Top UK Stocks to Watch: Vectura shares fall as Carlyle makes bid final

The takeover battle for Vectura continues, Spirax-Sarco ups its dividend as profits soar, Admiral shares soar to new all-time highs, 4imprint sees demand return to pre-pandemic levels, and Deliveroo remains encouraged by levels of demand as lockdown eases.

UK

Top News: Carlyle vs PMI: who will win the takeover battle for Vectura?

The takeover battle for Vectura Group looks to be settling down after Carlyle Group announced yesterday that it would not raise its offer for the company again.

Carlyle Group and Philip Morris International have been locked in a bidding war for Vectura Group, with both companies keen to get its hands on Vectura’s inhaled medicines and devices.

Carlyle Group said yesterday that its latest offer of 155p per Vectura share would not be raised again.

That will come with risk considering the latest offer from Philip Morris is for 165p per Vectura share. However, Carlyle is banking on the fact that it would be more likely to gain regulatory approval to buy Vectura than Philip Morris, after the London-listed company previously warned of the potential impact on its wider stakeholders if it was bought by a tobacco giant.

Vectura shares were trading 5.2% lower in early trade this morning at 164.3p, having rallied over 34% since takeover offers started to come in for the business.

‘Carlyle believes its offer is in the best interests of the business and its stakeholders, including its employees, partners and customers, as well as, most importantly, the patients it serves and helps to provide with effective and accessible medicines,’ said Simon Dingemans, one of the managing directors of Carlyle’s European buyout advisory group.

The concerns with the PMI bid lie with the idea that a tobacco company can also own the medicines produced to treat the harms caused by its own products – which Carlyle hopes will go in its favour. Philip Morris has said it wants to operate Vectura as an autonomous business to help it push its ‘Beyond Nicotine’ plan to move into the broader health and wellness space.

The bidding war had prompted regulators to call for an auction to take place to decide who wanted Vectura more, but that has now been scrapped after Carlyle made its bid final.

Vectura released a statement this morning that said it is now waiting for Philip Morris to decide whether to tweak its offer again or make the 165p offer final. It will release a further announcement on where it stands once that is known, it said.

Spirax-Sarco Engineering ups dividend as profits jump 41%

Spirax-Sarco Engineering reported strong growth in the first half of 2021 as industrial production bounced back and demand for work related to the coronavirus vaccine for Watson-Marlow increased, prompting it to raise its dividend.

Spirax-Sarco shares were trading 3.2% higher this morning at 15572.5p.

Revenue jumped 13% to £643.7 million and jumped 17% on an organic basis. That topline growth was twinned with better operating margins of 25.3% versus 20.9% the year before, allowing profits to grow at a faster rate. Adjusted operating profit jumped 37% to £162.9 million.

Reported pretax profit at the bottom line increase 41% to £150.0 million.

The company said all three businesses delivered strong growth. Steam Specialities saw organic sales rise 13% while Electric Thermal Solutions saw 6% growth, with both divisions posting improved margins.

Meanwhile, Watson-Marlow’s organic sales jumped 35% and posted the biggest expansion in margin as demand for work related to the coronavirus vaccine surged. The company is helping firms including the likes of Regeneron Pharmaceuticals, which uses Watson-Marlow’s pumps to promote research, and coronavirus test maker Thermo Fisher.

Plus, all three units ended June with a ‘higher-than-normal’ order book, which it said reflects the lag between the strong recovery in demand and the actual orders being shipped out to customers. It is therefore trying to ramp-up capacity to meet the surge in demand that it expects to continue for the rest of the year.

‘Our expectation for Watson-Marlow's full year organic growth in sales to the Pharmaceutical & Biotechnology sector remains unchanged at over 55% due to continuing strong COVID-19 related demand.  We continue to anticipate the group's other revenue streams will deliver organic sales growth in 2021 above the current forecast for global IP growth and therefore our expectations for full-year revenues remain unchanged,’ said Spirax-Sarco.

Spirax-Sarco said global IP growth is expected to be between 8% to 9% this year, signalling that its industrial businesses could deliver double-digit growth over the full year. However, overall margins are likely to come under pressure in the second half as it steps up investment.

Spirax-Sarco raised its interim dividend by 15% to 38.5 pence from the 33.5p payout made last year. Cash generation remained strong with adjusted operating cashflow rising to £139.1 million from £102.2 million the year before, which also allowed it to cut net debt down to £192.8 million from £326.0 million a year ago.

Admiral to pay record dividend as profits jump in first half

Admiral said it is paying a record dividend to shareholders for the first half of the year after delivering a significant jump in profits, driven by improvements in its motor division, the release of reserves, higher commission and fewer claims.

Admiral shares were trading 2.7% higher in early trade this morning at 3526.5p, marking a fresh all-time high for the stock.

