Daily Stock Market Report (Thur 15 May 2025) - WOSG, FTC, ECEL, COST, ITV, III, ATG, STB, SGE, AV., MBH, DWS, CUSN, NEXS

Good morning! Mark and I will have the agenda for you soon.

The Agenda is complete.

1.25pm: that's all, folks!

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Companies Reporting

Name (Mkt Cap)	RNS	Summary	Our view (Author)
3i (LON:III) (£41bn)	Results for year to March 2025	Total return 25% on opening funds. NAV £25.42. Main holding “Action” was the primary driver.	AMBER (Graham) Undeniably a historic winner, the current lack of diversification and share price premium to NAV are enough to put me off.
National Grid (LON:NG.) (£37.8bn)	FY2025 Full Year Results	Adj. op profit +12% (£5.4bn). FY March 2026: adj. EPS in line with 6-8% growth range.
Flutter Entertainment (LON:FLTR) (£33.1bn)	Completion of NSX Acquisition	Acquires initial 56% stake in Brazilian operator NSX Group for cash of approx. $350m.
Aviva (LON:AV.) (£15.3bn)	Q1 Trading Update	Q1 general insurance premiums +9%. Wealth net flows £2.3bn (5% of AUM). Acquisition of Direct Line on track. Very positive on the 2025 outlook. Confident in meeting the 2026 targets that were set out after FY23, including annual operating profit of £2bn.	AMBER/GREEN (Graham) [no section below] It’s difficult to find fault with today’s update, which includes very confident statements on the outlook and on progress towards medium-term targets. At a PER of c. 11x the main concern for Aviva shareholders now is the CMA probe into their acquisition of Direct Line.
Sage (LON:SGE) (£12.5bn)	Interim Results & Share Buyback Programme	ARR +11% (£2,454m). H1 adj. operating profit +9% (£288m). Outlook: organic rev growth ≥ 9%.	GREEN (Megan) Another fantastic set of results, only slightly tempered by the comment on “more volatile and uncertain” macroeconomics. I’m still positive about this in the long term.
United Utilities (LON:UU.). (£7.3bn)	Final Results	Adj. PBT +53.6% (£338.6m). New regulatory cycle: targeting divi growth in line with CPIH.
ITV (LON:ITV) (£2.97bn)	Q1 Trading Update	Q1 in line. Outlook at Studios unch. At Media & Entertainment, H1 ad revenue to fall 8%.	AMBER (Megan) As usual, numbers from ITV show a company that is clinging on. It’s a relief that there is nothing terrible to report, but there is nothing inspiring either. It’s a shame because there is potential. But without the kind of focus that Carolyn McCall brought to her first few years as CEO, this is only ever going to be a slow and steady chugger. And a takeover target.
Lion Finance (LON:BGEO) (£2.97bn)	1st Quarter Results	Q1 adjusted profit +39% (GEL 513.1m). Return on average equity 28.7%.
Serco (LON:SRP) (£1.79bn)	Maritime Services contracts	Three UK MoD contracts with combined value over £1bn. Main contract has 10-year duration.
Premier Foods (LON:PFD) (£1.73bn)	Preliminary Results	Rev +3.5%, headline trading profit +6% (£187.8m), ahead of previously raised expectations.
Grainger (LON:GRI) (£1.58bn)	Half-Year Results	EPRA earnings +23%, net rental income +15%. On track to convert to a REIT. Excellent outlook.
Bakkavor (LON:BAKK) (£1.09bn)	Q1 Trading Update & Recommended Takeover	Offer = 0.604 New Greencore Shares and 85 pence in cash =200p based on Greencore's share price of 190p. Potential for uplift if there is a sale of Bakkavor's US business.	PINK
Watches of Switzerland (LON:WOSG) (£928m)	FY25 Trading Update	FY25 in line. Rev +8%. FY26 outlook: confident in fundamentals of luxury watch category.	AMBER/GREEN (Graham) Leaving my moderately positive stance unchanged despite a worrying slide in the share price since I looked at it last. But earnings estimates are holding up and there are expansion opportunities in a growing US luxury jewellery market.
Greencore (LON:GNC) (£835m)	Interim Results	H1 Rev. +6.5% to £922m. Adj. PBT +106% to £34.8m. Net debt excl leases £136.2m. Upgrade to FY25 Adjusted Operating Profit guidance to a range of £114-117m. UK Pension Scheme to be fully funded and stop contributions in September.
