Good morning! And welcome back.
For a list of results and economic announcements due this week, please check out The Week Ahead (published on Friday).
Today's Agenda is complete.
12.30pm: wrapping it up there for today, cheers!
Companies Reporting
| Name (Mkt Cap) | RNS | Summary | Our view (Author) |
|---|---|---|---|
Diageo (LON:DGE) (£47.9bn) | Q3 net sales +2.9%, organically +5.9%. FY25 guidance unchanged. Tariff impact c.$150m. | AMBER (Graham) I'm downgrading this one notch today, as the company hasn't quite done enough to keep me on board with a moderately positive view. Higher than target leverage is the straw that breaks the analyst's back. | |
Assura (LON:AGR) / Primary Health Properties (LON:PHP) | KKR/Stonepeak argues that its bid for AGR is superior to Friday’s increased offer from PHP. | ||
Genuit (LON:GEN) (£1.0bn) | YTD revenue +8.5%. Trading in line with expectations, FY outlook maintained. | ||
Kainos (LON:KNOS) (£997m) | In line. Revenue -4%, adj PBT -15% to £65.6m. FY25 bookings -10% to £382.4m. £30m buyback. | AMBER (Roland) Today’s results are in line with reduced expectations following last year’s profit warning. While the balance sheet remains strong and cash generation is good, major restructuring and a rather mixed outlook leave me feeling that there’s still some uncertainty about the year ahead. With the stock still trading close to 20x forecast earnings, I’m staying neutral at this point. | |
Harworth (LON:HWG) (£554m) | “Significant progress” on major sites, improved residential affordability in Yorkshire/Midlands. | ||
Cerillion (LON:CER) (£541m) | Rev -7%, recurring rev +8%. Adj PBT -12% to £9.3m. Backlog +7%. “Well positioned” for FY targets. | AMBER (Roland) H1 results show a fall in profits, but broker forecasts are unchanged and new contract wins seem promising. The H2 weighting to earnings appears to be covered by new contracts, but FY25 earnings are still expected to be flat vs FY24. Given the demanding valuation and 45/55 H2 earnings weighting, I’m staying neutral at this time. | |
Mobico (LON:MCG) (£170m) | Q1 rev +9%, ALSA strong, UK/DE turnaround continues. NAm sale on track. £25m cost savings. | RED (Graham) I have my doubts as to whether this would be an attractive investment opportunity even if its balance sheet had already been repaired. Given the recent disappointment and ongoing struggles, I'll leave it RED for now. | |
Camellia (LON:CAM) (£139m) | £18.9m tender offer at £54 (350k shares). VEP: will focus on core agricultural operations - improving profitability, generating growth & reducing risk. | AMBER/GREEN (Roland) [no section below] We now know how management intends to spend the group’s c.£120m cash balance. Shareholders will receive some of it – the divi will be maintained at 260p (5% yield) and £18.9m will be returned through a tender offer at a 50% discount to book value! However, spending within the business is also set to increase sharply, as management attempts to improve returns on capital to a level that supports the dividend and justifies Camellia’s continued existence. Given the group’s history of negative free cash flow, I expect to see the cash balance fall sharply. | |
SDI (LON:SDI) (£71m) | FY April 2025 to be in line. Net debt £13.8m. Robust order book. No material impact from tariffs. | AMBER/GREEN (Graham) Still lacking in growth but it has just enough going for it to retain a moderately positive stance. Some interesting share price movements in recent trading sessions. | |
Creo Medical (LON:CREO) (£42m) | £4m revs from continuing operations. Positive start to 2025, positive outlook for the year. | ||
Aurrigo International (LON:AURR) (£38m) | Rev +34% (£8.9m). Adj. EBITDA loss £1.6m, better than exps. 2025 outlook in line. | ||
Vinanz (LON:BTC) (£33m) | $1.7m bitcoin purchase. It's a David Lenigas stock. | RED (Graham) [no section below] It's a David Lenigas stock. | |
ImmuPharma (LON:IMM) (£14m) | Pre-revenue. Loss £2.5m. “Significant scientific progress.” Discussions w/ potential partners. | RED (Graham) [no section below] The cash balance fell to almost zero by the end of 2024. It then raised £2.9m in February. Annual expenses were £3.1m in 2023, then £2.7m in 2024, plus some finance costs. I freely admit that I'm unable to value this, but will give it a RED as it's a pre-revenue pharma stock. | |
KRM22 (LON:KRM) (£11m) | ARR +22%, rev +28% (£6.8m). Loss before tax £1.4m. Material uncertainty re: going concern. The company recently amended its £4.5m loan facility with its largest shareholder, which pays a minimum interest rate of 9.5%, deferring interest payments. | RED (Graham) [no section below] The company provides risk management tools but its own risk levels are extremely worrying. Today’s announcement states that even if the company’s financial forecast is achieved, it could breach its loan covenants. | |
Dianomi (LON:DNM) (£10m) | Revenue declines to £28m, adj. EBITDA loss £0.3m. Cash £8.8m. Macro headwinds at start to 2025. |
Graham's Section
Diageo (LON:DGE)
Up 2% to £22.03 (£49.1bn) - Q3 trading statement - Graham - AMBER
(At the time of publication, Graham has an indirect interest in DGE shares.)
