Top UK Stocks: Antofagasta shares fall as drought hits production

Antofagasta’s record earnings are overshadowed by a downgrade to guidance, South32 hikes its dividend as cashflow improves, Rank Group enters the red after a tough year, Marshalls recovers and restores payouts, and McBride shares plummet after warning profits are set to plunge.


Top News: Antofagasta cuts guidance due to drought in Chile

Antofagasta reported stellar growth in the first half of 2021 as a surge in copper prices offset lower production, but downgraded its full year guidance due to the severe drought in Chile.

Antofagasta shares were down over 4% this morning, having also been dragged lower by the recent fall in copper prices.

Revenue in the first half rose almost 68% year-on-year to $3.59 billion as a 2.5% dip in copper output was more than offset by an 80% surge in copper prices. Ebitda hit a new record of $2.35 billion, having more than doubled from just $1.01 billion the year before.

Although the growth will be welcomed by investors, it did narrowly miss the $3.64 billion in revenue and $2.40 billion of earnings expected by analysts.

Pretax profit grew to $1.78 billion from just $468.3 million last year.

The jump in earnings led to the interim dividend being hiked to 23.6 cents from just 6.2 cents last year.

Antofagasta also ended June with $701 million in net cash, turning from a net debt position at the end of 2020 after generating $2.46 billion in operating cashflow over the first six months of 2021 compared to just $907 million the year before.

However, Antofagasta said it has downgraded its full year production target to 710,000 to 740,000 tonnes from its original guidance range of 730,000 to 760,000 tonnes. This is because of the ongoing drought in Chile, with the company describing 2021 as the ‘driest of a 12-year drought’. Water is essential to operate the concentrator plant at the site and, with minimal precipitation, production will suffer as a result. The net cash cost goal of $1.25 per pound was reaffirmed.

Antofagasta said it will release its production and mine plans for next year when it publishes third-quarter results. It said it could have to trim its expectations for the Los Pelambres operation by up to 50,000 tonnes in 2022 if precipitation does not improve in the second half.

Where next for the Antofagasta share price?

After falling steeply from the May high of 1968p, the price found support at 1323 an 8 month low struck in July. However, the rebound from 1320p stalled last week capped by the 200 day moving average. 

The Antofagasta share price trades below its 200 dma and has also fallen below its 50 dma today. The 50 dma crossed below the 200 dma in a death cross at the end of last month, a bearish signal.  

The RSI is supportive of further downside whilst it remains out of oversold territory. 

Support can be seen at 1370p today’s low and the low June 21. A break below here could bring 1320p the year to date low back into focus. Beyond here 1230p a level last see in late November could offer support. 

On the flip side any recovery would need to break above the 50 sma at 1465p before making another attempt on the 200 sma at 1550p.

South32 hikes payouts after cashflow improves

South32 bumped-up its dividend and announced it will make a special payout to shareholders after reporting a significant improvement in cashflow during its recently-ended financial year.

The miner, which was spun-off from BHP back in 2015 and mines a variety of commodities from operations across the southern hemisphere, said revenue edged up 4% in the year to the end of June to $6.33 billion from $6.07 billion the year before.

Underlying earnings jumped to $489 million from $193 million but it remained in the red at the bottom-line with a loss after tax of $195 million, having swelled from the $65 million loss the year before.

Free cashflow from operations improved significantly to $639 million from $270 million, giving South32 the confidence to more than double its dividend to 4.9 cents from 2.1 cents and make an additional special payout of 2.0 cents per share, compared to a 1.1 cent one-off payout last year.

Having delivered record production at numerous projects during the year, including its Australian and Brazilian alumina operations and its Australian manganese mines, South32 largely left its production guidance for the new financial year unchanged.

However, it did downgrade its expectations at Brazil Alumina by 6% because of repair work that needs doing while upgrading expectations at the Cannington silver and lead mine by 10% as it moves to hauling material by truck. It also provided guidance for its South African manganese operations for the first time and said it should produce around 2,200 thousand wet metric tonnes, down from 2,264 tonnes in the recently-ended year.

South32 shares were down 1.5% in early trade this morning at 148.9p.

Rank Group encouraged by performance since reopening sites in May

Rank Group revealed its results took a bigger hit than expected during the toughest year on record that saw lockdown rules force its sites to close for most of the period, but said it has generated cash and performed better than expected since reopening in May.

The company, known for owning Grosvenor casinos and Mecca bingo halls, said net gaming revenue was down 48% year-on-year at £319.6 million and reported an underlying net loss per share of 20.3p compared to a 6.7p profit the year before.

The topline missed the £343.1 million expected by analysts and the loss per share was slightly wider than the 20.25p loss forecasted. Rank Group’s loss at the bottom-line came in at £72.0 million and swung from a £9.4 million profit the year before.

