Welcome to Wednesday's report! And now it's finished.
Spreadsheet accompanying this report: link (last updated to: 24th July).
Companies Reporting
| Name (Mkt Cap) | RNS | Summary | Our view (Author) |
|---|---|---|---|
Beazley (LON:BEZ) (£5.6bn) | SP -10% PBT -31% to $503m. Annualised return on equity: 18.2% (H1 24: 28.4%). FY premium growth “low-to-mid single digits” (prev. “mid-single digits”) | AMBER (Roland) [no section below] Today’s results from this specialty insurer include a modest downgrade to guidance for premium growth this year. This appears to reflect softening conditions in cyber and property risk insurance, in particular. CEO Adrian Cox is keen to emphasise that weaker pricing could see the company pull back rather than accept risk at unattractive rates. In this regard, today’s results reflect quite credibly on Beazley in my view. Although the 31% fall in pre-tax profit may seem discouraging, I think it’s a decent result given the c.$80m loss Beazley expects from the California wildfires earlier this year – a major loss event. The H1 combined ratio of 84.9% and strong ROE demonstrate Beazley’s profitable underwriting and good cost control. This H1 result is also in line with full-year guidance for a combined ratio in the “mid-80s”. Management commentary today suggests cyclical conditions in the insurance sector may be starting to weaken, after several years of exceptionally strong premium growth. This mirrors recent commentary I’ve seen from other UK-listed peers in this sector. While today’s downgrade is disappointing, I am not inclined to treat this as a profit warning. As this is only an initial review of a complex business, I am going to take a neutral view today. | |
Persimmon (LON:PSN) (£3.6bn) | SP -2.5% In line. Rev +14%, adj PBT +11% to £165m. H1 completions +4% to 4,605, ASP +8% to £284k. Private forward sales +11% to £1.25bn. On track for FY25 guidance. | AMBER (Roland) [no section below] Today’s results look fine to me and show a 5% increase in net private sales per outlet, aided by various “incentives” aimed at overcoming buyer affordability problems. Another potential positive is that the company says it is onsite for or has completed 80% of building safety repairs, compared with an industry average of 48%. When these are substantially complete, management plans to revisit the group’s capital allocation framework. This might lead to buybacks or a more generous dividend. | |
Balfour Beatty (LON:BBY) (£2.8bn) | Rev unch, adj PBT -3% to £95m. H1 loss in US construction. On track to achieve FY25 exps. | ||
Glanbia (LON:GLB) (£2.7bn) | Rev +6%, adj EPS -7.5% (ahead of exps). FY25 EPS now exp 130-133c (prev 124-130c) | ||
Hill & Smith (LON:HILS) (£1.58bn) | Rev +2%, PBT +10% to £63.5m. Strong demand in US, UK more challenging. FY25 outlook in line. | AMBER/GREEN (Roland) A solid set of H1 results showing continued strong demand in the US and improved profitability in the UK, despite weaker demand. The outlook for H2 suggests more of the same, leaving overall profit expectations for the full year unchanged. I’ve moderated our view by one notch today to reflect the combination of in line trading and a more demanding valuation than in March, but it’s possible I’m being too cautious. | |
ITM Power (LON:ITM) (£396m) | Project at Milford Haven to supply hydrogen to industrial customers. FID expected later in 2025. | ||
Gulf Keystone Petroleum (LON:GKP) (£364m) | Production recently restarted at Shaikan. Updated guidance will be provided w/ H1 results on 28 Aug. | ||
Evoke (LON:EVOK) (£280m) | Rev +3%, adj EBITDA +44% to £166m, adj PBT £5.4m. Leverage 5x EBITDA. FY25 outlook in line. | RED (Graham holds) I'd like to give this an upgrade but the business is still unprofitable even on what I consider to be a somewhat forgiving view on earnings adjustments. There are signs of progress and they are targeting a leverage multiple of below 3.5x, but it's going to take more time. | |
CLS Holdings (LON:CLI) (£252m) | EPRA NTAV -2.6% to 209.5pps. Net rental income -9.5% to £53.3m. Interim divi -50% to 1.3p. | ||
