Good morning! Let's see what the RNS has in store for us today.
Spreadsheet accompanying this report: link.
The Agenda is complete.
That's as far as we've got today, thanks for the input everyone.
Fed Interest Rate Decision
As noted in The Week Ahead, we have a Fed interest rate decision to look forward to this evening.
No change is expected to the Fed Funds Rate (4.5%), but we can expect some commentary to shed light on what to expect for the rest of the year.
The Fed has plenty of reasons for caution - tariffs and the conflict between Israel and Iran being the obvious ones - but at the same time, has come under political pressure from the White House to cut rates faster. The current expectation is that the Fed will cut rates twice this year.
I find it interesting that the dollar has been so weak - currently at multi-year lows - despite the Fed's rates being higher than many other central banks (the ECB is at just 2.15%). Perhaps this is mostly due to the US fiscal situation, with the deficit running at 6% of GDP and with total debt standing at c. $36 trillion (vs. GDP of $30 trillion). Perhaps Trump will need to make a few trillion-dollar coins?
Companies Reporting
| Name (Mkt Cap) | RNS | Summary | Our view (Author) |
|---|---|---|---|
Derwent London (LON:DLN) (£2.2bn) | Adobe has extended its London lease to 2038 and added 25% new space, ann. rent £4.5m. | ||
Ocado (LON:OCDO) (£2.0bn) | Ocado will build a CFC for existing partner Bon Preu, which currently uses OCDO’s in-store fulfilment. | ||
Personal Assets Trust (LON:PNL) (£1.62bn) | NAV +5.8% to 515.22pps. NAV total return 7.5% vs FTSE All Share +7.5%. | ||
AO World (LON:AO.) (£585m) | Rev +9%, adj PBT +27% to £44m, at top end of guided range. FY26 outlook unch: PBT of £40-50m. | AMBER (Roland) Today’s results are largely as expected, although they do feature a chunky impairment to AO’s mobile business. The outlook for FY26 is also largely unchanged, suggesting modest profit growth at best. With the stock trading on a P/E of 18, I can’t get higher than neutral. However, I do think AO is continuing to execute relatively well in a tough market. | |
M P Evans (LON:MPE) (£558m) | £2m buyback begins immediately. A further £10m is available if needed (e.g. large block sales). “The Board maintains the view that its overall business and its assets are currently undervalued, with the current enterprise value being below the independent valuation of its assets.” | GREEN (Graham) (no section below) We are GREEN on this Super Stock (StockRank 99, passing 11 bullish stock screens) but that’s not because of its buyback capabilities. The stock isn’t very liquid and it’s telling that only £2m of this buyback will be made available for on-market purchases. Even if the company manages to buy back the full £12m that has been allocated, that’s only 2% of the market cap and so it would not make a material difference to EPS. | |
PZ Cussons (LON:PZC) (£337m) | Sales of 50% stake in PZ Wilmar for $70m. FY25 outlook: op profit £52-55m (lower end of guidance). | AMBER (Roland) | |
S&U (LON:SUS) (£185m) | Advantage: receivables above budget, Q1 lending +50%. Aspen: record Q1 profit. Positive outlook. | GREEN (Graham) While the motor finance division has shrunk, the important thing is that its collections are getting back to normal (at their best level since 2023, according to today's update). Meanwhile the property bridging division continues to do perform well. There is an upcoming Supreme Court decision on the alleged fiduciary duty of motor dealers to worry about, but I'm happy to go fully GREEN in advance of that. | |