Overall, this is a somewhat reassuring update from the drinks giant, with a few caveats.
Please note that the company’s year-end is June, so Q3 is Jan to March.
Organic net sales are up +5.9%, finely balanced between volume growth and positive price/mix, but the growth is mainly driven by “phasing”, which is set to reverse in Q4. There was a pull-forward of shipments into Q3, from Q4, in anticipation of tariffs.
The key takeaway today is that full year guidance for organic net sales and operating profit is reiterated.
For organic net sales, that means the company is modestly expecting some overall improvement in H2 vs. H1.
For organic operating profit, the expectation is for “a slight decline in organic operating profit” in H2, broadly matching the 1% decline seen in H1.
The StockReport forecasts indicate a small decline in profitability this year, followed by a return to growth the following year:
Cost savings/cash flow: the company has a $500m cost savings programme, which supports its expectations for $3bn of sustainable and increasing free cash flow per annum, starting next year.
CEO comment excerpt:
We continue to believe in the attractive long-term fundamentals of our industry and in our ability to outperform the market. We view the near-term industry pressure as largely macro-economic driven, with continued uncertainty impacting both the timing and pace of recovery.
Tariffs: the impact of the current 10% US tariff on UK/European imports is estimated to be c. $150m per annum, with immediate plans to mitigate about half of this. So this should be barely material for DGE investors.
Leverage: at the end of the year, they now expect leverage to be in the range of 3.3 - 3.5x. This is above the target range of 2.5 - 3.0x. They say they have a “commitment to deleveraging”, expecting to be “well within” the target range no later than FY 2028. I don’t know about you, but reaching their target range within 3 years doesn’t seem very ambitious to me! Hopefully they can do this a little sooner.
Graham’s view
I appreciate that the company is now providing a view on FY 2026, which they were reluctant to do the last time we checked in on them (in February). Based on “what we know at this time” re: tariffs, they currently expect “positive operating leverage, with organic profit growth ahead of organic net sales”.
The Diageo share price is a little lower now than it was the last time we checked:
…which is understandable in the context of a high P/E multiple and soft earnings estimates:
I was willing to take a contrarian stance the last time, but perhaps it’s more prudent to be neutral today, given the cloudy picture.
I’d be more relaxed if the balance sheet was healthier, but the combination of a high leverage multiple, a high P/E multiple, limited growth and soft earnings estimates is not terribly appealing.
I still believe in the underlying quality and long-term value of Diageo’s brands. But the company has disappointed me a little with the latest leverage multiple and with their leverage outlook, and I also want to acknowledge the importance of the downward trend in EPS estimates. So I think a neutral stance is best today.
Mobico (LON:MCG)
Up 1% to 28.1p (£172m) - Q1 Trading Update - Graham - RED
I gave this a RED last time, in April, on the day the shares fell 41%.
The company formerly known as National Express sold its American School Bus business for what was perceived as a disappointing price, leaving its remaining businesses with a large debt pile to service.
The disposal of “School Bus” is expected to complete in Q3.
Let’s see if today’s Q1 update gives any clarity on the future direction of travel.
Overall revenue +9%
ALSA (Spanish bus) revenues +13% at constant FX.
North America +13% which still includes School Bus, along with the smaller Shuttle Bus business WeDriveU.