Beeks Financial Cloud (LON:BKS) (£149m) | “Brings real-time AI analytics and predictive intelligence” to colocation facilities. Upsell opportunity. | AMBER (Graham) [no section below] This new product has been previously announced and has now been launched to positive customer feedback. It is said to "revolutionise passive monitoring, enabling firms to monitor, diagnose and optimise performance before issues arise". From Beeks' website, it will enable firms to "extract high-value trading signals from complex, noisy market and network data". Hopefully this product can help Beeks to generate the type of quality financial results you'd expect from a successful software business, rather than an equipment leasing business. Profits and margins are forecast to improve significantly this year - see Roland's recent coverage. From my perspective, this improvement is already priced in at current levels (the ValueRank is only 9). I think a great deal of conviction in the product set is needed to justify an investment here. | |
Real Estate Investors (LON:RLE) (£55m) | Portfolio performed well YTD. Debt falls to £34.9m. £54m of assets to bring to market to repay debt. | ||
Ultimate Products (LON:ULTP) (£47m) | FY July 25 EBITDA -31%, in line with revised exps. Trading at the start of the current year is in line. | AMBER/RED (Graham) [no section below] After a string of profit warnings, investors will be relieved to see that this update was in line, ULTP meeting downgraded expectation for FY July 2025 and confirming that the new financial year has started as expected. FY July 2025 revenues are down 3.4% but that's due to a collapse of third party clearance sales. The core "UP brands" category is up 4.3%. Interestingly, the company is thinking about moving from the LSE Main Market to AIM: not too many companies move in this direction. But at a sub-£50m market cap, I see little harm in the proposal. The way I see it, the main benefit of being on the Main Market is for larger companies who might qualify for the FTSE-350. Below that level, I think AIM offers similar benefits at a cheaper price and with less regulation. I'm going to leave our AMBER/RED unchanged as the most recent profit warning was very recent (June) and I think it's sensible for us to stay cautious for a little longer. | |
Metals One (LON:MET1) (£47m) | Executed agreement to buy 75% of 2 US co’s with mineral claims. Potential to acquire the last 25%. | ||
Shoe Zone (LON:SHOE) (£39m) | Challenging conditions with lower footfall and reduced discretionary spend. New adj. PBT expectation £2.5m (prev: £5m). Withdrawing divi policy. Zeus updated estimates:FY25E EPS: 4.1p (prev. 8.2p). FY26E EPS: 7.3p (prev. 10.5p) | BLACK (AMBER/RED) (Roland) | |
Aurrigo International (LON:AURR) (£30m) | Contract to deploy autonomous solutions, value £0.9m. Baggage and passenger moving system. | ||
XP Factory (LON:XPF) (£19m) | Cautiously optimistic about meeting market exps. Escape Hunt LfL sales +0.4% year-to-date. | ||
Light Science Technologies Holdings (LON:LST) (£13m) | No broker forecasts. “Well-placed to achieve short-term objectives”.. Material uncertainty. | RED (Graham) [no section below] Almost anything with a going concern warning gets an automatic RED from me. Strangely enough, the cash position doesn't seem all that bad here with £1.1m of gross cash plus additional undrawn funds of £0.7m. My main criticism of this report is how it describes expectations: "We look forward to providing additional updates that will further underpin the Board's full year expectations." But when you dig a little deeper, there are no estimates available from the company's broker, and the most the report tells us is that they are focused on delivering net profitability - this is good to know, I guess, but we are little closer to knowing the Board's expectations for the year! |
Graham's Section
Evoke (LON:EVOK)
Up 5% to 65.7p (£282m) - Interim Results - Graham - RED
(At the time of publication, Graham has a long position in EVOK.)
Some strong headlines here:
Strategy delivering fourth consecutive quarter of growth and significantly improved profitability with Adjusted EBITDA +44% and LTM Adjusted EBITDA of £363m
We already had an H1 trading update from Evoke last month, which I covered here.
As a reminder, this share is all about the balance sheet - can they deleverage in time?
