Top UK Stocks to Watch: Dechra hikes dividend as profits soar

Dechra shares fall as it warns the pre-Brexit build up in customer inventories will unwind, IAG secures new funding for British Airways, Saga is reported to be in talks about a new debt package, and M&B continues to suffer as pubs remain closed during lockdown.


Top News: Dechra profits jump but warns pre-Brexit inventory will unwind

Dechra Pharmaceuticals said revenue and profits both jumped in the first half of its financial year despite falling in ‘one of the most challenging years in Dechra's history’.

The company, which provides veterinary pharmaceuticals, said revenue in the last six months of 2020 rose 21.8% at constant exchange rates to £299.8 million from £248.5 million the year before. That was driven by 21.7% growth from Europe and 21.9% growth from North America.

‘Revenue growth has been strong, especially within Companion Animal Products (CAP), as pet ownership and welfare has become more important to people as the COVID-19 pandemic has changed peoples' way of living. The group also benefited from a significantly improved supply chain and a pre-Brexit inventory build,’ said Dechra.

‘The strong revenue growth, good gross margin and lower than usual underlying selling, general and administrative costs, due to COVID-19 restricting activity, has resulted in a stronger than expected operating profit performance,’ it added.

Dechra’s underlying operating profit jumped 32.7% in the period to £80.8 million. Reported operating profit soared 74.2% to £40.3 million from just £23.3 million the year before. Reported pretax profit increased to £35.4 million from £19.5 million.

Strong cash conversion prompted the company to hike its dividend by 8% to 11.11 pence per share. This will be paid on April 7 to shareholders on the register on March 5.

‘Trading in the second half remains robust, although we are starting to see the pre-Brexit inventory build unwind and, therefore, we expect the balance of trading to be first half weighted,’ said Dechra.

‘Overall the outlook for the full year remains positive and in line with our January trading update. We expect the strong favourable market conditions to remain, our recent acquisitions to perform well and our supply chain improvement to continue. We continue to demonstrate our ability to execute our strategy so despite the ongoing challenges of the COVID-19 pandemic we remain confident in our future prospects,’ the company added.

Dechra said in January that it was on course to beat expectations.

Where next for Dechra Pharmaceuticals shares?

After reaching an all-time high at the end of last week of 3480, Dechra continues to retreat from the peak dropping through its 20 & 50 sma on the daily chart, a bearish move. The RSI is in negative territory but above the oversold level of 30, suggesting that there could be more weakness to come.

Immediate support at 3550 the 50 sma is currently being tested at 3550. A breakthrough here could open the door to further support at 3450 a level which has offered support a couple of times in early January. A drop below this level could see the bears target 3135 the December low.

On the upside, should the 50 sma at 3550 hold the price could look to overcome 3675 the 20 sma in order to retarget the all-time high of 3840.

FTSE 100 news

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

Press: Saga in talks over £170 million debt package

Saga is in talks about securing a £170 million debt facility to help it steer through the tough conditions during the coronavirus pandemic, according to Sky News.

The company, which specialises in travel and insurance for the over-50s, is reported to be in talks about refinancing part of its existing borrowings by securing new debt against its insurance arm, which has proven to be the more resilient part of the business as travel remains limited during lockdown.

The unnamed sources said there was no guarantee a deal would be agreed, but Saga did state last month that it was looking to shore up its balance sheet.

‘Whilst the group has significant liquidity and headroom to the current covenants in short term bank facilities, given the backdrop of continued disruption to the Travel business, we are taking actions to further enhance financial flexibility. We have commenced constructive discussions with lenders, who remain supportive. We are reviewing the covenants attached to our term loan and revolving credit facility, to increase flexibility ahead of the resumption of Travel,’ Saga said in January.

Saga shares were down 1.2% in early trade at 295.6.

IAG secures extra £2.45 billion liquidity for British Airways

International Consolidated Airlines Group, better known as IAG, has secured new liquidity for British Airways to help it weather the tough conditions for the travel industry and said it is continuing to look at further debt options for the airline.

IAG has secured £2 billion for British Airways after finalising the five-year export development guarantee term-loan from UK Export Finance. The company originally agreed the facility late last year but has now signed final agreements and expects to drawdown from it before the end of February.

More liquidity has been secured by deferring £450 million of payments that were due to be made to plug the pension deficit between October 2020 and September 2021.

Notably, the deferral of pension contributions comes with strings attached. British Airways will not be making any dividend payments to its parent company IAG ‘before the end of 2023’, and any payouts made from 2024 will require 50% of it to be matched with payments to the pension pot. IAG said it aims to agree a new recovery plan to restore the funds due to its pension by the end of September 2021, but said it will continue to pay £37.5 million per month if no deal is agreed by then.

IAG shares were up 1.3% in early trade at 168.0.

Anglo American Platinum poised for growth in 2021

Anglo American Platinum said production was hit by lockdowns and the temporary closure of the Anglo Converter Plant during 2020, causing a 14% decline in output, but that it was set up for a strong recovery in 2021.

FTSE 100-listed Anglo American owns over 78% of Anglo American Platinum, which produces a wide range of commodities in South Africa and neighbouring countries.

