Top UK Stocks to Watch: LSEG shares rise as Refinitiv transforms results

The London Stock Exchange Group starts to see results from its Refinitiv merger, Hikma raises its guidance and dividend, Capita set to return to growth this year, Sanne plays two bidders off against each other, and Ofgem raises the UK price cap as gas prices hit new record highs.

UK

Top News: London Stock Exchange profit more than doubles

London Stock Exchange Group said it delivered growth across all divisions during the first half, with its results feeling the benefit of the addition of Refinitiv following the mega-merger completed in January.

Total income soared to £3.11 billion in the first half of 2021 from just £1.02 billion the year before, while adjusted operating profit surged to £1.17 billion from £457 million. Still, that was below the £3.38 billion in revenue and £1.22 billion in profit expected by analysts.

The addition of Refinitiv sent income from Data & Analytics higher to £1.95 billion from £409 million the year before, while income from Capital Markets jumped to £542 million from £147 million. Post Trade activities delivered slightly lower income of £450 million versus £468 million.

LSEG shares were up 4.4% in early trade this morning at 7788.0p.

‘We are executing well on our integration plans to deliver the strategic and financial benefits of the Refinitiv transaction. Our cost synergy programme is ahead of plan with £77 million of run-rate savings achieved at H1 and our revenue synergy programme is on track,’ said chief executive David Schwimmer.

LSEG said it has increased its synergy target and is now aiming to deliver £125 million worth of cost-savings from the Refinitiv integration over the full year, up from its previous target of just £88 million.

‘We are pleased with the H1 performance and are highly focused on continued execution to maintain the good momentum into H2 2021 and future years. We are executing on a detailed integration and transformation plan to create a simplified and scalable business, and we are ahead of plan. We are confident in meeting our financial targets,’ said LSEG.

LSEG raised its interim dividend by 7% year-on-year to 25.0 pence from 23.3p.

Where next for the LSEG share price?

The LSEG share price has been forming a series of lower highs, falling from a peak of 10010p in mid-February. It trades below its multi-month descending trendline and trades above its 100 dma but below the 50 dma. 

The RSI is pointing higher in bullish territory favouring further gains. The 50 dma recently crossed above the 100 dma in a bullish signal. 

Immediate resistance can be seen at 7750p today’s high, the descending trendline resistance and the 50 dma which could prove a tough nut to crack. A break above this level could bring 8300p the post pandemic high into target and 8690p the February 1 low. 

On the flip side, support can be seen at 7570p the 100 dma beyond here 7220p the July low could offer support and 6880p the May low. 

Hikma Pharmaceuticals ups guidance and dividend

Hikma Pharmaceuticals raised its guidance this morning after beating expectations in the first half of 2021, driven by strong double-digit growth across the board.

Core revenue rose 7% to $1.21 billion and core profit attributable to shareholders edged-up 9% to $223 million. That came in better than expected, with analysts having forecast revenue of $1.18 billion and profit of $218 million.

The Injectables division reported 41% growth in revenue, the Generics unit rose 33% and its Branded products reported 26% growth.

Hikma said its expectations for Injectables and Branded medicines for the full year remains unchanged, with both divisions to report revenue growth in the mid-single digits. As for the Generics business, annual revenue is now expected to be between $810 million to $830 million, up from the previous target of $770 million to $810 million. It also bumped-up its core operating margin target for Generics to 22% to 24% from a previous goal of around 20%.

Operating cashflow declined 23% to $224 million, but Hikma said the reduction was due to the timing of tax payments rather than its underlying performance. As a result, Hikma raised its dividend for the first half by 13% to 18.0 cents from 16.0 cents.

Hikma shares were down 3.1% in early trade this morning at 2555.5p.

Capita to return to revenue growth for first time in six years

Capita said it is expecting revenue to rise in 2021 for the first time in six years as it continues to win new contracts and its businesses that were hit hard by the pandemic stage a recovery.