Rockwood Strategic (LON:RKW) (£120m) | NAV total return +21% to 248.8pps. Avg premium to NAV 2.9%. Confident outlook. | AMBER/GREEN (Roland) [no section below] This popular IT invests in many of the companies we cover here - top holdings include RM, Filtronic and Trifast. Performance over the year to 31 March was good, with a share price return of 20.8% vs 3.4% for the FTSE SMXX index. Stockopedia data suggests RKW has outperformed the UK market comfortably over 2,5 & 10 years. Today’s report reiterates the company’s strategy and provides a review of its top 10 holdings. Management believes that many investments are now entering a realisation phase and are confident of further strong returns. The main negative for me is that the shares are trading at a 13% premium to today’s NAV, raising the downside risk if the trust stops outperforming. The company says the average premium over the last year was only 2.9%, but as we only get NAV figures quarterly it’s hard to be sure of the premium at any specific time. If historic outperformance can be maintained, paying a premium might be worthwhile. I don’t know how likely this is but I respect the track record so will take a moderately positive view. | |
Speedy Hire (LON:SDY) (£120m) | FY25: PBT -£1.5m. Promising pipeline of growth opportunities. Confident of achieving exps. | ||
Residential Secure Income (LON:RESI) (£109m) | High gilt yields cause EPRA net tangible assets to fall 12% to 66p. Managed wind down ongoing. | ||
Oxford Metrics (LON:OMG) (£71m) | Notwithstanding US uncertainty and typical H2 weighting, anticipates full year EBIT in line. Warns that changes to funding of US academic institutions are having an adverse impact on sales. USA generated 25% of group revenue in H1. | AMBER (Roland) [no section below] If we strip out net cash of £40m from these results, I estimate OMG is trading on a cash-adjusted FY25 P/E of 5 with a 6% dividend yield. That’s tempting to me and I can see plenty to like about this business, which appears to have some good technology. On the other hand, the outlook seems a little weaker in my view and there’s also the nagging question of whether the company will make a major acquisition with its cash pile. On balance I think it may be prudent to downgrade our view to neutral, despite the tempting value metrics. | |
| Rev +2%, PBT +4% (£4.1m). Cash £11.5m after acquisition. Outlook: expect challenging H2. | |||
James Cropper (LON:CRPR) (£22m) | Revised strategy for Adv. Materials (“proactive alignment”) and Paper & Packaging (op’l improvement). | ||
Blackbird (LON:BIRD) (£20m) | elevate.io: Cost of acquiring a paid user (CAC) has fallen by 55% between Feb and May this year. | ||
Eden Research (LON:EDEN) (£19m) | Confident in the trajectory and optimistic about prospects. | ||
CPPGroup (LON:CPP) (£7.5m) | Has agreed to sell CPP Turkey, and has preferred bidder for CPP India. Wants to focus on Blink. | Already has net funds of £6.5m (30th May 2025) prior to receiving £6.1m from the buyer of CPP Turkey? |
Graham's Section
S&U (LON:SUS)
Up 9% to £16.50 (£200m) - Graham - GREEN
S&U PLC (LSE: SUS), the specialist motor and property finance lender, issues a trading statement from 15th April 2025 to 18th June 2025, prior to its AGM today.
I’ve been AMBER/GREEN on this for a while, and I’m now happy to upgrade it to fully GREEN on the back of a positive trading update.
Anthony Coombs’ colourful writing style continues to impress:
My optimism in our annual results report in April is gradually and clearly being justified by the Group's recent performance, particularly over the past two months. Corporate tankers turn slowly, particularly after the regulatory attentions of the past 18 months amidst a fragile economic climate, but the S&U tanker surely is.
Advantage Finance (motor finance division): this went through a lengthy “skilled person review” at the behest of the FCA, but is now moving on from that. Customer collections declined during that process, due to the FCA’s pressure, but are now recovering:
The number of longer-term nonpayers has reduced by 35% since year-end, and current adherence to contracted payments is the best since October 2023.
The business has still shrunk from where it was before. Receivables are now at £273m - they were previously over £330m - but the company says this is “above budget”.
On the outcome of the upcoming Supreme Court judgement, which is looking at whether motor dealers have a “fiduciary duty” to customers, Coombs expresses hope for “a clear and pragmatic decision”. Remember that S&U never paid discretionary commissions - this court decision affects all loans arranged by car dealers, regardless of whether or not a discretionary commission was paid.
