Thursday preview: Melrose to update on GKN, McBride woes 'resolved'
Following its £8bn hostile takeover of GKN, Melrose Industries will on Thursday update investors on how things have gone in its first four months in charge of the aerospace and automotive engineer.
"It may say Melrose on the wrapper, but it’s GKN in the tin," said analysts at Hargreaves Lansdown, with Melrose having its fingers in other pies in the shape of ventilation specialist Nortek and generator maker Brush, "but they’re small by comparison".
"At the time of the bid, Melrose committed to substantially improving margins and profits, while investing in the business going forwards. Thursday’s half year results will be an early chance for the turnaround specialist to demonstrate how that’s going to be achieved."
Reports ahead of the half-year results suggested that Melrose was already looking for buyers for GKN's Powder Metallurgy business for around £2bn and around £350m for the Off-Highway Powertrain division, Sky News said. Together, the disposals could return more than a quarter of the cost of the takeover.
Last week said that Melrose was also looking to offload the smaller of GKN's two pension funds, which has liabilities of about £500m, if it could secure an attractive price. As part of the hostile takeover deal, management promised to inject up to £1bn of cash into the GKN pension schemes, which have around 32,000 members.
UBS analysts said this week's "should reassure investors on GKN's turnaround", as well as energy trends and on the exit of some of Nortek and GKN businesses.
New estimates from UBS integrate GKN's activities over circa eight months in 2018, and with £650m of restructuring charges and circa £380mn of pension contribution over 2018-2022.
As a result its P&L estimates have meaningfully increased for subsequent year, pointing to full year EPS of 16.46p, EPS in the 2020 financial year of 17.95p. Net debt for this year is expected to be £2.7bn.
UBS's analysis suggested that 58% of the shares' current value is attributable to capitalised current earnings, while expected earnings over 2019-20 contribute to 27% and only 14% is attributed for longer term earnings growth. "Looking at Melrose historical and 3-5 year return metrics, we think 27% undervalues the current portfolio potential."
In a busy week for followers of the housebuilding sector, Bovis Homes, is also due to report interims, with its peers reporting this week showing evidence of good progress. The group's shares have been one of the best performers in the sector for 2018, falling 4% compared to a 14% decline for the sector.
Broker Peel Hunt expect the interim figures to show the group making "decent strides in its improvement drive, which will be showing through in higher margins", with underlying trading conditions remaining robust given their geographic and product mix.
"The CEO's drive to squeeze surplus assets out of the business continues, which should ensure the cash position continues to improve," analysts said, admiring the dividend yield that is one of the highest in the sector at 9.1%.
With profit warnings in January and July, shares in McBride, the maker of private label household products, are down well over 40% this year.
Two months ago, the company said sales in May and June were weaker than expected, taking adjusted pre-tax profit for the year to the end of June below the lower end of analysts’ range of forecasts. It confirmed plans to sell its European personal care liquids business for £12.5m.
Also in July, Tesco and France's Carrefour, both McBride customers, announced a new buying partnership.
Analysts at Peel Hunt, which noted that the Tesco-Carrfour deal will make McBride "subject to risk of having tighter buying terms, particularly if there are differences in pricing", now see McBride's shares as good value "as we see the risks now being priced in", with the shares trading on 9.5 times earnings, falling to 8.0x.
Issues over weak volumes in the period and rising costs "should be largely resolved", analysts said, with significant new business wins and pricing improvements in some markets, with input cost increases also now flattening off.
"The company has largely resolved the issues in Personal Care with the closure of the Hull plant and sale of liquids. This is expected to result in losses of c£5m being removed by 2020."
Thursday 06 September
INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Continuing Claims (US) (13:30)
Crude Oil Inventories (US) (16:00)
Factory Orders (GER) (07:00)
Factory Orders (US) (15:00)
Initial Jobless Claims (US) (13:30)
ISM Non-Manufacturing (US) (15:00)
PMI Composite (US) (14:45)
PMI Services (US) (14:45)
FINALS
Avation, Genus, Go-Ahead Group, Mcbride, Redde
INTERIMS
Bakkavor Group , Bovis Homes Group, Curtis Banks Group, Deepmatter Group, Hunters Property , International Public Partnerships Ltd, Just Group, Melrose Industries, MPAC Group, PPHE Hotel Group
TRADING ANNOUNCEMENTS
Dixons Carphone, McCarthy & Stone
SPECIAL EX-DIVIDEND DATE
Admiral Group, Glencore , Pagegroup
AGMS
Aberdeen New India Investment Trust, Albert Technologies Ltd (DI), BCA Marketplace, Best of the Best, Carpetright, Dart Group, Dixons Carphone , Funding Circle SME Income Fund, Kodal Minerals , Maven Income And Growth VCT 6 , Okyo Pharma Limited NPV, Phaunos Timber Fund Ltd., Polar Capital Technology Trust, Shefa Yamim (A.T.M.) Ltd (DI), Solid State
FINAL DIVIDEND PAYMENT DATE
IG Design Group, Iomart Group
FINAL EX-DIVIDEND DATE
Arcontech Group, Best of the Best, BHP Billiton, Clipper Logistics , Colefax Group, Creightons, Fletcher King, Goodwin Plc, National Westminster 9%pf, NCC Group, Van Elle Holdings, WYG
INTERIM EX-DIVIDEND DATE
Admiral Group, Aggreko, Antofagasta, Arrow Global Group, Aviva 8 3/8% Cumulative Irrd Preference 1, BBGI SICAV S.A. (DI), Camellia, Capital Drilling Ltd. (DI), Chesnara, Clarke (T.), Clarkson, Convatec Group , CRH, Eddie Stobart Logistics , Eurocell , G4S, General Accident (Prf), Greggs, H&T Group, International Personal Finance, IWG , John Laing Infrastructure Fund Ltd, Kaz Minerals , Kingspan Group, LPA Group, Meggitt, Octopus VCT 3, Octopus VCT 4, Pagegroup, Phoenix Group Holdings (DI), Polymetal International, Portmeirion Group, Rathbone Brothers, Reach, Robert Walters, RSA Insurance Group, Savills, Shire Plc, The Gym Group, Warehouse Reit
QUARTERLY EX-DIVIDEND DATE
Land Securities Group, Raven Property Group 6.5% Red Cnv Pref Shs NPV, UIL Limited (DI), Volta Finance Limited