Auction Technology (LON:ATG) (£663m)	Half Year Report	Rev +3% to $89m, adj. EPS +14% to 19.0c. Adj. Net Debt $106.5m, down $35.1m. “Trading during the first five months of FY25 was strong.” maintained FY guidance for rev. Growth of 4-6% & adj. EBITDA margin 45%-46%.	AMBER/RED (Mark) With very little organic revenue growth, and any profit growth coming from cost-cutting or capitalising more development costs, the mid-teens P/E rating here seem inexplicable. When you add in over $100m of debt, the $40m buy back smacks of desperation. With Momentum declining, this is the sort of High Flyer my research suggests that investors may wish to exit.
Pollen Street (LON:POLN) (£488m)	Q1 Trading Update	Fee-paying AuM increased to £4.3 billion as of 31 March 2025, up from £4.0 billion in December 2024. This was made up of £2.8 billion in Private Equity and £1.5 billion in Private Credit. “a robust outlook for the remainder of FY25 and beyond despite recent increased macroeconomic volatility.”
Funding Circle Holdings (LON:FCH) (£367m)	New Buyback Programme	Additional £25m buyback.
Costain (LON:COST) (£325m)	AGM Trading Update	“Costain confirms that trading for the period is in line with Board expectations.” On track for 4.5% adj. op. Margin run rate in 2025. Net cash in line at £180m.	GREEN (Mark) This is an inline update for FY25. However, it looks to me like FY26 EPS forecasts will be too low if they can maintain the 4.5% op profit margin they are targeting as a run rate within FY25. The net cash is unlikely to be the average figure during the year, and this is retained to meet working capital swings rather than paid out to shareholders. They earn positive net interest on this figure, though, so an increasing cash balance helps with earnings and is another reason 2026 forecasts may prove conservative.
Filtronic (LON:FTC) (£258m)	New Airbus Contract Award	New contract win to develop and supply advanced filter and diplexer assemblies to Airbus Defence and Space, for the supply of additional satellites to Eutelsat OneWeb. Delivery CY26. No figures given but said to be of “significant value.”	AMBER/GREEN (Megan) It’s good to see a contract win from a company that isn’t SpaceX, but there are no figures and broker Cavendish hasn’t pushed up 2026 expectations (although it has increased the price target). Filtronic is one for those who are happy with the risk of a stock which is being powered upwards purely by contract momentum. But for now that momentum looks like it’s here to stay.
M&C Saatchi (LON:SAA) (£196m)	AGM Trading Update	Like-for-like net revenue for the first quarter is broadly in line with last year. Planned delivery of c.£3m of annualised cost savings is on track.
Eurocell (LON:ECEL) (£161m)	Trading Update	Flat sales to 30 April, excluding Alunet acquisition. Some signs of an improving picture in new build housing, but still experiencing lower than expected demand in our core RMI market. Price rises, cost reduction and operational improvements to drive more efficiencies and mitigate against the impact of delayed market recovery and increasing costs.	AMBER/GREEN (Mark) Doing the maths, this appears to be a minor profits warning, although a lack of research available to individual investors adds uncertainty to this. Despite this, the shares remain modestly-rated at around 8x earnings based on my estimates, for what must be much closer to trough than peak figures. The recovery potential remains strong, even if it is delayed for a bit longer.
Secure Trust Bank (LON:STB) (£116m)	Q1 2025 Trading Update	Net lending +3.2% Q-o-Q to £3.7bn, deposits +3.9% to £3.4bn. Sold £25.8m of defaulted Vehicle Finance loans, built up due to FCA actions. “We are looking ahead with confidence."	AMBER (Graham) [no section below] As I noted in March, there are few signs of panic from STB in relation to ongoing legal and regulatory activity. Today’s update shows double-digit growth year-on-year in both lending and deposits along with other encouraging progress points. £8m of planned cost savings won’t hurt the bottom line and are significant given the low market cap. There are strong arguments for raising this to GREEN but I’ll cautiously leave my stance unchanged given that the legal and regulatory risks are difficult to assess. A final ruling on motor finance commissions from the Supreme Court is due this summer.
