Good morning - it's officially the start of summer! With rising temperatures, my cooling fan has officially made its return to the office.
Our agenda is still under construction - sorry it will be slower than normal as I'm working on my own today. The agenda is finished now.
I'll be working late through the afternoon on this report - please continue to check back for updates. I appreciate your patience!
5.30pm: thanks again for your patience as I worked my way through some short sections. Roland will take care of the report tomorrow. See you next time!
Companies Reporting
| Name (Mkt Cap) | RNS | Summary | Our view (Author) |
|---|---|---|---|
Rolls-Royce Holdings (LON:RR.) (£64bn) | Strong start. Tariff impact to be offset. Confidence in guidance for £2.7-2.9bn adj. op profit. | ||
London Stock Exchange (LON:LSEG) (£62bn) | Strong start. Full year guidance confirmed. Total income +8.7% including M&A, +7.8% organic. | ||
Lloyds Banking (LON:LLOY) (£44bn) | Q1 profit after tax £1.1bn (LY: £1.2bn). Return on tang. equity 12.6%. Guidance confirmed. | ||
Informa (LON:INF) (£9.6bn) | Q1 underlying revenue growth 7.6%. Full year guidance reaffirmed (revenue growth 5%+). | ||
Schroders (LON:SDR) (£5.3bn) | Net inflows of £1.1bn if we exclude joint ventures/associates. Asset management is neutral, while wealth management saw inflows. But at the same time there were £8.5bn of outflows from JVs/associates. | GREEN (Graham) I was GREEN on Aberdeen yesterday and it's only fair that I go GREEN on this one, too. We have another giant in the UK asset management industry with very modest outflows (or inflows, depending on how you count it). So another demonstration that it's not all doom and gloom in fund management right now. Just like Aberdeen, Schroders is in another league to the smaller fund managers we cover in this report, and is more than just a fund manager. Additionally, I appreciate the history of this company (well over 200 years old) and its continued ownership by the Schroder family. At a P/E ratio of 11x, I think this is quite attractive. | |
Whitbread (LON:WTB) (£4.6bn) | Rev -1%: lower food & beverage revenues. Profit after tax falls 19% to £254m. 5-year plan on track. | ||
Persimmon (LON:PSN) (£4.2bn) | On track for growth in completions to 11 - 11.5k for the full year, assuming a stable housing market. | ||
Hiscox (LON:HSX) (£3.7bn) | No change in estimates for California wildfires. Written premiums +2.4% to $1,558m. | ||
Computacenter (LON:CCC) (£2.6bn) | Q1 in line. No direct tariff exposure. Order backlog healthy in all regions, comfortably up y/y. | ||
Drax (LON:DRX) (£2.2bn) | Full year 2025 adj. EBITDA to be around the top end of consensus (£848 - 896m). | ||
Morgan Sindall (LON:MGNS) (£1.7bn) | Trading so far is better than originally expected. Strong confidence full year in line. The "Fit Out" division is noted to be particularly strong once again. Daily average net cash £369m, including amounts held in jointly controlled operations. | GREEN (Graham) [no section below] Roland reported positively on this in March when this construction and regeneration company raised expectations for 2025. He noted that guidance upgrades for the company were "almost routine". Today we have more of the same - it's not quite an upgrade, but it does say that the year has started better than they expected. This stock does not trade as cheaply as other construction companies but I'll defer to Roland's expertise on it - based on the track record of growth, it does appear to be a cut above for the sector. Additionally it is ranked as a Super Stock by the algorithms. | |
Lancashire Holdings (LON:LRE) (£1.35bn) | Gross written premiums +12.7%. Wildfire estimates unchanged. Still expecting ROE in mid-teens. | ||
Sigmaroc (LON:SRC) (£1.01bn) | Q1 “solid”, rev & underlying EBITDA marginally ahead of exps. Outlook for FY25 unchanged. | ||
Clarkson (LON:CKN) (£1.01bn) | SP down 9% Profit Warning. At current USD exchange rates profits to reduce by £9.5m vs expectations. There will also be higher fees on Chinese vessels entering US ports. Adjusted PBT to be £85-95m with an H2 weighting. | BLACK (AMBER/RED) (Graham) [no section below] The impact of a trade war on the shipping industry is beginning to bite with the weak dollar being the main issue at the moment. Clarkson reports its numbers in pounds but earns broking revenue denominated in USD. I think this stock could still be a fine long-term hold but in light of this warning I'll cut our stance by one notch. See Roland's detailed coverage in March for analysis of their full-year results, which included a very healthy net cash position. So again this is not one that I'm too worried about long-term, but earnings estimates were already under pressure in early March, several weeks before the trade issue kicked off. So I think it's fair to say that the prospect of earnings growth here in the next couple of years is dim to say the least. | |
Johnson Service (LON:JSG) (£577m) | Q1 rev +6.1%, in line. Organic revenue +2.2%. Debt to peak at £100m. Confident outlook. | ||