UK revenue down 2% as it “continues to execute a large scale, complex turnaround”. Coach fell 6% while Bus was slightly higher.
Germany revenue down 3%. Driver shortages caused cancellations which in turn led to penalties for the company.
This highlights the relative importance of ALSA (which appears to be doing ok) versus the more challenged UK and German businesses.
It also highlights the large impact that the sale of School Bus will have on the structure of the group.
I do think it’s a positive move for Mobico to cut out a capital-intensive, underperforming business unit. But the fact remains that the group will remain heavily indebted and capital intensive even after the sale.
Leverage has reduced to 2.8x; let’s hope we get a very positive update on this metric later in the year, after the sale of School Bus. This disposal has been described as “the first structural step” in leverage reduction. The company has also suspended dividends, as reducing debt is “an immediate and continuing priority”.
In terms of their credit ratings, they have the lowest investment-grade rating from Fitch (BBB-) and are in junk territory at Moody’s (BA2).
I continue to be wary of this, as I’m not sure that it would be a particularly attractive investment even if its balance sheet had already been patched up. So I’ll leave it RED for now, but with an open mind that an upgrade may be possible later in the year.
Stockopedia categorises it as a Value Trap:
SDI (LON:SDI)
Up 7% to 72.9p (£76m) - Trading Update - Graham - AMBER/GREEN
19 May 2025 - SDI Group plc, the buy and build group, focused on companies which design and manufacture specialist lab equipment, industrial & scientific sensors and industrial & scientific products, provides a trading update for the year ended 30 April 2025 ("FY25").
This is an in line trading update.
Net debt is £13.8m.
There is nearly £10m of undrawn bank facility, plus another £5m in the “accordion”, which the company says is enough to support its acquisition strategy.
Unlike Judges Scientific (LON:JDG), SDI is still small enough where acquisitions for less than £10m have the potential to move the needle.
Order book: “robust, buoyed by an uptick in orders in Q4.”
Tariffs: no material impact. Only 10% of revenues are directly to the US.
Operational Update: some pleasant updates on group businesses including Monmouth Scientific, Safelab Systems, Chell, Sentek, Atik Cameras, etc.
Estimates: today’s RNS says that market expectations are for adj. PBT of £8.4m in FY April 2025.
Checking the note from Progressive published today, they are forecasting adj. PBT of £9.5m in the current financial year (FY April 2026) and adj. EPS of 6.8p. So the shares are now trading at a P/E multiple of a little over 10x.
Graham’s view
As noted by readers, something strange has been happening with SDI shares in recent days:
They moved from 59p to 66p last Thursday, on heavy volumes, then rose another 2p on Friday.
They are up another 5p on today’s update.
Until today, there hasn’t been anything of note in the RNS. Only an RNS “Reach” (non-regulatory) announcement about one of SDI’s companies receiving a King’s Award.
Perhaps the move is nothing more out-of-the-ordinary than investors correctly betting that this update would be positive?
Checking the archives, I see that I was neutral on the stock back in Dec 2023 at around 90p. Organic growth was below inflation, the company was missing forecasts, and it had a higher P/E multiple than it has today.
Since then Roland and more recently Mark have been AMBER and AMBER/GREEN, respectively.
I’m inclined to keep the AMBER/GREEN on this one.
The main negative is it still appears to be lacking in organic growth; organic growth is mentioned in today’s RNS only as an ambition.
More positively, it is making progress in adjusted profits, despite the lack of underlying growth, and operationally it appears to be doing fine. I note that one of their recent acquisitions continues to trade as a standalone business, while the other is being integrated into another SDI company. A nice choice to have when it comes to new acquisitions.
Personally I am in no rush to buy these shares myself, but I do respect the fact that they have been free of profit warnings for a while, and the earnings multiple (albeit on adjusted earnings) is not prohibitive by any means. All they need now is to figure out how to generate organic growth again - perhaps a favourable economic tailwind is needed?
Roland's Section
Cerillion (LON:CER)
Down 7% to 1,705p (£503m) - Interim Results - Roland - AMBER
Group remains on track to deliver financial targets
It looks like the market was expecting something a little more positive today from this provider of billing and CRM software for telecoms companies.