Michelmersh Brick Holdings (LON:MBH) (£98.1m)	AGM Trading Update	Supportive order book from robust demand. Brick pricing remains highly competitive in some end markets. Mid-single-digit price increases from April to offset cost increases.”Our full year expectations are unchanged, and we anticipate stable despatch volumes for the remainder of the financial year but remain watchful of the pricing environment…” New CFO: Rachel Warren	AMBER (Mark) Pricing pressure makes it sound like hard work to hit the forecast 8% revenue growth and 40% growth in EPS for FY25. However, there are ongoing site closures that will improve efficiency and may free up surplus assets which will help with this endeavour. So, I’ll give them the benefit of the doubt for the moment when they say they are trading in line.
Cornish Metals (LON:CUSN) (£97.8m)	Q1 Financials	C$2.2m operating cash outflow for the quarter. C$6.6m capex. C$87.5m fundraise giving C$89m cash at quarter end. Outlook: Commencing early works, seeking project financing.	AMBER/RED (Mark) [no section below] Any unfinanced pre-revenue mining project is very risky. Having raised significant cash in the quarter this has no immediate cash concerns (hence avoiding a full RED) but it is still a long way from being in production. The StockRank of 12 reflects that early investors in such ventures are rarely the ones that benefit from even the successfully developed mines.
Pharos Energy (LON:PHAR) (£81.6m)	AGM Trading & Ops Update	WI production 4mo ended 30 April = 5,757 boepd net, in line with production guidance of 5,000 - 6,200 boepd. Rev for the period $45m, Net Cash $22m.
Nexus Infrastructure (LON:NEXS) (£14m)	Interim Results	H1 revenue +19% to £30.6m, in line with expectations. H1 operating loss £1.1m (24H1 £1.3m loss). Cash £9.6m (£9.3m). Net Assets £28.1m.	AMBER (Mark) [no section below] This is another loss-making half. However, they are guiding that H2 will be profitable (although not as a full year if forecasts are to be believed). There is a potential asset play here with cash and net working capital exceeding the market cap so it is hard to be too harsh given this valuation. However, as Paul has highlighted in the past, they end up with receivables tied up for long-periods. They pay a dividend and seem committed to growing the business organically and by acquisition to become sustainably profitable. However, low-margin construction contracts are always a risky place to be and with a history of ongoing losses, is it really going to be different this time?
DSW Capital (LON:DSW) (£12.8m)	Trading Update	SP +20% FY 25 Network Revenue +61% to £25.8m, adj. EBITDA £1.76m, driven by Autumn Budget, ahead of expectations. Net debt £0.3m after acquisition of DR Solicitors. Outlook: FY26 activity returned to normal, in line with expectations.	AMBER (Mark) [no section below] This is a beat versus expectations and the market likes it. However, it appears to be a one-off, driven by the reaction of businesses looking to sell before the Autumn Budget. Analysis here isn’t helped by them only quoting adjusted EBITDA in their trading statement, a measure they didn’t use at all in their last HY results. Their broker, Shore, rides to the rescue with 5.6p EPS forecast for FY25 rising to 7.3p for FY26. That’s a 2026 P/E of c. 8x which looks good value if they can keep growing at similar rates. Shore then undo all of this by quoting completely different figures, twice, in the valuation section of the note! It seems there is considerable unpredictability in the business (even within the same broker’s note!) and it is a relatively small people business, so it probably should be modestly rated