Mears (LON:MER) (£335m) | Housing Repairs & Maintenance award from Milton Keynes. £230m value of 5 years. Option to extend. | ||
International Personal Finance (LON:IPF) (£305m) | Strong start. Lending +12%. Confident we will continue to perform against plans for 2025. | GREEN (Graham holds) | |
Reach (LON:RCH) (£242m) | On track to deliver full year expectations. Revenue -3.7% in Q1. Digital +1.6%, print -5.1%. | AMBER/GREEN (Graham) [no section below] More of the same from Reach, weak print revenues while digital revenues are doing ok. The new CEO points out he has been with the company for "over a decade" so is already extremely familiar with its challenges. I love the cheapness here but with my co-writers taking a more cautious stance I'll leave the AMBER/GREEN stance unchanged. It's a remarkable opportunity if it can continue to pump out cash for a few more years than the market is pricing in - P/E ratio only 3.3x on the StockReport! But it will need to make large contributions to its pension deficit for the next few years. | |
Science (LON:SAG) (£196m) | Again criticises Ricardo, and Ricardo’s recent update. Proposes to remove Ricardo chair at GM. | AMBER/GREEN (Graham) [no section below] The attack on the Ricardo board continues with detailed complaints against the company's track record, strategy, updates to the market, etc. For the avoidance of doubt I don't disagree with their complaints. They also criticise the Ricardo board for using too many words to criticise Science Group, but Science Group themselves are not afraid of using a large quantity of words to criticise Ricardo! As I said when this began, my problem with hostile activism is that it can lead to "more heat than light", in Shakespeare's words. Science Group have now spoken with their fellow Ricardo shareholders, and are coming to terms with the fact that these groups have a variety of different views. This leads to a tamer proposal from them: instead of booting out the Ricardo Chair and replacing him with their own, they are content for now merely to boot out the Ricardo Chair, and then see what happens next. | |
Keystone Law (LON:KEYS) (£162m) | 2025 adj. PBT +12.8% to £12.7m. Current trading: positive start, 2026 expected to be in line. | ||
Synthomer (LON:SYNT) (£135m) | Q1 2025 EBITDA and margin ahead of Q1 2024. No change to exp of earnings progress in 2025. | ||
Mincon (LON:MCON) (£67m) | Q1 rev +3%. North America orders lower than expected. Outlook: order books are strong & growing. | AMBER (Graham) [no section below] I'd like to be more positive on this Irish rock drilling company but I'm not sure if the time is right. Today's update is very confident in future prospects but actual revenue growth in Q1 was only 3%, with the company's largest market (North America) disappointing them. The storied "Greenhammer" product is the subject of advanced negotiations, with a contract expected to commence in Q3. Perhaps this will be the game changer, the event that sets the stock alight? But the StockRanks are neutral and I must reluctantly agree that a neutral stance is the most sensible one for now | |
Mkango Resources (LON:MKA) (£59m) | Cash $1.16m as of Dec 2024, then raised £2.34m. 25 million warrants could also be exercised at 7p. | ||
Ten Lifestyle (LON:TENG) (£54m) | Concierge and lifestyle programme for the clients of a Private bank in the Middle East. | ||
Pulsar (LON:PULS) (£48m) | Rev £62m (2023: £62.4m). Adj. EBITDA £9.3m (2023: £7.3m). ARR growth of £0.6m in 2025 ytd. | ||
Clean Power Hydrogen (LON:CPH2) (£20m) | Loss of £14.4m for 2024 including impairments. Year-end cash £0.3m. Raised £5.7m in new year. | ||
Wynnstay Properties (LON:WSP) (£19m) | Fair value of portfolio £42.9m. Net debt £8m. Rental income £2.7m. Fully let now. | ||
Cambridge Cognition Holdings (LON:COG) (£15m) | SP +6% Rev £10.3m (2023: £13.5m). Opex reduced by £4.4m. Improved adj. EBITDA loss to almost breakeven. | RED (Graham) [no section below] I wish this company well and the market has reacted positively to today's results. However, the company finished last year with net debt of £0.6m (cash of only £1.3m and loans of £1.9m). There is a going concern warning in the footnotes, acknowledging that a fundraising would be needed in a potential downside scenario. Losses have reduced and there are positive indications that the company is doing what it can to avoid needing much more additional equity, but I have to be RED on this as a matter of principle, as I don't think the existing equity is safe. | |
Parkmead (LON:PMG) (£15m) | Parkmead has received £7.3m cash and will receive £7m. Another up to £120m contingent. | ||
Itaconix (LON:ITX) (£14m) | Production costs up but revenues up too. Board expectations for 2025 remain unchanged. | ||
Totally (LON:TLY) (£8m) | SP down 60% | BLACK (RED) (Graham) [no section below] |
International Personal Finance (LON:IPF)
Up 2% to 142p (£310m) - Q1 2025 - Graham - GREEN
At the time of publication, Graham has a long position in IPF.