However, these numbers from Cerillion do appear to be in line with expectations set in April’s trading update, reiterating guidance for an H2 weighting this year:
Revenue down 7% to £20.9m
Recurring revenue in period up 8% to £8.2m
Pre-tax profit down 11% to £9.3m
Adjusted earnings per share down 13% to 23.8p
Dividend up 20% to 4.8p
Net cash up 17% to £31.2m
Order book at 30 April 25: £56.5m (30 Mar 24: £47.1m)
A drop in both revenue and profits isn’t a great look for a company that’s trading on more than 30 times forecast earnings:
However, today’s results highlight some significant recent contract wins and an increased order backlog. My feeling is that these are expected to make up the H1 shortfall and allow Cerillion to meet full-year forecasts:
Five year, $11.4m contract signed with major national telecoms operator in Armenia
£5.4m term renewal with major European customer in March 2025
Services framework agreement worth c.£8m recently signed with new customer planning to use Cerillion’s software to migrate its newly-acquired tier-1 customer base
New implementations underway in Ireland and South Africa are also mentioned
AI gets an obligatory mention, too:
AI is a particular focus in our R&D programme, and the release of Cerillion 25.1 in the first half introduced a set of new AI-powered intelligent assistants that streamline both our customers' and their end-customers' experience
Quality + growth?
For me, the two key potential attractions of this business are its quality credentials and its potential for continued growth. Taken together, they could justify a very strong valuation and perhaps further share price gains.
Today’s results show an operating margin of 41.6% and trailing 12-month return on capital employed (ROCE) of 31.0%. These figures are excellent and are comparable with last year’s figures:
Indeed, the decrease in ROCE is mainly due to the increase in Cerillion’s net cash position and a reduction in money owed to suppliers (payables) during the half year. This isn’t a bad thing, but this combination has had the effect of increasing capital employed, without a corresponding increase in profits. Hence ROCE is lower.
For me, any concerns about this business must relate to growth.
Estimates: Cerillion’s year end is 30 September, so with only four months to go, I feel the company should be able to provide fairly confident guidance to its brokers.
Helpfully, Singer Capital and Panmure Liberum have both issued updates today. Both brokers have left their full-year forecasts largely unchanged, albeit PanLib has increased its tax estimate, with the effect of reducing its (post tax) earnings per share estimate slightly.
At an earnings level, the picture is for flat earnings this year, before a return to growth in FY26:
2024 adj EPS (actual): 52.2p
2025E EPS: 51.1p (SC) / 52.2p (PL - previously 53.3p)
2026E EPS: 56.8p (SC) / 57.7p (PL)
For context, Stockopedia’s consensus estimate prior to today was 53.9p, so these figures do appear slightly below broader consensus.
There’s also a decided H2 weighting. Today’s H1 earnings of 23.9p per share represent c.45% of full-year forecasts, meaning Cerillion has to generate 55% of its earnings in H2.
Outlook: CEO (and 30% shareholder) Louis Hall still sounds confident, suggesting that recent new orders will provide the extra profit required to meet full-year expectations:
Based on new orders achieved to date and current trading, we believe Cerillion is well-placed to deliver market expectations for the full year and beyond. We continue to view long-term prospects with confidence.
Roland’s view
Consensus estimates have been broadly unchanged over the last 18 months, suggesting decent visibility of earnings and consistent guidance from Cerillion:
While an H2 weighting is sometimes a sign that a company is at risk of missing full-year expectations, the consistency on display here suggests to me that a nasty surprise is (relatively) unlikely.
There are no guarantees, though, and I can’t help noticing that after several years of consistent progress, Cerillion’s share price may have lost its trend clarity this year:
The valuation is also very demanding, earnings Cerillion an unusually low ValueRank:
I’m still confident this is a high quality business with the potential for decent medium-term growth.
But given the flat outlook for FY25 earnings, I’m going to leave Graham’s neutral view from April unchanged until we have a little more clarity on FY25 results and the outlook for FY26. (AMBER).
Kainos (LON:KNOS)
Down 7% to 754p (£924m) - Full Year Results - Roland - AMBER
Kainos Group plc (KNOS), a UK-headquartered IT provider with expertise across three divisions - Digital Services, Workday Services and Workday Products - is pleased to announce its results for the year ended 31 March 2025.
This FTSE 250 IT group has seen its share price fall by 50% over the last four years. The stock’s Falling Star status appears to have been well earned:
Last year also saw a number of downgrades to earnings expectations. Consensus estimates have fallen by nearly 25% over the last 12 months.