The insurance firm said revenue rose 9% in the first six months of the year to £1.75 billion. That was driven by a growing customer base to over 8.02 million from only 7.17 million a year ago. UK insurance customers jumped 12% to 6.2 million and international customers grew by 14% to 1.7 million.

Admiral said its pretax profit from continuing operations jumped 76% to £482.2 million from £274.4 million the year before. On a per share basis, that increased to 132.9 pence from 79.7p.

‘Another highlight of this half year is a notably higher level of profit - driven by positive development of prior years in our UK Motor book resulting in increased reserve releases and higher than usual profit commission, as well as lower levels of claims frequency,’ said chief executive Milena Mondini de Focatiis.

Notably, when the sale of the Penguin Portals comparison business is taken into account, profit exploded to £897.8 million from £286.1 million.

Admiral raised its dividend by a sizeable 63% to 115.0p from the 70.5p payout made last year and that will be accompanied by a special dividend worth 46.0p, marking the first one-off special payout to be made in order to return the cash generated from the sale of Penguin Portals.

4imprint reinstates dividend as demand returns to pre-pandemic levels

4imprint has reintroduced its dividend after delivering a significant improvement in results during the first half of the year and said there are signs that demand has started to surpass pre-pandemic levels.

4imprint shares were trading 4.1% higher in early trade this morning at 2940.0p.

The company, which makes promotional products spanning mugs and pens to bags and t-shirts, said revenue rose to $326.8 million in the first six months of the year from $265.8 million the year before.

This was down to a ‘robust recovery’ in demand. It processed 616,000 orders in the period compared to just 470,000 the year before, when it was hit by the pandemic. It also acquired 113,000 new customers compared to only 81,000 last year.

Activity remained below pre-pandemic levels considering it processed 778,000 orders and acquired 147,000 new customers in the first half of 2019 – but 4imprint said orders in July were ‘running above pre-pandemic levels’ in 2019.

‘Total orders are now running at or higher than pre-pandemic levels as the recovery takes shape in the markets we serve,’ 4imprint added.

Pretax profit nudged up to $3.37 million from just $30,000 the year before. Basic EPS jumped to 9.12 cents from 0.07 cents.

‘The board is confident that the group's markets remain highly attractive and addressable, and that the core strength of its flexible business model and competitive positioning will allow it to return to its pre-COVID-19 organic growth profile,’ said chairman Paul Moody.

The improved performance gave 4imprint the confidence to reinstate its dividend with a 15.0 cent payout, which will be equal to 10.83 pence per share for UK investors. That decision was made easier considering the company has no debt and ended the period with $52.8 million in cash, up from just $37.5 million a year ago.

Deliveroo encouraged by levels of demand as lockdown eases

Deliveroo said it delivered faster growth than anticipated during the first half of the year and that demand has remained ‘encouraging’ even after lockdown restrictions were eased.

Order numbers and the gross transaction value both doubled year-on-year. Orders jumped to 148.8 million from just 74.5 million the year before while GTV increased to £3.38 billion from £1.70 billion.

The UK and Ireland was the fastest growing region in terms of orders, up 110%, while international operations delivered 88% order growth.

That led to overall revenue rising 82% in the first half to £922.5 million from £507.4 million. A slightly tighter margin meant gross profit grew at a slightly slower rate of 75% to £263.9 million.

Deliveroo ultimately remained in the red. Its adjusted Ebitda loss narrowed to £27.0 million from £30.3 million, while its pretax loss at the bottom-line came in at £104.8 million compared to £128.4 million the year before.

‘We are seeing strong growth and engagement across our marketplace as lockdowns continue to ease. Demand has been high amongst consumers. We have widened our consumer base, seen people continuing to order frequently and we now work with more food merchants than any other platform in the UK. At the same time, more riders are choosing to continue to work with the company because they value the work we offer,’ said founder and chief executive Will Shu.

There has been a slowdown since lockdown rules were eased earlier this year. For example, GTV growth slowed to 81% in the second quarter compared to the 131% growth delivered in the first. Deliveroo expects that to slow further considering it is targeting annual GTV growth of between 50% to 60%.

‘As reflected in our guidance, whilst we expect that consumer behaviour may moderate later in the year, we remain excited about the opportunity ahead and our ability to capitalise on it,’ said Shu.

Deliveroo shares were trading marginally lower in early trade this morning at 363.20p, having hit fresh all-time highs during yesterday’s trading session.

Gross margins for the full year should be toward the lower end of its 7.5% to 8.0% target range, having come in at 7.8% in the first half.

Meanwhile, Deliveroo also announced that its grocery delivery operation has continued to gain traction and said the division has ‘attractive standalone unit economics and significant synergies with restaurants business’.

It also reiterated its plans to exit from Spain because it would need to invest too much money in order to secure a leadership position in the market.

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