Top UK Stocks to Watch January 28

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Josh Warner
By :  ,  Market Analyst

Top News: Diageo ups dividend as pandemic weighs on results

Diageo said sales and earnings took a hit in the first half of its financial year as coronavirus restrictions kept people at home, and warned it expects this to continue during the first six months of 2021.

The alcoholic drinks giant said net sales fell 4.5% in the last six months of 2020, but said organic net sales rose 1% despite the fact pubs and restaurants remain closed. It said North America was particularly strong with organic net sales growth of 12.3%, offsetting weaker performances elsewhere.

Operating profit declined 8.3% to £2.2 billion and organic operating profit fell 3.4%. Basic earnings per share fell 14.6% to 67.6 pence while adjusted EPS dropped 12.8% to 69.9p.

Diageo said it had seen a ‘strong sequential performance improvement in all regions’ compared to the first six months of 2020 when the pandemic first erupted, but warned that it expects restrictions to remain in place during the first half of 2021.

‘We delivered a strong performance in a challenging operating environment, returning to top line organic sales growth during the half. We rapidly pivoted to the channels and occasions most relevant to consumers and invested behind new opportunities. This more than offset the impact of on-trade restrictions and the decline in Travel Retail,’ said chief executive Ivan Menezes.

‘North America, our largest market, performed particularly strongly and ahead of our expectations. Consumer demand has been resilient and the spirits category continues to gain share of total beverage alcohol. Across other regions we delivered strong sequential improvement compared to the second half of fiscal 20. This reflects improved market share performance through excellent execution in the off-trade channel, and the partial re-opening of the on-trade channel in certain markets,’ he added

Net cash from operating activities jumped to £2 billion from £1.3 billion and free cashflow rose to £1.8 billion from £1 billion. Diageo raised its dividend by 2% to 27.96p.

Diageo said it was not providing guidance due to the ongoing volatility but said it expects the first six months of 2021 to be better than the year before, adding its organic operating margin should also improve.

Diageo share price: technical analysis

Diageo shares have been trading range bound since November capped on the downside by 2875 and on the upside by 3000 with three breaks higher to 3070.

The 50 & 100 sma on the 4 hour chart have moved forward neither trending higher nor lower revealing a neutral bias. 

Today’s 3.5% jump higher on the open has seen the price push over the 50 &100 sma, the RSI has also turned northwards and spiked into bullish territory suggesting there could be more upside to come. 

However, the bulls will be looking for a break above 3000, with follow through buying bringing 3070 into focus before 3200.

Should the rebound lose steam support can be seen 2930/45 50 & 100 sma prior to the lower band of the horizontal channel at 2875. A breakout below this level could lead to a deeper more sustained sell off back towards 2800.

FTSE 100 news

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

Anglo American says production near pre-pandemic levels

Anglo American said it has continued to make a strong recovery since coronavirus disrupted operations in the first half of 2020, with production in the second half of the year returning to 95% of pre-pandemic levels.

‘The strong performance recovery in the second half continued through the fourth quarter, following the Covid-19 disruptions earlier in the year.  As expected, second half production returned to 95% of 2019 rates, benefiting from strong performances in copper at Los Bronces in Chile and in iron ore at Minas-Rio in Brazil,’ said chief executive Mark Cufitani.

In the fourth quarter, copper production rose 6% year-on-year while diamond output fell 14%. Iron ore production was down 11% and coal production dropped sharply. Nickel production was flat while platinum group metal output was down 7%.

For the full year, copper production was up 1% to 638,000 tonnes, diamond output fell 18% to 30.8 million carats, and iron ore fell 7% to 65.5Mt.

Production guidance for 2021 was largely left unchanged, with a slightly adjustment made to its outlook for diamonds. It is now aiming to produce 32 million to 34 million carats this year compared to its previous goal of 33 million to 35 million.

Anglo American shares were up 0.2% in early trade at 2371.5.

3i Group delivers resilient performance thanks to private equity

3i Group said it delivered a resilient performance in the last three months of 2020 as both its infrastructure investment and private equity teams performed well.

The investment manager said its net asset value rose to 936 pence at the end of December from 905p at the end of September. It said the strong quarter means it has delivered a total return of 18.7% in the first nine months of its financial year.

3i said sales, earnings and cashflow had all remained strong despite being disrupted during the pandemic and that its ecommerce, healthcare and business service sector investments had performed particularly well.

