said Biffa.

The deal will close in August at the earliest, Biffa said, as regulators will need to give the deal approval.

Biffa said it had been encouraged to go for the deal after Viridor’s business was close to pre-pandemic levels of trading last year and because it will boost earnings per share by around 3.0 pence once the synergies are realised.

Carnival to restart cruises between Seattle and Alaska

Carnival plans to resume sailing between the US and Alaska after regulators gave the green light for cruises to resume.

Carnival said three of its cruise lines – the Holland America Line, Princess Cruises and Carnival Cruise Lines – will resume trips from Seattle to Alaska in the US starting this July.

Notably, only fully-vaccinated people will be able to enjoy Carnival’s cruises.

‘We are excited to once again serve our guests from the US, and we express our deep gratitude to all national, state and local officials who have worked collaboratively with us, the CDC and our entire industry to make this possible. It is great news for cruising, for travellers ready to again explore the world and for all the communities in Alaska that depend on cruising and have suffered great hardships over the past year,’ said Arnold Donald, the chief executive of Carnival.

The Holland America Line will see the Nieuw Amsterdam ship sailing between July 24 to October 2. Princess Cruises will operate between July 25 and September 26 on the Majestic Princess ship. Carnival Cruise Line’s first Alaska trip will be on July 27 and the last will start on September 14 on the Carnival Miracle.

‘Additional details on the Alaska sailings will be announced in the coming weeks by each respective brand and available on their websites,’ Carnival said.

Currently, Carnival is only operating two of its cruise lines in Europe but has plans to launch eight of its nine other brands this summer across Europe, the Caribbean and Alaska.

Carnival shares were trading 1.3% higher in early trade this morning at 1628.6.

Japan approves AstraZeneca’s coronavirus vaccine

AstraZeneca said its coronavirus vaccine has been given approval for emergency use in Japan to protect adults aged over 18.

Japan has given the green light to Vaxzevria, previously known as AZD1222, based on data from a Phase III trial carried out in the UK, Brazil and South Africa. Japan is recommending that two doses are given 12 weeks apart.

‘We continue to expand global access to our vaccine and today's approval brings us one step closer to providing Vaxzevria to the people of Japan who urgently need protection from coronavirus. We are proud to have produced a vaccine for the world, which is playing a leading role in the global fight against the pandemic, with more than 400 million doses now supplied by AstraZeneca and sub-licensees to 165 countries,’ said Mene Pangalos, the executive vice-president of biopharmaceuticals R&D.

Over 80 countries have now given emergency approval to AstraZeneca’s jab.

The vaccine is already being produced in Japan and the first doses should be available ‘in the coming weeks’.

‘AstraZeneca continues to engage with governments, international organisations and collaborators around the world to ensure broad and equitable access to the vaccine at no profit for the duration of the pandemic,’ said AstraZeneca.

AstraZeneca shares were trading broadly flat in early trade at 8115.0.

Close Bros delivers progress across all divisions as UK economy reopens

Close Brothers Group said all three of its divisions delivered significant progress in the latest quarter as the picture continues to improve and the UK economy starts to reopen.

The merchant banking group said its banking division saw its loan book grow 3.2% in the third quarter to the end of April to £8.2 billion. That has risen 7.7% since the start of 2021 as it benefits from issuing more loans through the Coronavirus Business Interruption Loan Scheme before the deadline passed at the end of March. Invoice financing improved as businesses started to reopen and it has continued to win new business for motor and property finance.

Close Bros said the forbone book, which tracks loans at risk, ‘remains encouraging’ after dropping to £1 billion at the end of April from £1.1 billion at the end of January as more customers started repaying their debts.

‘While we remain confident in the quality of our lending, which is predominantly secured, prudently underwritten and diverse, our impairment provisions continue to reflect the uncertain external environment and the fact that the full impact of Covid-19 has yet to be reflected in experienced credit performance. We will continue to closely monitor the performance of the loan book as the macroeconomic outlook evolves and government support schemes end in the coming months,’ Close Bros said.

The Asset Management division saw net inflows rise 6% in the quarter, accelerating from the 4% growth booked in the previous quarter. It had managed assets of £14.8 billion at the end of the period, up from £13.8 billion at the end of January. Meanwhile, total client assets rose to £16.0 billion from £14.9 billion.

Lastly, Winterflood, which provides execution services in UK equity markets for clients, delivered a ‘very strong trading performance’ and it has already made more profit since the start of the year than it did in the entirety of last year.

‘We continue to respond well to the challenges and opportunities arising from the current environment. Although there has been some improvement in the broader economic outlook, the impact of Covid-19 on customers remains uncertain. Our proven and resilient model and strong balance sheet, combined with our deep experience in navigating a wide range of economic conditions, leave us well placed to continue supporting our colleagues, customers and clients over the long term,’ said Close Bros.

Close Bros shares were trading 0.8% higher in early trade this morning at 1588.0.

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