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Graham's Section

Watches of Switzerland (LON:WOSG)

Up 4% to 408.8p (£963m) - FY25 Trading Update - Graham - AMBER/GREEN

This luxury watch retailer updates on FY April 2025:

Full year performance in line with market expectations

Strong strategic and operational progress with significant performance improvement in H2

Here’s an excerpt from the table of market expectations on the WOSG website. The complete table also includes the highest and lowest estimates for each item:

FY April 2025 revenue has come in at £1,652m, which is within the range of expectations, but below the midpoint.

Revenue growth is 12%: that’s made up of 16% growth in the United States and 2% growth in the UK, with significantly improved trends in H2 vs. H1.

WOSG bought Roberto Coin Inc (the US distributor for Roberto Coin) in early May 2024. With a financial year-end in April, this means that most of the growth recorded above is organic rather than driven by the timing of that acquisition.

H2 saw the opening of a new flagship Rolex store in Old Bond Street. But it’s the opportunity to expand across America which is perhaps most interesting.

Turning to the outlook:

As we enter FY26, although we are mindful of the uncertain macroeconomic backdrop, including potential US tariff changes, we remain confident in the strong fundamentals of the luxury watch category and our differentiated business model in the underdeveloped US market.

An upgraded US ecommerce website is set to launch in Q1.

Graham’s view

I’m a little surprised that this has fallen so much since I covered it in February - it is down by nearly 30% since then.

Most of that decline occurred before Trump’s Liberation Day:

I’ve been moderately positive on this one, giving it an AMBER/GREEN, and the company hasn’t let me down. EPS forecasts that have been pretty stable for over a year:

With today’s update also in line, I’m reluctant to change stance.

It's on a trailing PER of 10x, and a forward PER of about 9x.

Its main negatives are to do with its balance sheet: it is a retailer with £454m of lease liabilities (October 2024) and it’s also carrying financial net debt of £120m.

I’d like to see that figure reduced, but it shouldn’t be particularly worrying when we consider that the company has just generated an adj. EBIT of c. £150m in FY25.

So I remain comfortable with AMBER/GREEN.

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3i (LON:III)

Down 7% to £38.84 (£37.8bn) - Graham - AMBER

I’ve been taking a look at private equity investment trusts recently, but 3i is not one that I’ve spent much time on. The reason? It strikes me as less of a trust and more of a focused investment in Action, the Dutch discount retailer.

3i now owns almost 58% of this company, and it values this stake at £17.8 billion, or 18.5x trailing EBITDA.

This valuation multiple is based on the valuations attached to other discount retailers globally, including North American retailers, with 3i acknowledging that it uses a higher multiple than average to reflect Action’s better-than-average KPIs.

With a total net asset value of £24.6 billion, here are 3i’s top investments:

• Action. £17.8bn (72% of 3i’s NAV)

• Royal Sanders £865m (3.5%)

• 3i Infrastructure £856m (3.5%)

• Cirtec Medical £614m (2.5%)

• AES (UK manufacturer) £419m (1.7%)

I calculate that the top 5 investments are well over 83% of NAV. Not a huge surprise, I suppose when the top investment is already 72% of NAV!

So this can’t be treated as an ordinary investment trust, although the company does continue to behave like a trust, with an ongoing private equity process of investments and realisations.

FY March 2025 return: 3i generated a return of 25%, thanks to a 32% return at Action. This “return” is largely driven by the change in Action’s valuation according to 3i, that is justified by Action’s EBITDA growth during the year.

An update on Action’s recent Q1 trading tells us that it has seen like-for-like sales growth of 6% and total sales growth of 17% (year-on-year). This is not quite at the level it achieved in the calendar year 2024, when it saw like-for-like sales growth of 10.3% and revenue growth of 22%.

Graham’s view

3i is an example of what can go right when you invest in private equity investment trusts:

I have no particular objection to the fact that their portfolio has become lopsided: successful investing often involves letting winners run, and these winners can sometimes become far bigger than anything else in a portfolio.

My difficulty is in justifying the current valuation. In an environment where many trusts trade at attractive discounts to NAV, 3i trades at a premium of over 50%.

There are only a few possible explanations for this in my mind:

1. Investors think that 3i’s portfolio is undervalued, e.g. that Action is worth substantially more than 18.5x trailing EBITDA.

2. Investors believe that 3i’s managers have the ability to continue delivering outperformance.

The first explanation is not something I’d feel comfortable betting on. Perhaps there are convincing arguments to be made for the qualities of Action and 3i’s other holdings. But I’d rather buy into private equity portfolios that are trading at a discount instead.