‘3i delivered another solid performance in the quarter ending 31 December 2020. Both our private equity and infrastructure teams have continued to perform well. Our Private Equity portfolio continues to benefit from secular growth trends, with 92% of our top 20 investments by value growing LTM earnings to September 2020, with particularly strong performances in our high growth investments. This was another decent quarter from Action which has bounced back very strongly after each lockdown interruption,’ said chief executive Simon Borrows.

3i Group shares were down 1.2% in early trade at 298.3.

St James’s Place reports record funds under management

St James’s Place said funds under management have reached a record high as it released a solid set of results for the fourth quarter of 2020.

The wealth manager said it had £129.34 billion in funds under management at the end of December compared to £116.99 billion at the end of 2019. Gross inflows rose to £4.02 billion in the fourth quarter from £3.98 billion the year before, but net inflows dipped to £2.29 billion from £2.44 billion.

‘For the year, gross inflows of £14.33 billion are just 5% lower than 2019, which given the operating environment since March, bears testament to the resilience of our business and the determination of our entire community to support clients and each other through the global pandemic,’ said chief executive Andrew Croft.

St James’s Place shares were down 1.8% in early trade a 1174.0.

Intermediate Capital AUM gets boost from third parties

Intermediate Capital said it has maintained the positive momentum during the third quarter of its financial year as it raised over EUR2 billion of third-party assets under management, putting it on course to raise more than it expected over the full year.

The alternative asset manager focuses on private debt, credit and equity, and said it ended December with EUR47.2 billion worth of AUM, up from EUR46.0 billion at the end of September. That was driven by an increase in third-party AUM to EUR44.5 billion from EUR43.6 billion and a lift in value of its investment portfolio to EUR2.6 billion from EUR2.4 billion.

It said it raised EUR2 billion of third-party AUM during the last three months of 2020 and said it now expects fundraising to exceed EUR6 billion for the year as a whole, ‘significantly ahead of our initial expectations for an off-cycle year’.

‘We maintained very positive momentum in our business through the third quarter, raising significant Third Party AUM and deploying a substantial amount of capital across all our strategic asset classes,’ said chief executive Benoit Durteste. ‘Two of our flagship funds, Europe Fund VII and Strategic Equity III, were particularly active, and we were also pleased to see ongoing deployment in our more recently launched strategies such as Infrastructure Equity and Sale and Leaseback.’

‘Looking forward, we are well positioned to continue this trajectory. Our deployment rate and the performance of our funds through 2020 gives us confidence in our fundraising pipeline, and we are experiencing strong client demand for our strategies. Our global platform and our funds’ abilities to invest across the capital structure are strategic advantages to ICG, particularly at this point in the cycle, and we continue to invest in our capabilities to accelerate our future growth, most recently adding a Life Sciences team to enhance our capability in the Healthcare sector,’ he added.

Intermediate Capital shares were down 3.7% in early trade at 1623.0.

AVEVA loses finance director to GB Group

AVEVA said that its finance director and company secretary David Ward is leaving the business to join GB Group as its new chief financial officer.

AVEVA shares were down 1.6% in early trade at 3649.0.

FTSE 250 news

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

easyJet burning through around £40 million a week

Airline easyJet said it has continued to cut costs during the pandemic and that it is now burning through around £40 million each week as it reported steep falls in passenger numbers and revenue.

The company said it carried just 2.9 million passengers in the third quarter to the end of December, largely in-line with the 82% cut it has made to capacity. Revenue slumped 88% to £165 million.

Headline costs before fuel were cut by more than half during the quarter as it hunkered down, and said it has now reduced its weekly cash burn to around £40 million.

‘The structural cost-out programme we announced last year, easyJet's largest ever, is delivering and on track to achieve our targeted in-year cost savings and will re-set our cost base and support improved margins. This will position the business to emerge from the pandemic in an even more competitive position for the long term,’ easyJet said.

The airline said it only expects to run at 10% of its capacity in the second quarter that runs until the end of March compared to the year before.

‘The European slot waiver mechanism in place for this winter enables us to best match our capacity against the lower demand that currently exists.  Discussions are underway by both the European Commission and the UK regarding a revised slot waiver for the Summer 2021 season.  We remain focused on cash generative flying in order to minimise losses and cash burn.  We retain the flexibility to ramp up capacity quickly when we see demand return,’ easyJet said.

‘At this stage, given the continued level of short-term uncertainty, it would not be appropriate to provide any further financial guidance for the 2021 financial year.  Customers are booking at a later stage and visibility remains limited,’ it added.

easyJet shares were down 1.3% in early trade at 705.3.