Rank Group shares were down 5.7% in early trade this morning at 172.9p and are still over 46% lower than before the pandemic hit.

The poor set of earnings were the result of the lengthy closure of its sites, which only reopened in May. Rank Group makes almost 80% of its income from physical venues, which were shut for almost 60% of the year. Underlying revenue from venues was down 65% in the year as a result, and its online operations also suffered with a 6% decline.

Rank Group said it has been encouraged by its performance since it started to welcome customers back to its sites. Grosvenor sites traded at 19% below pre-pandemic levels in the 13 weeks to August 15 and is generating £5.7 million in weekly revenue, comfortably above the £4.4 million breakeven point. Mecca bingo halls have traded 21% below pre-pandemic levels and is generating £2.6 million in weekly revenue, just above the £2.4 million breakeven point.

‘Rank was delivering strong revenue and profit growth before the pandemic and the steps we have taken over the last 18 months, particularly in carefully managing our liquidity and developing the transformation plans, will enable the group to return to that growth trajectory as the impact of the pandemic reduces and consumer confidence for indoor leisure experiences grows.’ said chief executive John O’Reilly.

‘Our venues have been performing ahead of our expectations following the easing of restrictions on the UK hospitality sector on 17 May and we anticipate further growth as travel restrictions eventually ease and tourism returns, particularly to London,’ he added.

Marshalls restores payouts as activity return to pre-pandemic levels

Marshalls said it is feeling more confident about the rest of 2021 and 2022 after revenue and profits surpassed pre-pandemic levels in the first half of the year, driven by strong demand to improve gardens and outdoor spaces.

Marshalls shares were up 3.9% in early trade this morning at 784.0p.

The company, which specialises in providing the tools, materials and services needed for landscape gardening, said revenue jumped to £298.1 million in the first half of the year from just £210.5 million last year, and well ahead of the £280.1 million booked in 2019 before the pandemic hit.

Ebitda rose to £56.4 million from £18.2 million and adjusted operating profit leapt to £41.0 million from just £3.5 million. Reported pretax profit at the bottom-line of £38.9 million turned from a £16.0 million loss the year before.

Marshalls said domestic sales in the UK jumped 54% in the period and that work for the public sector and commercial segment rose 40%. International sales rose 11% and all three segments traded above what was delivered in 2019.

The return to pre-pandemic levels of business prompted Marshalls to pay a 4.7p interim dividend, in-line with what it was paying before suspending payouts last year when the pandemic hit.

‘Trading continues to improve and recent order intake has been good. The Construction Products Association's recent summer forecast predicts year on year increases in UK market volumes of 13.7% in 2021 and 6.3% in 2022 and the group expects to meet or outperform the market,’ said chief executive Martyn Coffey.

‘Market conditions remain supportive, despite certain supply chain challenges, which are leading to inflationary pressures across the sector. The underlying indicators in our main growth markets, including new build housing, road, rail and water management, remain positive,’ he added.

Marshalls said it was raising its expectations for both 2021 and 2022 following the strong performance, but did not provide any details.

McBride warns profits will plunge in new financial year

McBride warned that profit will be way below market expectations in 2022 after being hit by rising input costs, a lack of supplies, and the shortage of HGV drivers in the UK and Germany.

McBride shares were trading down 10.8% this morning at 76.9p, having fallen by over 16% in earlier trade.

The company, which manufactures and distributes private label and other goods it makes for third-parties, has recently finished its latest financial year to the end of June 2021 but is yet to release its annual results.

Markets are expecting it to report adjusted pretax profit of £19.7 million in the year and end the period with net debt of £121.5 million. That would be down from the £24.2 million profit booked in the 2020 financial year while debt will have risen from £101.5 million at the end of June 2020.  

This morning, McBride warned that adjusted pretax profit for the new financial year to the end of June 2022 will be 55% to 65% below what is expected for the recently-ended financial year. That implies profits will plunge to a region of £7.0 to £9.0 million. Meanwhile net debt is expected to be 5% to 10% higher than the forecast, implying it will end June 2022 with net debt of around £127.0 million to £134.0 million.

The dire outlook has been caused by a series of challenges that McBride highlighted earlier this year, including rising input costs to make its goods, a lack of supplies and the shortage of HGV drivers in the UK and Germany.

This has severely weighed on margins and McBride said it expects to operate at roughly breakeven at the Ebita level during the first half covering the six months to December 2021, meaning it will have to generate all of its annual profits in the second half.

‘The short-term challenges facing the business have no effect on the ongoing execution of the group's Compass strategy as outlined at its capital markets day in February 2021, nor its mid-term ambitions,’ said McBride.

‘The group continues to operate within its banking covenants and the group's liquidity and cash flow remain robust,’ it added.

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