Revenue fell to £1.61 billion in the first half from £1.68 billion the year before. Although lower, Capita said it expects to deliver topline growth over the full year after winning £2.57 billion worth of contracts in the period – an impressive 70% higher than last year when new contracts were harder to come by during the pandemic.

Of those contracts won, around £769 million worth of revenue will be booked this year.

Capita reported a pretax profit of £261.1 million in the first half compared to a £28.5 million loss last year.

Capita’s adjusted operating cashflow fell 7% year-on-year to £176.2 million and turned negative on a reported basis. Free cashflow was similar, rising 12% on an adjusted basis to £130.7 million but turning to an ultimate outflow on a reported basis.

Capita reiterated that it expects to see a cash outflow of around £304 million over the full year as it catches up with pension contributions and continues to restructure the business. However, it expects that to fall away in 2022, which should allow it to achieve ‘sustainable’ free cashflow from next year.

‘We are delivering on our plans and remain on track to deliver organic revenue growth this year for the first time in six years and generate sustainable free cash flow in 2022,’ said chief executive Jon Lewis.

Net debt sat at £894.4 million at the end of June, having been cut from £1.07 billion at the end of December. Capita said this was driven by the improvement in adjusted free cashflow and the proceeds made from selling-off assets. Capita said it has already achieved 75% of its target to generate £700 million worth of asset sale proceeds and that it should deliver another £175 million of disposals before the end of June 2022.

Capita shares were down 1.7% in early trade this morning at 35.47p.

Sanne holding talks with both Cinven and Apex about potential takeover

Sanne Group confirmed it is holding talks with two interested buyers about a potential takeover of the company.

The company is in ‘advanced discussions’ with both Cinven and Apex about their interest in buying the business.

The battle for Sanne kicked-off in May when Cinven tabled several offers for the business. The first one to be made public was at 830p per share and was raised to 850p before being rejected by Sanne and described as ‘opportunistic’. A fifth and still unsolicited bid was made by Cinven worth 875p per share, which was enough to entice Sanne into talks.

Apex then entered the picture last week and tabled a bid worth 920 pence per share, which also prompted Sanne to open discussions.

‘The board of Sanne confirms that, following the announcement on 2 August 2021 that it is in advanced discussions with Apex regarding a possible offer for Sanne, it remains in discussions with Cinven. Cinven is considering its options and continues to work closely with Sanne regarding a possible offer,’ said Sanne this morning.

Sanne shares were up 0.9% in early trade this morning at 922p.

Cinven and Apex both have until the end of play on August 30 to decide whether to make a firm offer or walk away.  

Ofgem hikes energy price cap as gas prices rocket to record highs

The UK’s energy regulator Ofgem said the price cap will be raised from the start of October to reflect the 50% increase in energy costs over the last six months, which included seeing gas prices hit a new all-time high as the global economy recovers from the pandemic.

This means gas suppliers like Centrica’s British Gas, EON and EDF will be able to charge customers more for their energy. The price cap, which helps limit the cost of energy for around 15 million people on default tariffs across the country, will rise by £139 on October 1 to £1,277 from the previous cap of £1,138.

This will also impact the maximum that can be charged to prepayment customers, with around 4 million people falling into this category. That price cap will rise by £153 to £1,309 from £1,156.

‘This increase is driven by a rise of over 50% in energy costs over the last six months with gas prices hitting a record high as the world emerges from lockdown,’ said Ofgem. ‘Surging global fossil fuel prices are already driving up inflation for consumers, making fixed rate energy tariffs not covered by the price cap, as well as petrol and diesel more expensive.’

Ofgem reaffirmed its belief that the price cap is doing its job by saving consumers around £1 billion a year. The price cap is tweaked twice a year.

The regulator said customers can switch suppliers to get a better deal once the price cap has increased, and also urged those struggling to pay to get in touch with their supplier and get on a better deal.

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