Aspen Bridging (property bridging division): in the absence of regulatory interventions, this has gone from strength to strength for several years now. Net receivables haven’t grown since the end of the financial year to Jan 2025, but advances are up 16% so hopefully this will feed through to receivables growth as the year progresses. There were heavy repayments of £57m over the past couple of months. Profits are up 33% on the equivalent period last year, and collections are strong:
Even in a slightly slowing residential Property market where transactions are being affected by stubbornly high real interest rates and the inefficiency of HM Land Registry, loans in default or over term remain stable and within our control.
Borrowings have reduced to £180m (a year ago: £240m) which I think is a reflection both of the group’s profitability and of the smaller current size of the loan book at Advantage.
Conclusion by Anthony Coombs:
"Happily, the consolidation and retrenchment of the past two years is now behind us and S&U is on track for a return to growth. Throughout our history, S&U's people have skilfully adapted to new market conditions and opportunities. This is evident now at both Advantage and Aspen and has happily continued in May.
Assuming a stable and supportive environment from policymakers, regulators, and the Courts, we believe these efforts will translate into improved profitability this year and in the future."
Graham’s view
I tend to be sceptical of management teams who blame macro factors for their company’s performance, but in cases like this, I think it is justified! The motor finance industry has faced a great deal of legal uncertainty, and S&U itself has had an FCA-ordered investigation to contend with, which prevented it from carrying out its collections in the usual manner.
All that’s left for it to face now is the Supreme Court decision, where I firmly believe that S&U should face fewer negative consequences than its rivals, if there are any negative consequences, due to its generally vanilla ways of doing business.
With the shares trading at a single-digit P/E multiple (8x) and at a discount to its fully tangible net assets of £238m, I’m happy to be fully GREEN on this again. This is a stock where I’ve been a long-term fan, and I’m a former shareholder.
My only reason for caution in recent years has been the legal/regulatory situation, not any doubt in the management team. This is still a family business with many Coombs family members having large shareholdings.
As I now think that the legal/regulatory risk has largely faded away (famous last words!), I'm hopeful that the company will get back to its previous growth trajectory in both divisions.
Roland's Section
AO World (LON:AO.)
Down 2% to 98p (£569m) - Final Results for y/e 31 March 2025 - Roland - AMBER
AO World plc ("AO" or "the Group"), the UK's most trusted electrical retailer, today announces its audited financial results for the financial year ended 31 March 2025 ("FY25").
AO has regained some of its historic form since founder (and 17% shareholder) John Roberts returned to take control.
FY25 results summary: Today’s results look broadly positive to me.
Revenue rose by 9% to £1,138m, while adjusted pre-tax profit rose by 32% to £44m. This was achieved despite a 13% rise in overheads, primarily due to higher employment costs.
The company says growth was driven by its core consumer business, where like-for-like revenue rose by 12% to £832m. What the headline figures don’t explicitly say is that this means like-for-like revenue from the remainder of the business actually fell last year, from £296m to £276m.
Scrolling down to the revenue breakdown shows us that both B2B and mobile revenue fell last year. Growth in re-commerce (secondhand sales) was largely due to the acquisition of musicMagpie, which contributed £30m revenue:
The fall in B2B revenue is said to be due to a greater focus on profitability. Presumably this means cutting out some ultra-low margin sales. That seems sensible to me.
The fall in mobile revenues seems to have been a little more painful. Today’s accounts show impairment charges totalling £19.5m against the group’s mobile segment. This includes reducing £14.7m of goodwill to nil as well as recording a £4.8m impairment against some intangible fixed assets.
I’m guessing these impairments primarily relate to the 2019 acquisition of Mobile Phones Direct for £38m, although AO has made some smaller mobile-related acquisitions since then.
Management says the problem is that people aren’t buying phones on contract anymore, resulting in a fall in revenue generated from commissions paid by phone networks. The company says it doesn’t have the appetite for further losses and is planning to restructure its mobile offer to include SIM-only deals and SIM-free phones on credit.
