Yahoo Finance FTSE 100 adds 1% but Compass and Kingfisher updates disappoint
Leading shares lifted by continuing rise in oil price on hopes of Opec deal
Leading shares are moving higher, following Wall Street’s record breaking performance on Monday, despite a couple of high profile declines.
Compass is down 54p or nearly 4% at £13.37 after the catering group reported a 5% rise in full year revenues to £19.9bn - just below expectations - and a 5.6% increase in profit to £1.44bn. The company pointed to strong demand in the US and said it was positive about the coming year, but said growth would be weighted to the second half of the year. Analysts pointed to slowing momentum, with Wyn Ellis at Numis saying:
Compass’s full year results are marginally disappointing with operating profit of £1,445m compared to our forecast of £1,448m, but with organic growth slowing to, we estimate, around 4% in the fourth quarter (+5.6% for quarters one to three, after 5.8% growth in the first half) making +5.0% for the full year (North America +8.1%; Europe +2.8%; rest of the world excluding offshore and remote, +3.6%). Operating margin is flat at 7.2% but the full year dividend is up 7.8% to 31.7p, in-line with the 7.8% increase in constant currency earnings per share.
In a hold note Jefferies said:
Preliminary earnings per share is in line with our estimate and 1% ahead of consensus despite a slowdown in organic revenue to 3.1% in fourth quarter, driven by Europe and the rest of the world. Consequently, although outlook comments are upbeat, they reiterate Sodexo’s recent message that momentum will be second half weighted in 2017.
Greg Johnson at Shore Capital also issued a hold recommendation:
Compass remains a quality company but on a 2017 PE of 20 times, an EV/EBITDA of 13 times and a free cash flow yield of 4% this appears full factored into the valuation for a stock capable of delivering high single digit compound earnings growth, in our view.
Kingfisher has also disappointed, with shares in the B&Q and Castorama business down 10.4p to 359.3p, albeit they have risen 12% this year. The company reported like for like third quarter sales up 1.8% with strong performances in Britain and Poland but a weak outcome in France. In a sell note, Investec said:
Similar third quarter trends to the first half, with France weak, the UK robust and Poland strong. The shares have held up versus the sector post the Brexit vote, due to foreign exchange benefits (International around 60% retail profits) rather than underlying trading, with Group sales up just 1.3% at constant currency. Valuation does not reflect our view that a weak French market is likely to deteriorate in 2017 given the election and that the UK is also likely to slow on our assumption of weakening consumer demand. Our target price is upped to 275p (previously 265p) reflecting a changed peer group, but sell reiterated.
And Babcock is also down after its latest update, 31p lower at 960p despite a 7% rise in half year profits and a reiteration of its full year targets.
Overall the FTSE 100 is up 62.45 points at 6840.41, helped by better than expected UK public finance figures ahead of the Autumn Statement and a continuing rise in the crude price on hopes of an Opec output deal.
The increase in oil and positive comments from Goldman Sach have lifted commodity companies once more, with Anglo American adding 63p to 1185.5p and BHP Billiton 57.5p better at £13.29. Chris Beauchamp, chief market analyst at IG, said:
Equities are almost universally higher this morning, as London traders woke to news that US markets had posted record closes across the board. The week before Thanksgiving is never a good time to be short, since those of a bearish disposition tend to suffer a fate akin to a roasted turkey.
Goldman Sachs’ decision to turn into commodity bulls has bolstered the London mining community, aside from precious metals miners, with the investment bank remaining downbeat on the outlook for gold.
Elsewhere Entertainment One is down 23p at 222.8p after a fall in first half profits, but Inmarsat has climbed 29p to 730p as Deutsche Bank began coverage with a buy recommendation and a 1030p price target. It said:
We acknowledge that the Inmarsat thesis centres on the concept of in-flight communication gaining real traction and at present there are mixed views, but we see scope for Inmarsat unlocking value given the size of the market. We have carried out bottom-up analysis of the market potential for in-flight communication and around 40% of our target relates to the European aviation opportunity. Given Inmarsat has underperformed the Telco sector by 16% year to date, we see current levels as a good entry to gain exposure to strong growth.