It was a good half for EBITDA:
H1 revenue +3%.
H1 adjusted EBITDA +44% (£166m)
H1 actual EBITDA +223% (£141.3m)
I note a much smaller gap between adjusted and actual EBITDA than the company achieved last year (£25m this year vs £72m last year). The level of adjustments has been a big source of concern for me.
Unfortunately, there are still plenty of adjustments by the time we get down to net income (or loss).
H1 adjusted net income moves from a £30m loss to a £5m profit.
H1 actual net income improves from a £143m loss (!) to a £65m loss.
Leverage: the leverage multiple has fallen to 5x, vs. 6.7x a year ago.
My general rule of thumb is that I require companies to be below 3x. Bank covenants will often use a similar limit.
Outlook: Evoke says that it’s “on track to deliver FY25 guidance”, with unchanged medium-term targets including leverage below 3.5x by the end of 2027.
I would be delighted to see leverage below 3.5x, but I do wish that the deleveraging process was moving faster.
For the current year, Q3 revenue has been in line with plans, and the full-year revenue growth target remains 5-9%.
CEO comment is very positive:
"We are seeing clear evidence of the transformation and operational reset we've undertaken, with the Group delivering continued revenue growth, significantly improved profitability and meaningful deleveraging during the first half of the year. The improved financial performance is a result of substantial strategic progress, focusing resources on our core markets and executing a short-term turnaround, while investing in building stronger capabilities to support long-term sustainable and profitable growth.
Having delivered four consecutive quarters of growth, we are well positioned to drive continued progress, supported by our leading market positions, established brands, outstanding products, and a clear customer proposition.
I see that the five core markets - UK, Italy, Spain, Romania and Denmark - generated over 90% of revenues. The company has come a long way from the days where a large chunk of money was coming from “unregulated markets”!
Graham’s view
There are plenty of encouraging signs here, e.g. UK & Ireland online revenue has seen 37% EBITDA growth despite revenues falling by 1%. “Our focus remains firmly on profitable growth rather than growth at any cost” - good! The new CEO has been in charge since late 2023, and seems to be doing the right things in constrained circumstances.
Marketing spending is a key decision, and they seem to be winning on that front: “our marketing approach is more disciplined and effective than ever. We spent £12m less on marketing in the half yet grew revenue by 3%.”
On the other hand, the troubled Retail division (William Hill) has seen EBITDA fall 22% and has closed a “small number of loss-making shops”. “We remain confident in Retail's ability to drive sustainable growth.”
But what about the adjustments? I’ll focus on the PBT (pre-tax) figures. How do we get from adjusted PBT of £12.6m to an actual pre-tax loss of nearly £78m, i.e. a £90m difference?
The answer:
£12m of “integration and transformation costs” - I do not routinely allow these to be ignored.
£8m of finance fees - with the company remaining leveraged for the foreseeable future, I don’t think it’s safe to exclude these, although I can see the logic for excluding them.
£40m of intangible amortisation - ok to exclude these so long as we write down the balance sheet intangibles to zero.
Foreign exchange loss £30m - there’s a good argument to exclude this, but it’s a sign that FX is a major source of risk. Could the company look to hedge it?
If I allow the last two items only (which add up to £70m), I get an adjusted PBT figure that is still negative, but getting closer to breakeven.
That’s quite an achievement considering an interest bill of nearly 80 million pounds, plus various other finance charges:
I’d like to upgrade my stance on this to AMBER/RED, but I don’t think I can do it yet. It’s still unprofitable when all is said and done, even if I allow some of the larger adjusting items.
The balance sheet has negative equity even before writing intangibles down to zero.
I’ve been holding this for years, more out of stubbornness than for any other reason. Time to call it quits?
Roland's Section
Shoe Zone (LON:SHOE)
Down 21% to 67p (£31m) - Trading Update - Roland - AMBER/RED
Today’s update from this value retailer is unfortunately a serious profit warning – the third in 18 months.