Wizz Air passenger numbers plummet as pandemic persists

Wizz Air said passenger numbers fell 77% in 2020, pushing it into the red, but said it believes 2021 will be ‘a transition year out of the Covid-19 crisis.’

The airline carried just 2.3 million passengers in 2020 compared to over 10 million in 2019 as coronavirus restrictions continues to hit the travel industry hard. That resulted in revenue plunging 76.5% to EUR149.9 million from EUR637.3 million.

Wizz Air entered the red as expected, reporting a net loss of EUR116.4 million compared to a EUR21.2 million profit in 2019.

The airline has over EUR1.2 billion in cash on hand to help see it through what will undoubtedly be another tough year.

‘We remain focused on optimising our cost structure and cash burn. Since the period end we have further enhanced our liquidity position with a 500m EUR 3 year bond issued on 19 January 2021 on favourable terms and reflecting our investment grade credit rating. Wizz Air is even better positioned to deal with the uncertainties associated with Covid-19 and now with vaccinations being rolled out across our key markets we believe 2021 will be a transition year out of the Covid-19 crisis,’ said chief executive Jozsef Varadi.

‘The initiatives we are implementing in our business have a very singular focus: enabling the company to emerge from the Covid-19 context as a structural winner.  Our ambition is to fully restart our operations as soon as travel restrictions reduce, at all times protecting the health of customers and employees,’ he added.

Wizz Air shares were up 2.8% in early trade at 4282.0.

Rank Group revenue more than halves during ‘challenging’ first half

Rank Group said revenue more than halved during the last six months of 2020 as coronavirus restrictions kept people away from its bingo halls and casinos.

The owner of Mecca bingo halls and Grosvenor Casinos said underlying net gaming revenue fell 58% to £156.6 million in the period. Its physical venues reported a 70% drop and its online operations only managed a mild 1% increase.

The company was pushed to an operating loss of £52.9 million from the £55 million profit it reported the year before. Cashflow was also hampered with an outflow of £17.5 million compared to the £109.3 million inflow seen the year before.

Net debt fell to £268.3 million from over £300 million, but the uncertain situation means Rank Group will not pay an interim dividend. Rank Group said it was taking action to conserve cash and protect its balance sheet so it could stage a recovery when lockdown ends.

‘There continues to be uncertainty looking ahead, particularly as our venues remain closed and we have no firm guidance as to when we will be able to reopen. We remain focused on managing our liquidity position and, following the successful £70 million equity placing in November 2020, combined with the support of our lending banks, I believe we have the balance sheet strength to survive an extended period of closure. We are now focusing on delivering the next stage of our Transformation plan and are ready to reopen our venues when the virus is under control and the vaccine roll-out has achieved its purpose,’ said chief executive John O’Reilly.

Rank Group shares were down 3.1% in early trade at 120.8.

Tritax Big Box benefits from record demand for logistics sites

Tritax Big Box said there is record demand for logistics sites and warehouses as shopping shifts online during the pandemic.

The company, which invests in large scale logistics properties in the UK, said it saw a record take-up of 43 to 50 million square feet of space in 2020, marking an impressive 50% growth from 2019.

It said there was demand for around another 112 million square feet of logistical space in the UK market as a whole, underpinning strong demand growth this year and beyond.

Rents have also held up, with 99% of all rent due for the final three months of 2020 now received. It said it expects to collect all rent for the first quarter of 2021 before the end of March, with 93% already collected.

Tritax Big Box REIT shares were  down 2.4% in early trade at 178.6.

Airtel Africa renews licence in largest market of Nigeria

Airtel Africa said its Nigerian subsidiary has secured renewals for its spectrum licenses.

The licenses were due to expire at the end of November but will now run for another 10 years until the end of 2031 as a result of the renewal. Airtel Africa has paid around $189 million in renewal fees.

‘I am pleased to announce that our application in Nigeria to renew our spectrum licences in the 900MHz and 1800MHz bands for a ten-year period has been approved by the NCC. This is our largest market and we remain focused on bridging the digital divide and expanding our broadband capability in the country. On behalf of Airtel Nigeria and the group, I would like to thank both the government of Nigeria and the NCC for their cooperation and support in this important process,’ chief executive Raghunath Mandava said.

Airtel Africa shares were down 5.9% in early trade at 75.30.