The second explanation is more plausible. 3i does have an excellent track record, particularly over the last five years. But again I’m not sure I’d pay such a large premium to NAV for potential future outperformance, when there are plenty of other private equity managers with excellent track records, too.

These thoughts are leading me to a neutral stance on 3i. It has undeniably been a winning stock for its investors. But today, given the lack of diversification it offers and the high premium to NAV at which its shares trade, I don’t see a particularly compelling opportunity

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Megan's Section

Filtronic (LON:FTC)

Up 6% to 125p (£258m) - Contract with Airbus - Megan - AMBER/GREEN

Filtronic has announced a new contract win to provide flight sets to support the expansion of the Eutelsat OneWeb Low Earth Orbit, which is being built by Airbus.

The contract is of “significant value”. But, as Doctor Dave points out in the comments of this report, this is presumably as opposed to “insignificant value”, which would be an odd phrase to find in a corporate update.

The contract will begin delivering revenue to Filtronic in the 2026 financial year, which starts next month, and is expected to provide order flow “for the remainder of the constellation rollout.” I checked how long that rollout is expected to take and Google tells me that the Eutelsat OneWeb Low Earth Orbit is set for completion in March 2023. Safe to say it’s running a bit behind schedule. Current estimates are for the constellation to be completed towards the end of 2026, which suggests Filtronic could generate revenues from the contract for both of the next two financial years.

That’s good news for the company’s European sales, which were just £508,000 in the first half of the financial year (equivalent to 2% of overall sales). But house broker Cavendish hasn’t upgraded its forecasts on the back of the news, instead saying that the announcement “supports our FY26 forecasts.”

Consensus forecasts currently suggest that both sales and profits will decline in the next financial year. Roland covered these forecasts in detail after the company’s trading update earlier in May, which you can read here. The gist is that revenues from the company’s biggest customer, Starlink, are largely dependent on certain project milestones being reached, while engineering expansion in the upcoming financial year is currently expected to hold back profits.

With these forecasts, the company is currently very fully valued, with the shares trading on 42 times 2026 earnings forecasts.

But contract wins like the one announced this morning show that Filtronic is well placed to benefit from surging demand for low orbit satellites. And more of these contracts should boost the outlook for revenue and profits in 2026.

Megan’s view

I am personally wary of companies that rely on big contracts from what can be quite fickle customers. It’s especially risky when these companies rely so heavily on just one customer. Filtronic doesn’t report the exact contribution of SpaceX and Starlink, but Elon Musk’s company features in the vast majority of contract wins announced by Filtronic. The Americas region contributed 92% of revenues in the first half.

Still, as the contracts keep coming, the shares keep ticking upwards. Those who thought the company was richly valued (at 35x forecast earnings) and a bit risky at the start of the year have missed out on 65% share price growth.

I’m happy to stick with Roland’s rating, but investors should be aware that any slip up will likely send the share price tumbling. AMBER/GREEN

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ITV (LON:ITV)

Down 2.5% to 77p (£2.9bn) - Q1 trading update - Megan - AMBER

When Carolyn McCall took over as chief executive of ITV she made quick work at getting revenue from the studios business up to the same level as the revenue generated from advertising.

It has been six years since non-advertising revenue became the biggest contributor to the top line for the first time, but in that time momentum has stalled. In the first quarter of 2025, total advertising revenue fell 3% to £423m and non-advertising revenue was down 1% to £452m.

I’d argue that the focus Ms McCall brought to her first few years at ITV got lost somewhere. The strategy at the beginning was to counter the decline in advertising revenue with the production of original content from the studios business. Since then, there has been a poorly executed foray into a streaming service alongside the BBC, which has morphed into a similarly poorly executed ITV-only streaming service. The company has also retained its reliance on big (and increasingly expensive) sporting events to provide a good foundation for advertising.

In 2025, year-on-year advertising comparables will be hurt by the fact that this year there are no Euros, which means no big events on which to hang the big advertising bucks.