Ahead of the company’s financial year end on 27 September, pre-tax profit guidance for the year has been cut in half and the dividend has been suspended (my emphasis):
As a result, the Company now expects adjusted profit before tax for the financial year ended 27 September 2025 to be approximately £2.5m, down from previous expectations of £5.0m. In addition, and in light of the above, the Company is withdrawing its current dividend policy.
What’s gone wrong? Shoe Zone says that trading during June and July was “challenging”, due to a “further weakening” in consumer confidence. The company has seen “less discretionary spend” and reduced footfall, leading to a reduction in sales and profit.
Trading commentary: today’s update is very brief but notes that management “remain confident” in the company’s strategy. The 200th store in the company’s new, larger format opened this month – this format includes a higher proportion of branded sales than in the past.
Cash generation is also said to be good – Shoe Zone remains debt free “with cash levels currently higher than the same period last year”.
Outlook & Updated Estimates: today’s trading update is fairly explicit about revised profit expectations for the year, for which management deserves credit. Too many companies obscure their guidance behind a standard phrase such as “significantly below previous expectations”, leaving brokers to provide actual profit guidance.
However, with thanks to Shoe Zone’s house broker Zeus, we also have an updated note today that includes new EPS estimates and updated forecasts for FY26:
FY25E revenue: £152m (prev. £159.4m)
FY25E EPS: 4.1p (prev. 8.2p)
FY25E net cash: £6m
There’s only a small reduction in revenue today and these estimates show gross margin broadly stable at 21% for FY25. What appears to have done the damage is the impact of reverse operating leverage – the combination of lower volume sales and the fixed cost base of Shoe Zone stores.
This could easily start to reverse with a modest increase in revenue, and this appears to be the basis of Zeus’s forecasts for FY26:
FY26E revenue: £156.7m (prev. £163.8m)
FY26E EPS: 7.3p (prev. 10.5p)
FY26E net cash: £12m
On these estimates, Shoe Zone shares are trading on a FY25E P/E of 17 after this morning’s fall, dropping to a P/E of 9.6 in FY26.
Roland’s view
I am relieved to report that Graham took an AMBER/RED view on Shoe Zone in December last year, when the company issued a previous profit warning that cut pre-tax profit guidance from £10m to £5m:
We didn’t cover the interim results in May, but full-year estimates were left unchanged at that time, as we can see from the chart above. Checking back now, the outlook commentary was fairly mixed, warning of difficult trading but improved supply chain conditions for H2:
The second quarter has shown improvement, but the trading environment continues to be difficult as consumer confidence continues to be low. During the second quarter, we have seen more stability/reduction in the price of containers, and a strengthening of sterling against the dollar, both of which will start to benefit in the second half of this financial year.
With hindsight it would be easy to say that another profit warning was likely, but at the time it wasn’t so obvious – so commiserations to shareholders who have been caught out by today’s warning.
The analyst consensus trend chart on the StockReport that I’ve pasted in above is a terrifically useful tool as it gives us a view on how expectations have changed over the last 18 months or so. The value of this is that while analysts’ forecasts are not always accurate, the direction in which they are moving often is significant.
Our profit warning research has found that stocks tend to underperform for an extended period after an initial warning. This chimes with the market adage that profit warnings come in threes. Shoe Zone has been a case in point and its shares have now fallen by 70% in two years:
Given the company’s continued net cash position and depressed profits, I can see some arguments for suggesting this could be a contrarian opportunity at current levels. Owner-management also remains an attraction here, in my view, with founder Charles Smith owning 25.8% of the stock.
However, I think it could be worth remaining cautious until the company actually reports some signs of improving sales. My concern is that the underlying economics of this largely store-based business may not be as attractive as they were previously, given the sharp increase in employment costs and other inflation pressures.
I’m going to retain our AMBER/RED rating today, but with a view to turning neutral if subsequent trading updates later this year report some signs of recovery.
Hill & Smith (LON:HILS)
Up 11% to 2,185p (£1.8bn) - Half Year Results - Roland - AMBER/GREEN
Positive FY25 outlook, underlying operating profit expected to be in line with market expectations
Hill & Smith is a group of semi-autonomous businesses that produce a wide range of (typically steel) products required for built infrastructure. Market sectors include transport, utilities, renewable energy installations and industrial/commercial property.