Sanne Group to meet expectations as it continues to win new business

Sanne Group said it expects to meet expectations when it releases its results for 2020 as it continues to win new business.

The company, which provides alternative asset and corporate services, reported new business wins of £22.5 million on an annualised basis, which should provide ‘good growth momentum for 2021 and beyond’.

‘Despite the market backdrop being impacted by the on-going COVID-19 pandemic through the second half, Sanne continued to trade resiliently with increased client activity converting into new business wins during Q4,’ said Sanne. ‘In addition, the business delivered a strong cash performance with underlying cash conversion above 90% for the period.’

‘Sanne remains confident that the medium and long-term prospects for the industry are compelling and continues to focus on ensuring the group is well-placed to take advantage of the significant structural growth drivers in its markets,’ the company added.

Sanne Group will report annual results on March 19.

Sanne Group shares were down 0.5% in early trade at 557.0.

Britvic capitalises on home demand as pubs and restaurants remain closed

Drinks maker Britvic said its overall sales have continued to be hampered as pubs and restaurants remain closed during lockdown, but said it has performed well in the ‘At-Home’ market as people stay at home.

Overall revenue fell 5.8% to £328.1 million in the first quarter to the end of December. That is based at constant currency and also excludes the impact from disposing its French private label juice business.

It said sales in supermarkets and shops had remained strong in the UK and Brazil. UK At-Home sales jumped 11.9% but that was not enough to offset the 32.5% fall in revenue from trade.

It said it expects existing restrictions to last until at least the end of March.

‘The introduction in GB and Ireland of tighter pre-Christmas COVID-19 restrictions, and the subsequent national lockdown measures, have put further pressure on sales in both the hospitality sector and on the go consumption,’ Britvic said.

‘While there remains considerable uncertainty over the depth and duration of future restrictions, we anticipate they will remain in place at least through our second quarter. Consequently, we would expect performance to continue to be significantly affected by similar adverse channel and pack mix to that which we saw in the second half of FY20, and gradually improve following the lifting of restrictions,’ it added.

Britvic shares were down 4.5% in early trade at 732.0.

Tate & Lyle to post rise in profit despite pandemic disruption

Tate & Lyle said it expects adjusted pretax profit in the financial year to the end of March 2021 to be ‘modestly ahead’ of the £331 million it reported in the last financial year.

The ingredients maker said the rise in profit would be thanks to strong momentum in the food and beverage sectors, lower costs and better profitability in certain parts of the business.

In the third quarter to the end of December, Tate & Lyle said food and beverage solutions revenue rose 8%, sucralose was down 3% and primary products rose 9%. Combined, that meant overall revenue climbed 8% year-on-year.

‘While the operating environment remains uncertain and out-of-home consumption continues to be below pre-pandemic levels, the business has positive momentum. We remain focused on delivering our priorities and are well placed to emerge from this period an even stronger business,’ chief executive Nick Hampton.

Tate & Lyle shares were up 2.4% in early trade at 677.7.

Workspace keeps collecting rent during the pandemic

Workspace said rent collection has remained robust during the third quarter that ran until the end of December as new lettings continue to fall.

The company said it has collected 91% of all rent due for the third quarter and 82% of the rent due for the fourth quarter, which is in line with levels seen the year before.

It said the number of enquiries for office space had fallen to 672 a month during the third quarter from over 1000 the year before. Letting had held up better at 109 per month compared to 113 per month the year before.

‘In terms of trading performance in the quarter, customer activity was impacted by government restrictions, but we were encouraged by the resilient demand for our space, which has continued into the fourth quarter. It appears that we are now coming towards the end of the significant occupancy declines we have seen over the last three quarters,’ said chief executive Graham Clemett.

‘The timing and pace of our recovery will depend on the rollout of the Covid-19 vaccines and lifting of government restrictions. I am confident that once we return to more normal market conditions, our unique, character properties and truly flexible offer will be attractive and relevant to an ever-wider range of businesses across London,’ he added.

Workspace shares were down 1.7% in early trade at 710.3.

KAZ Minerals beats production guidance in 2020

Chilean copper miner KAZ Minerals said it produced 305,700 tonnes of copper in 2020, down from 311,400 tonnes in 2019 but 2% higher than expected. Copper sales fell to 300,400 tonnes from 316,900 tonnes.

Gold production for the year totalled 196,300 ounces, down from 201,500 ounces the year before. Gold sales fell to 204,600 ounces from 225,000 ounces.  

KAZ Minerals shares were down 1.6% in early trade at 708.5.

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