Investors who have followed the turnaround at rival retailer Currys will already be familiar with this trend, which Currys first reported several years ago and has now largely addressed.
What surprises me slightly about today’s announcement is that AO is only just starting to acknowledge this change in consumer habits. There may be some differences in the two companies’ mobile customer bases that account for this difference in timing – I don’t know. But it feels to me like AO may have fallen slightly behind the curve on this.
Profit vs free cash flow: today’s results include £22.9m of adjusting items. The mobile impairment discussed above is the main adjustment, with the remainder coming from £3.3m of costs relating to December’s acquisition of former AIM stock musicMagpie.
As a result, AO’s reported pre-tax profit fell by 40% to £20.6m last year. My usual reality check in these situations is to check free cash flow.
AO reports a free cash flow figure of £23m today, giving a 9% increase from FY24. However, my sums suggest free cash flow of c.£12m, excluding acquisitions.
The difference between the two is that AO excludes the cost of acquiring shares in the Employee Benefit Trust, which totalled £11.1m last year. Personally, I’d include this as a remuneration cost, given that it’s a real cash outflow.
I think my view on free cash flow is also supported by the group’s statutory accounts, which show a net profit of £10.5m last year.
Outlook & Estimates: the company’s guidance for FY26 adjusted pre-tax profit of £40-50m is unchanged today.
Unfortunately this does seem to suggest the group’s results will be broadly flat – at an adjusted level – in FY26.
Updated forecasts from paid research house Equity Development today seem to support the view that we won’t see much profit growth until FY27:
FY25 actual (ED): 5.3p*
FY26E EPS 5.5p (previously 5.6p)
FY27E EPS 7.2p (previously 7.4p)
*AO has reported adj EPS of 5.7p today, so the adjustments must be calculated differently. ED’s 5.3p figure is in line with the FY25 consensus on Stocko.
These forecasts leave AO on a FY26 P/E of 18, so aren’t suggesting obvious value.
Roland’s view
I can see some things to like here. If we’re willing to overlook last year’s impairment charges, then AO’s operating margin improved slightly to 3.6% last year (FY24: 3.5%), despite pressure from higher costs. That’s not a bad result in an ultra-competitive market. Currys is working towards a 3% target and is expected to report an equivalent figure of 2.6% for FY25.
AO also seems to be following Currys’ playbook by focusing on building repeat purchases through a loyalty scheme and finance offering.
While AO remains somewhat subscale compared to Currys (which has nearly 8x greater revenue), AO’s online-only offering probably helps to mitigate this potential downside.
However, I’m a little disappointed to see that the company is not expected to make much progress on profit in FY26. I’m also surprised that AO is seemingly late to recognise that mobile purchasing habits have changed.
In addition, I think the jury is still out on last year’s £10m acquisition of musicMagpie. This contributed revenue of £30m and a loss of £1m to the group’s FY25 results. In FY26, Equity Development expects musicMagpie to contribute a full-year loss of £6m.
I can see the attraction of “re-commerce”, as AO describes the sale of used products. But I wonder how profitable the model is at this scale.
On balance, I think AO is executing quite well in a difficult market. But I think the share price looks up with events at current levels.
I’m happy to maintain Graham’s previous neutral view, but I don’t see enough here to justify an upgrade.
PZ Cussons (LON:PZC)
Down 2.9% to 76p (£326m) - Sale of JV & Trading Update - Roland - AMBER
PZ Cussons plc ("PZ Cussons" or "the Group") today announces the sale of its 50% equity stake in PZ Wilmar, and provides an update on trading in respect of the FY25 financial year ended 31 May 2025.
Shareholders in this consumer goods group have been waiting eagerly for news of further progress on its portfolio restructuring plans, which were first announced in April 2024.
Two main options are on the table – the sale of the St Tropez self-tanning brand and strategic options for its operations in Africa, mainly Nigeria.