Many of these products require regulatory approval and public sector procurement relationships. This creates barriers to entry for potential competitors and has historically resulted in very attractive levels of profitability for Hill & Smith.
It’s a business I rate highly and would like to own. The shares have quadrupled over the last decade, but sadly various buying opportunities have all passed me by:
When I covered H&S’s full-year results in March, I took a GREEN view, noting that the US accounted for the majority of earnings last year, with a weaker performance in the UK.
Let’s take a look at today’s half-year results to see if these trends have continued in 2025.
Here’s a selection of key headline numbers:
Revenue up 2% to £431.6m
Pre-tax profit up 10% to £63.5m
Adjusted EPS +10% to 63.9p
Interim dividend +9% to 18.0p per share
£100m share buyback over next 18 months
Profitability is quite strong, with a reported operating margin of 15.7% (H1 24: 14.9%). On an adjusted basis, the H1 operating margin was 17%, with a company-calculated return on invested capital (ROIC) of 25.7%.
Debt levels are largely insignificant, with net debt of £55.3m and covenant leverage of 0.1x. Cash conversion from profits is excellent and the company appears to have decided to use some of its liquidity to fund a £100m share buyback over the next 18 months – equivalent to around 6% of the total share count.
While these results certainly look robust to me, there’s no escaping the weak top line growth. This is reflected in today’s slide pack, which shows H&S falling below its financial framework targets once again in terms of both margins and growth:
Source: Hill & Smith H1 2025 presentation
Divisional summary: the group generated 76% of underlying operating profit in the US in H1.
Today’s trading commentary suggests to me that the UK probably remains the reason for the company’s revenue and margin performance falling below its framework targets:
US Engineered Solutions (adj op profit +9% to £33.5m, 17.0% margin): Good revenue and profit growth with continued demand across a range of structural growth markets, including electricity grids, water and infrastructure construction. No significant impact from tariffs, so far.
UK & India Engineered Solutions (adj op profit +18% to £12.0m, 9.6% margin): Subdued demand in the UK due lower levels of activity in road projects and commercial construction. Some growth in data centre-related projects. Cost savings helped to improve margins.
US & UK Galvanizing Services (adj op profit +1.6% to £25.1m, 24.5% margin): A record H1 performance with strong momentum in higher margin US business and “good demand in the UK”, compared with a slower H1 2024.
Capital allocation: in addition to the £100m buyback announced today, the company is investing in additional capacity for its electricity transmission & distribution and engineered supports businesses in the US.
The M&A pipeline also remains active – H&S has historically grown through bolt-on acquisitions.
Outlook: CEO Rutger Helbing says he expects the larger US business to remain strong in the second half of this year, underpinned by “federal, state and private investment to upgrade infrastructure, onshore manufacturing and support technology change”.
In the UK, the outlook is likely to “remain challenging” due to broader economic conditions, budgetary pressures and a lack of road investment schemes.
Profit expectations for the year are unchanged:
We expect that the Group's positive first half trading will continue in the second half and that FY25 underlying operating profit will be in line with market expectations.
Consensus forecasts on Stockopedia show adjusted earnings rising by 5% to 129p per share in 2025. That puts the stock on a FY25E P/E of 17 after this morning’s gains.
Roland’s view
I don’t see anything in today’s results to change my positive view of this business. The current valuation isn’t necessarily unreasonable either, in my view.
I estimate that stock is trading on an EBIT/EV yield of around 6.6% after today’s results. That’s below the 8% I use as a rule-of-thumb benchmark for value, but I don’t think it’s expensive for a business with consistently strong quality metrics:
Despite these positive factors, I think it’s worth remembering that today’s results are only in line and the shares are not as cheap as they were when I last looked at this stock in March.
For these reasons – and perhaps from an abundance of caution – I’m going to move our view down by one notch today to AMBER/GREEN, reflecting the stock’s High Flyer styling.
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