The upshot is that these Q1 numbers are, as usual, uninspiring.

ITV Studios revenues were flat at £386m, largely owing to the 26% decline in internal studio sales (that means content produced for the company’s own broadcast channels).

The Media and Entertainment business, where revenue is generated mainly by advertising sales, reported a 3% decline to £489m. Within that, advertising revenue was down 3% to £423m. It’s Q2 where the unfortunate comparison with the Euros will kick in and advertising revenues are expected to fall 14%.

That’s not to say there are no positive numbers to report.

External studios sales (money made by producing content for other people) rose 20%. That’s largely thanks to the fact that there has been no disruption from writer or actor strikes in the last year, but it’s still positive to see demand so high. Management says external studios sales are growing ahead of the pace of growth in the wider industry.

There has also been a 12% increase in total streaming hours. That is in line with wider industry trends, so it’s good that ITV has a seat at the table within the world of streaming. ITVX is a significantly better proposition than BritBox because it is a proper commercial operation; this means it is doing a better job at attracting both paying subscribers and digital advertising revenue, which rose 10% in the first quarter.

Megan’s view

I really struggle with ITV. On the one hand, I think its studios business is massively undervalued and is a prime takeover candidate. Any cash made from an acquisition of the studios business would likely be returned to shareholders, providing a nice little payday.

There is also the potential for the acquisition of the company as a whole. We know that there are interested parties.

And in the meantime there is a dividend and a buyback scheme providing some support to the share price.

On the other hand, I think a new CEO with an ambitious vision could make a real difference at ITV.

But at the moment, the company is just chugging along. It’s not really growing and it’s not really cheap (as a whole). In my view this is a rare example of a company whose parts are worth more than the sum of the whole. AMBER

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Sage (LON:SGE)

Down 4% to 1221p (£12bn) - Interim Results - Megan - GREEN

Accounting software group Sage makes 40% of its revenue from the US and has been slightly swept up in concerns about the fallout from Trump’s tariffs. It’s that, plus the comment on “a more volatile and uncertain macroeconomic environment”, which seems to have sent the company’s share price down in response to these interim results. Because, once again, these numbers are truly fabulous.

In the first half of FY2025, the company reported a 9% increase in sales to £1.2bn. All three of the company’s geographic divisions reported growth, with the North America region especially impressive, up 11% to £568m.

Revenue growth from recurring software subscriptions remains strong. Up 11% on an underlying basis to £1bn (or 83% of total sales). The company also reported a 10% increase in its annual recurring revenue figure to £2.5bn, which is a good reflection of the ongoing high demand.

As ever, the cost of delivering the subscriptions is tiny, just £90m for £1.2bn of sales. Which means gross margins were 93%.

And the company’s strong operational gearing remains in full force. Operating costs didn’t decline as they did in FY24, but they did grow at a slower pace to sales, which resulted in an improvement in operating margins to 21% (from 19% in H124).

Operating cash inflows rose 16% to £250m, equivalent to 100% cash conversion. Capital expenditure and acquisitions were slightly higher than in H124, as the company deploys its cash into good opportunities for future growth. The company also continues to return its excess cash to shareholders via a dividend and buyback scheme which this morning was extended by £200m.

Megan’s view

I like Sage. It was one of my 12 stocks of Christmas (you can read the full analysis here) and although events of 2025 so far have proven to be a bit of a downer on the share price, I still have great faith in the long term returns on offer here.

There aren’t many other companies in the UK that have such stellar quality metrics and are delivering impressive revenue growth. GREEN

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Mark's Section

Eurocell (LON:ECEL)

Down 9% to 145p mid - Trading Update - Mark - AMBER/GREEN

This is a surprisingly downbeat AGM Trading Update:

Trading conditions in our key markets have been mixed. There are some signs of an improving picture in new build housing, but we are still experiencing lower than expected demand in our core RMI market. We therefore continue to focus on further cost reduction and operational improvements to drive more efficiencies and mitigate against the impact of delayed market recovery.