After 14 months, we have the first concrete update on these plans. However, I suspect they fall short of what some investors were hoping for. Let’s take a look at these – and at today’s FY25 trading update.
Africa JV sale: PZ Cussons has a long history of operating in Africa. Its operations in that region are quite complex and varied. One element of the business is its PZ Wilmar edible cooking oils business. This sells sustainable palm oil under the Mamador and Devon King’s brands in Nigeria.
PZ Wilmar was formed in 2010 through a 50/50 joint venture with Singapore-based agribusiness group Wilmar International.
Today’s announcement reveals that the company has agreed to sell its 50% equity stake in PZ Wilmar to Wilmar for $70m in cash (approx £51m). After fees and taxes, the company expects to receive $64m (£47m). This will be used to reduce gross debt.
The company specifically mentions that this will result in a material improvement to key credit and bank covenant metrics.
While I’m not making any specific comment on PZ Cussons, when I see a company mention plans to improve its covenant and credit metrics, I tend to assume these metrics may not be in great shape.
This JV contributed an adjusted operating profit of £10.7m in FY24 and £4.7m in HY26. In both cases, this is about 18% of overall group profits.
Today’s sale price is equivalent to around five times PZC’s share of operating profit from the JV. This doesn’t seem overly generous to me for two durable consumer brands contributing a material share of group profits.
Unfortunately, I don’t think PZ Cussons is in a very strong negotiating position – this relatively simple deal is the only material disposal it’s achieved in over a year. I also can’t help wondering if this sale was prompted by pressure to reduce debt.
FY25 trading update: the company says trading during the second half of the year was driven by strong (inflationary) revenue growth in Africa and a return to growth in APAC. Revenue from the ANZ region declined, while Europe and Americas were flat.
Worryingly, the St Tropez US business saw a “double-digit decline” in sales. I would guess this may be one reason why the company hasn’t found a buyer for this brand yet.
Overall results are expected to be in line with consensus, but with profits at the lower end of the previously-guided range:
FY25 revenue c.£505m (+8% like-for-like)
FY25 adjusted operating profit of £52-55m (previously £52-58m)
FY25 gross debt of £158m (pro-forma £111m including PZ Wilmar proceeds)
Narrower profit guidance looks like a slight downgrade to me, driven by higher costs and perhaps a weaker margin mix of sales.
My main issue here is the repeated mention of gross debt in this guidance. Without knowing the group’s cash position, these figures could mean anything.
For context, here are the last two debt readings we’ve had:
FY24 (31 May 24): gross debt £167m, net debt £115m
HY25 (30 Nov 24): gross debt £152.5m, net debt £106.1m
Currency headwinds in Nigeria previously caused big losses, but from what I understand these should have eased in H2. However, the company’s decision not to disclose net debt today and its mention of covenants and credit metrics leaves me wondering if the overall net debt position has not improved as much as hoped.
I don’t have access to any broker notes for PZ Cussons, so will have to wait for the FY25 results in September to learn more.
Roland’s view
I can see the turnaround potential in this storied business, which I believe does have some decent consumer brands.
In my view, overall returns are being held back by some underperforming brands and overly-complex operations for a group of its size.
The April 24 strategic review was intended to address these issues, but progress so far has been disappointing in my view. I suspect shareholders were hoping for a larger-scale withdrawal from Africa based on previous comments such as this (Sept 24):
Africa: The Board has received a number of expressions of interest in the Africa business and it is possible that this could lead to a partial or full sale.
The failure to find a buyer for the St Tropez brand also suggests to me that the company’s price expectations may be unrealistic, or that it’s not so strong a brand as it might appear to be.
I was neutral on PZ Cussons in February when I reviewed its results. The share price has fallen slightly since then leaving the shares on a forward P/E of 10, with a possible yield of 4.6%.
Although I’m a little concerned about the group’s debt situation, I suspect the PZ Wilmar sale may help to ease this. On balance, I don’t see any reason to change my view today so will remain on AMBER.
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