This is a nice, reassuring update from a company on a P/E ratio of less than 6x and that has a dividend yield of 9%! With a valuation like that, it’s clear that investors are wary of this one.
But trading is good:
A strong start to the year provides an excellent platform for delivering our 2025 operational and financial plan with confidence.
Some highlights for Q1, with growth rates against Q1 last year:
Lending up 12% at constant FX.
Net receivables up 10% to £885m.
Further improvement in the annualised impairment rate to 9%.
My impression is that IPF tends to budget for a higher impairment rate, and they are more often than not positively surprised by their customers’ repayment behaviour. Their impairment rate was 12.2% in 2023 and then 9.6% in 2024, before currently running at 9%.
Their target impairment rate is 14% to 16%, which assumes much higher impairments in their growth market of Mexico.
One slight miss relates to their “revenue yield” (revenue divided by receivables), which is below their target range but which they expect will improve during the year. I don’t think shareholders will compare too loudly about this given that impairments are so low.
CEO comment excerpt:
"We have begun the year with real momentum, which is reflected in the sustained growth we have delivered in customer lending and receivables across the Group…
Both our balance sheet and funding position are in great shape, and with our strong first quarter performance, we are confident in our ability to accelerate growth and increase financial inclusion through the remainder of 2025.
Balance sheet: on the subject of the balance sheet, they have borrowings of £522m with headroom of £122m. I acknowledge that this borrowing figure might be considered scary in the context of a fairly low market cap.
However, IPF remains over-capitalised according to its own targets. It wants to have balance sheet equity that’s equal to 40% of its receivables, but it actually has 55%. This figure has increased again in the first quarter of the year (54%). If they insist on getting this down to 40%, perhaps another buyback will be needed to help make it happen?
Outlook
We have strong growth momentum, excellent credit quality and a very robust funding and capital position. Our strategic progress and track record of operational resilience give us confidence that we will continue to perform successfully against our financial plans for 2025.
Graham’s view
I have long acknowledged the risks here - consumer lending in foreign markets at reasonably high (but competitive) rates is always going to carry uncertainties. But the company is highly profitable and undoubtedly cheap in P/E multiple terms.
It’s up to us to decide if we are comfortable with IPF’s balance sheet and use of leverage - personally, I am satisfied and in fact I would be really keen to see a little more emphasis on buybacks. A £15m buyback is due to begin shortly, and I’d love to see another one after that. I’d love to see IPF materially reduce its share count at this valuation: a PER of less than 6x and at a significant discount to tangible book value (c. £400m).
I think this would be a terrific use of cash, that would permanently benefit long-term shareholders, with an impact that would exceed the impact of using cash for dividends - IPF is currently expected to pay out over £25m in dividends this year.
As I always say with financial stocks, it’s key to diversify as accidents do happen.
That being said, this is definitely one of my favourite financials in the market right now, regardless of whether or not they increase their buyback activity further. See my coverage in the archives including my interview with the CEO and CFO last year. I view this as a responsible lender with a good management team, diversified geographic exposure, a track record of managing regulatory change, and some interesting growth opportunities.
Watkin Jones (LON:WJG)
Down 4% over the last 5 days to 31.7p (£81m) - HY25 Trading Statement (yesterday) - Graham - AMBER/GREEN
Catching up on this in response to a reader request.
Yesterday’s H1 trading update (to March) said:
In what remains a challenging market backdrop, management have continued to focus on delivery, cost management and cash generation. Our strong operational focus is expected to result in a small positive operating profit for the period, with good construction delivery on in-build schemes which have traded in line with our stated margin guidance.
Net cash at 31st March was £73m (a year ago this was £44m, six months ago it was £83m - there are seasonal swings).
They finish by saying:
We are monitoring market volatility and conditions closely, in particular those relating to residential transactional liquidity, but our current pipeline continues to provide the potential to deliver an expected stronger second half.
Estimates
Progressive Research are retained by Watkin Jones to publish research on the company and they published another very detailed report yesterday - but they do not yet provide any estimates for FY September 2025. It’s remarkable that the company is still in the “too difficult” tray, even for the commissioned researcher!
Graham’s view
I note that this share has recovered further since my coverage in January.
A key point is that the cash balance is vulnerable to provisions for remedial works.
The building safety provision according to the last set of full-year results was £48m and was still increasing.
I’ve been moderately positive on WJG, due to the company having tangible net assets of over £120m. That figure is calculated after allowing for the impact of provisions.
I’m inclined to leave that stance unchanged for now. The company is modestly profitable and expects a better second half - how much more could we really expect, given where the stock is trading now?
Provisions for remedial works aren’t the only problem. In the last few years, the higher interest rate environment has made it much more difficult to find institutions who are willing to forward-fund Watkin Jones’s projects (Build-to-rent and purpose-built student accommodation). It's hard to say when this funding model will become popular again. But again, given the big discount to tangible book value, surely this is in the price?
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