Against this backdrop, today’s results from this IT group are said to be in line with these revised expectations. Is it time for me to take a more positive view on this former high flyer?
FY25 results summary - today’s headline numbers highlight a decline in both sales and profits. Revenue fell by 4% to £367.2m last year while pre-tax profit was 15% lower at £65.6m, on an adjusted basis.
These heavily adjusted figures exclude £8.4m of restructuring costs and various other items. On a statutory basis, pre-tax profit fell by 25% to £48.6m.
Fortunately, there were some signs of improving momentum in the second half of the year. Kainos says its contracted backlog rose by 3% to £368.2m last year, with the following H1/H2 split:
H1: £179.5m
H2: £202.9m
Annualised recurring revenue also rose by 20% to £72.6m last year, moving towards a medium-term target of £100m in 2026.
Excellent cash conversion contributed to a year-end net cash position of £133.7m (FY24: £126m) and supports the company’s decision to launch another £30m buyback when the current programme completes.
Trading commentary: Kainos says it’s “the leading pan-European Workday consulting specialist”. Work relating to this third-party product was the only growth area for the business last year:
Workday Products revenue up 24% to £71.3m
Workday Services revenue down 11.9% to £98.7m
Digital Services revenue down 7% to £197.2m
My understanding is that Workday Products are mostly Kainos-developed products that operate on the Workday platform. This has previously been flagged as an important growth area.
However, Workday services (consultancy) revenue fell quite sharply, which management says reflected increased competition and softer market conditions.
The company’s largest reporting segment remains Digital Services. The largest component of this comes from the UK public sector. Revenue from government departments fell by 9% to £125m last year as a result of delays to contract awards and mobilisations caused by the UK General Election.
Fortunately, there was a recovery in UK healthcare revenue, which rose by 14% to £50.6m last year:
The business had a good year, in part because NHS England began awarding larger programmes of work to tender, after previous delays caused by its merger with NHS Digital.
However, this positive momentum now seems to be at risk due to the impending abolition of NHS England, despite positive longer-term demand drivers:
This is expected to take place over a two-year period and is likely to result in some disruption to the market during that time. The State of Digital Government Review highlighted the significant need for digitisation in the NHS, with many Trusts having substantial levels of legacy technology and poor system reliability, which means digitisation will be a necessity as part of health service reform.
The remainder of Kainos’ digital services revenue comes from private sector clients. The company highlights that IT spending in the private sector “is more than three times higher than the public sector”. Unfortunately it’s also much more cyclical; commercial revenue fell by 32% to just £21m last year
Outlook: I don’t have access to updated broker notes for Kainos today. The company’s guidance is fairly non-committal, in my view:
While the long-term drivers in our market remain strong, and our near-term performance is supported by a healthy pipeline, a significant contracted backlog, and a strong balance sheet, we believe it is prudent to maintain our cautious stance given continued volatility in the global macroeconomic environment.
Consensus forecasts prior to today suggest modest growth in FY26, with adjusted earnings rising by c.6% to 40.8p per share.
This estimate prices Kainos on a forward P/E of 19, with a prospective 3.8% dividend yield.
Roland’s view
I estimate underlying free cash flow of £59m for FY25, demonstrating that cash generation remains strong. Based on a market cap of £935m, this gives Kainos a free cash flow yield of 6.3%. I think that could be attractive if the business can return to growth from this level.
Similarly, today’s results highlight strong quality metrics, albeit substantially lower than last year:
Operating margin 11.6% (FY24: 15.9%)
ROCE: 29.2% (FY24: 36.7%)
In pursuit of a return to growth, Kainos appears to have made significant changes to its business. The group’s global workforce has been cut by 7% (190 people) in order to free up resources for growth investment:
The restructuring programme was driven by the need to create capacity for investment in product development, AI, data, new partnerships, skills development, targeted recruitment and carefully managed international expansion.
It would be interesting to know what all the staff who have been made redundant used to do, and how many more staff are going to be recruited into new roles.
Graham was neutral on Kainos in April and I am going to leave this unchanged today. I can see some possible attractions here, but the outlook seems to lack conviction to me. On balance, I think the share price looks up with events in the current environment.
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