Retail sales for the RMI market appear to be doing well, as indicated by Wickes’ strong showing on Tuesday. However, Eurocell’s products are almost always fitted by professional installers. Wickes also faced weakness in their installation-led business. It seems that consumers are happy to spend on smaller DIY jobs but are still hesitant about larger renovations using professional installers, such as those utilising Eurocell’s products:

The result is no revenue growth so far this year, excluding their Alunet acquisition:

They say input costs are stable, but labour costs are rising. They implemented a branch network restructuring, which gave £2m of annualised savings and have now identified another £2m of overhead cost reductions. However, the lack of revenue growth is hurting them, and they say:

As we consider the outlook for the remainder of the year, recognising the potential adverse impact of macroeconomic conditions on volumes, particularly RMI, we now expect adjusted profit before tax for the year in the core business to show nominal improvement over 2024, before any impact from the Alunet acquisition. We expect Alunet to deliver a net increase in the Group's adjusted profits in line with our plans, reflecting strong market share gains already achieved this year.

The presence of the word “now” suggests this is a profits warning and reflects a reduced position. Although they were suitably vague when they released their 2024 results, merely saying: “We are confident in delivering another year of good progress in 2025.”

The Eurocell website says that their brokers are Peel Hunt and Berenberg. However, the last Berenberg note on Research Tree is from 2022, so there is little to go on here. The picture is complicated by the Alunet acquisition. Perhaps the best we can do is look at the upgrade in EPS from the Alunet acquisition, where FY25 EPS consensus went from 18.75p to 19.95p:

Adding the 1.2p figure to the 17.1p EPS for FY24 (based on flat adj op. profit) gives an 18.3p figure. A cut of around 10%, for a forward P/E of around 8 (after today’s fall). There may be scope for a slightly higher EPS as they say Alunet is performing well, and there will be a slightly reduced share count from the ongoing share buyback, where they say:

The new £5 million share buyback announced on 20 March 2025 has progressed well. As of 14 May 2025, we had purchased approximately 0.9 million ordinary shares at a cash cost of £1.4 million and we expect to complete this buyback during the second half.

Mark’s view

When I looked at this following their preliminary results, I downgraded this Super Stock from GREEN to AMBER/GREEN due to their weak end markets and mention of competitive pressures. The temptation is to downgrade further following what appears to be a profits warning today. However, the impact is relatively minor and the shares are still on a forward P/E of around 8, with the key point being that these must be much closer to trough earnings than peak. As always, the risk is that the first profits warning is a sign that several more are on their way. I am going to stick my neck out and keep the AMBER/GREEN in this case.

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Costain (LON:COST)

Up 1% to 121p - AGM Trading Update - Mark - GREEN

It is a relatively short update confirming in-line trading. The most important part is perhaps this:

The Group remains on track to meet its 4.5% adjusted operating margin run rate target during 2025…

I read this as the company won’t reach 4.5% operating margins for 2025 as a whole, but will get to that level during the year. If this is then maintained for FY26, based on current revenue forecast, this would be at least £57m adjusted operating profit:

Given that this is 33% higher than the FY24 level (based on the company’s own adjusted figures), I wonder if the FY26 EPS looks too low? On top of that, there is significant net cash:

..continues to expect its 2025 full year net cash position to be in line with current market expectations of around £180m.

Investors have to be wary about including this in their valuation. Net cash at 31st December was £158.5m. However, they also had significantly more trade payables than trade receivables. £85.7m more, to be precise. It is unlikely that this is the true net cash position for most of the year, and their working capital will vary significantly over time. They pointedly don’t give today’s net cash figure, but their estimate of the year end figure! Still they generated positive net interest during the year. Here are the details:

Net finance income amounted to £5.4m (FY 23: £4.1m). The interest payable on loans and other similar charges was £1.4m (FY 23: £2.3m) and the interest income from bank deposits amounted to £6.7m (FY 23: £4.8m). In addition, the net finance income includes the interest income on the net assets of the pension scheme of £2.6m (FY 23: £3.2m), the interest expense on lease liabilities of £2.5m (FY 23: £1.5m) under IFRS 16, and other interest expense of £nil (FY 23: £0.1m).