Notably, there has been a backlog of around 1 million platinum group metal ounces that has built up whilst Anglo American Platinum’s plant has been closed, which will be cleared by the end of 2022.

The fall in output was offset by the 71% surge in platinum group metal prices to ZAR33,320 an ounce from just ZAR19,534 the year before. That allowed the company to report record earnings before interest, tax, depreciation and amortisation of ZAR41.6 billion – up 39% from 2019. Return on capital employed jumped to 72% from 58%.

Anglo American Platinum said it ended the year in a net cash position of ZAR18.17 billion, up from ZAR17.3 billion a year earlier. It declared a final dividend of ZAR35.35 per share, totalling ZAR9.4 billion in total, based on a payout ratio of 40% of headline earnings.

Looking forward, Anglo American Platinum is expecting production to return to pre-Covid-19 levels this year at around 4.2 million to 4.6 million ounces compared to the 3.8 million ounces produced in 2020. Refined production is expected to jump to 4.6 million to 5.0 million ounces, more than double the 2.7 million ounces made last year.

‘The supply and demand for PGMs are both forecast to rise in 2021 compared to 2020. This was always likely as both have already improved significantly since the first half of 2020, mainly owing to the world learning to live with Covid-19,’ said the company.

‘The roll-out of effective vaccines now suggests further upside, though how soon they bring the promise of ‘normality’ will vary by country and sector and, in some cases, ‘normality’ will be different than it was before the pandemic. We expect palladium and rhodium to remain in deficit this year. Platinum is forecast to be in a small surplus,’ the company said.

Anglo American Platinum also released its new plan set to drive the next phase of growth by raising output from its own mines and joint ventures from just 3.0 million ounces a year today to 3.6 million ounces in 2030, as well as improving margins and returns. This will be achieved by making its mines ‘fully modernised and mechanised’ and by lowering its own mine costs to the first half of the primary cost curve. It is targeting a mining Ebitda margin of 35% to 45% by 2030 and a return on capital employed of ‘at least’ 25% through the cycle.

Anglo American shares were down 1.7% in early trade at 2830.0.

AstraZeneca’s Imfinzi pulled from treating bladder cancer in US

AstraZeneca said it has voluntarily withdrawn Imfinzi as a treatment for locally advanced or metastatic bladder cancer in the US after it failed to deliver the desired results in its latest trial.

Imfinzi was given accelerated approval in the US back in 2017 after promising results from a Phase I/II trial showed it was having an effect on tumours, but this was contingent on the results of the follow-on Phase III trial. Unfortunately, Imfinzi did not meet its primary endpoint during that trial this year.

‘The withdrawal is aligned with FDA guidance for evaluating indications with accelerated approvals that did not meet post-marketing requirements, as part of a broader industry-wide evaluation. This withdrawal does not impact the indication outside the US and does not impact other approved Imfinzi indications within or outside the US,’ said AstraZeneca.

AstraZeneca shares were down 0.4% in early trade at 7208.0.

FTSE 250 news

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

Mitchells & Butlers taps shareholders for £350 million

Pub chain Mitchells & Butlers said its business continues to take a battering as pubs remain shut during lockdown, prompting it to take action to shore up its balance sheet to weather the storm.

The company, which employs around 40,000 people and operates 1,600 venues, has been among many in the hospitality industry trying to survive the latest lockdown that has forced their sites to close. None of its sites have been opened in England since the end of 2020 while all of its German sites have been closed since the start of November.

The company said that sales from its managed sites were down 68.9% year-on-year between September 27 and January 16. Like-for-like sales were down 30.1%.

Mitchells & Butlers also said its liquidity position has ‘deteriorated significantly as a result of the impact of the COVID-19 pandemic’ as it revealed details of a previously announced open offer that will tap shareholders for £351 million.

The open offer will see investors offered 7 new shares for every 18 shares they already hold, priced at 210.0 pence each. Notably, its three largest shareholders that together have a combined 55% majority stake in the business have pledged to take up their shares in the offer and underwrite the offer to buy any other shares that investors don’t take up.

It said the sum would give it the funds needed to reduce its unsecured debt and provide support for its secured debt by injecting equity and allowing it to meet its fixed obligations. It will also allow it to invest in its properties to ensure it can emerge strongly from lockdown.

Notably, a £150 million debt facility from its lenders is contingent on the open offer being completed.

Mitchells & Butlers said it is currently burning through £35 million a month whilst its sites are shut, and that it needs another £51 million each quarter to service its debt.

Mitchells & Butlers said it had £113 million of cash at January 16, with all facilities being used, highlighting the need for more money. It has also agreed to defer pension contributions due during the first three months of 2021.

 ‘M&B was a high performing business coming into the pandemic and with the support of our main stakeholders, including the equity injection from this open offer, we have every confidence that we can emerge in a strong competitive position once current restrictions are lifted,’ said chief executive Phil Urban.

‘The hospitality industry has done everything that has been asked of it to date and, now that the vaccines are being rolled out and infections are dropping, we are hopeful that pubs and restaurants will soon be allowed to reopen safely so that we can start to serve our customers again,’ he added.

Mitchells & Butlers shares were down 0.2% in early trade at 319.5.

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