This suggests that the average net cash position is positive, and while they may want to retain these cash balances to manage their significant working capital flows rather than return the capital to shareholders, they at least generate a positive return on this asset.

Mark’s view

The algorithms rate this as a Super Stock:

The Value Rank isn’t as strong as it once was. Recent price rises, together with a lack of EPS growth, are taking their toll:

However, the clear momentum behind the business at the moment and the chances of upgrades to FY26 numbers could reverse that trend in the Value Rank. As such, a GREEN rating looks well deserved.

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Auction Technology (LON:ATG)

Down 10% to 492p - Half Year Report - Mark - AMBER/RED

This is a provider of specialist online auction sites and the back-end technology to white-label auction sites for others. It is a decent business as its EBITDA margins attest:

However, when a company quotes adjusted EBITDA, I always ask, how suitable is EBITDA as a measure? And how realistic are those adjustments?

It turns out that they have classified no operational expenses as exceptional in 25H1, which is good news. However, it is less positive when I look at the details of the EBITDA calculation:

Excluding the amortisation of acquired intangibles is fairly normal these days. Share-based payments are up for debate. However, the big reason that EBITDA is not a suitable measure here is that they are still spending significant sums on adding to their internally generated software. They spent £5.7m in this half, exceeding the amortisation figure.

At least they don’t exclude internal amortisation from their adjusted earnings:

The problem here is that all of the increase in adjusted earnings is due to cost-cutting:

Some of the cost savings may be due to greater capitalisation (rather than expensing) of internal development.

It strikes me as a company that is struggling with organic growth, and all the growth has come via acquisitions. I can’t see an updated Cavendish note this morning, but in their last note, they had reduced their revenue expectations, reinforcing this view.

The forward P/E of around 16 (adjusting for today’s fall) looks punchy for a company with very little organic growth. On top of this is there is $106m of net debt. This has been coming down modestly, and a recent refinancing giving a $200m RCF means there are no immediate liquidity concerns. Their operational cash flow looks reasonably strong, but by the time they have paid their taxes, software development costs and interest bill, there isn’t much left. Indeed, there is no dividend declared.

Strangely, it seems that the company think their shares represent good value:

In March we launched our inaugural share repurchase programme for up to a maximum amount of $40m. The programme is one of three pillars of our capital allocation policy which prioritises enhancing growth of the business, both organically and through select inorganic opportunities as they arise, whilst maintaining an appropriate level of liquidity headroom and returning excess capital to shareholders where appropriate.

However, unless the company can manage to generate significant organic revenue growth in the medium-term, such re-purchases are far more likely to destroy shareholder value than enhance it. These also restrict the scope of the company’s ability to do the one thing they seem good at, which is growing scale via acquisition.

Mark’s view:

The Stockopedia algorithms rate this as a High Flyer. However, with the momentum rank declining recently…

…this is exactly the sort of company my recent research into High Flyers suggests that investors should have been selling when the Momentum rank started dropping at the end of February. With what looks like further pain to come after today’s fall, and little in the way of valuation support, I think this now deserves a further drop to AMBER/RED.

Michelmersh Brick Holdings (LON:MBH)

Flat at 105p - AGM Trading Update - Mark - AMBER

Although this is an in-line update, I note the caution in the narrative, particularly around pricing:

However, we continue to operate in a landscape where brick pricing remains highly competitive in some of our end markets.

They are also having to increase prices to cover the cost increases they face:

We have been pleased with the response to our required mid-single digit price increases from the beginning of April to offset cost increases from the start of the year, which we believe reflects the strength of our customer relationships.

They say volumes are stable which means that 8% forecast revenue increase is all pricing. Then in order to hit their 9.7p forecast EPS they need to improve their operating margins versus 2024. All this is starting to look a bit of a stretch, and this is to meet the forward P/E of 11

There may be some element of cyclical low here but the long term EPS chart doesn’t give confidence that there is a huge upside to go for in better market conditions:

Mark’s view

I’ll give the company the benefit of the doubt for the moment as they do have some planned closures that should improve manufacturing efficiency and may free up surplus assets such as property. AMBER feels about right given the work needed to hit their forecasts, though.