Greggs profits remain flat despite sales growth as cost inflation bites

Natasha Doris
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0
Greggs profits remain flat despite sales growth as cost inflation bites

Greggs shares rose 2.2% to 2,124p in early morning trading on Tuesday after the food company reported trading in-line with management expectations and a growth in total sales to £694.5 million in HY1 2022 against £546.2 million the year before.

Greggs confirmed a 22.4% like-for-like sales rise in the period, with a 12.3% growth compared to 2019 levels.

The UK baked goods chain announced a pre-tax profit increase to £55.8 million compared to £55.5 million the last year, with the relatively flat profit attributed to the re-introduction of business rates, rising VAT and higher levels of cost inflation.

“The return of business rates means bakery-favourite Greggs has been unable to lift profits, despite an impressive increase in sales. This disappointing development is wholly outside the group’s control, but it also comes at a time when cost inflation is taking a real bite out of things,” said Hargreaves Lansdown equity analyst Sophie Lund-Yates.

“For the full year, higher food, packaging and energy costs are expected to push overall cost inflation for the chain to 9%. It’s reasonable to expect that number to be revised upwards, putting pressure on Greggs to shift more pastry-encased goodies.”

The franchise highlighted a good cash position and liquidity, with net cash at the close of HY1 of £145.7 million after payment of its special £40.6 million dividend in April 2022, representing 40p per share.

“Greggs delivered an encouraging performance in the first half of the year with sales ahead of 2019 levels. These results demonstrate the continued strength of the Greggs brand and demand for our great tasting, quality and value for money offering,” said Greggs CEO Roisin Currie.

The company is well-placed in the cost of living crisis for its reputation as a more budget-friendly food option, however with inflation set to hit 11% later this year and soaring energy costs eating into consumer budgets, Greggs might find its offerings cut out of UK diets entirely as the crisis worsens.

“Its position at the lower end of the value spectrum means Greggs is well placed to capture demand from those looking for a bite to eat, while times are tough,” said Lund-Yates.

“However there comes a point when cash-strapped consumers rein in that sort of spending altogether, which would be problematic for Greggs.”

“Ultimately, Greggs has a sturdy balance sheet and room to stomach disruption, but an abrupt change in consumer spending habits could see the much-needed strategy rejuvenation taken off the boil, which would have far reaching implications.”

Greggs noted a diluted EPS rise to 44.8p from 43.2p, and commented its FY 2022 outlook remained unchanged despite the currently volatile market.

Greggs announced an ordinary interim dividend per share of 15p against 15p year-on-year.

Why companies left AIM in July

Andrew Hore
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0
Why companies left AIM in July

There were three departures from AIM during July, including one that moved to the Main Market. The other two were taken over. On top of that, Immediate Acquisition was cancelled and immediately returned as digital bank Fiinu (LON: BANK).
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7 July 2022
Secure Income REIT
Fully listed LXi REIT (LON: LXI) made an agreed offer for Secure Income REIT, which valued the property investor at £1.5bn. The bid was based on the comparative March net tangible asset valuations and is 3.32 LXi shares for each Secure Income REIT share. There is a partial cash alternative of 118.88p and 2.488 LXi shares fo...

New standard listing: First Class Metals explores Canada

Andrew Hore
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0
New standard listing: First Class Metals explores Canada

First Class Metals is seeking gold, base metals and/or battery metals in Canada. The cash raised will finance ongoing exploration at North Hemlo and other projects.
AIM-quoted Power Metal Resources (LON: POW) has a 28.2% stake in First Class Metals, having sold its Schreiber-Hemlo project interests in Ontario for 333,334 shares at 300p each in September 2011 and then subscribed for a further 9,588 shares at the same price. There was a subsequent bonus issue. The value of the stake has increased from £1.03m to £1.85m. There are warrants to subscribe for 517,705 shares at 10p each.
The shares in...

RHI Magnesita profits rise as inflation costs successfully passed onto consumers

Natasha Doris
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0
RHI Magnesita profits rise as inflation costs successfully passed onto consumers

RHI Magnesita shares fell 8.4% to 2,062p in late afternoon trading on Monday, despite a reported revenue growth to €1.5 million against €1.2 million year-on-year in its HY1 2022 results.

The group mentioned a reported EBITDA climb to €177 million from €136 million, along with a pre-tax profit of €142 compared to €125 million the year before.

RHI Magnesita confirmed €293 million in price increases successfully passed off to consumers since HY1 2022 in a move to fight the impact of rising inflation in energy, raw materials and labour costs.

Meanwhile, the company noted significant market share gains in steel on the back of investment in production network and inventory support earnings, linked to customer prioritisation of supply security.

The group commented its net debt climbed to €1.2 million against €1 million in the previous year, in line with management expectations as reduction in inventory volumes was offset by the growth in inventory and accounts receivable values due to cost inflation and soaring prices.

The firm said its FY 2022 expectations remained unchanged, with margins set to be maintained via price increases and support from cost saving initiatives.

However, the company added its global growth outlook was impacted by inflation and monetary policy response, labour and energy market tightness and ongoing supply chain challenges.

“In the first half of 2022 we further demonstrated the benefits of prioritising customer deliveries in an environment of continued supply chain volatility,” said RHI Magnesita CEO Stefan Borgas.

“Our investment in inventories to ensure our customers remain supplied with essential refractories has underlined the importance of supply reliability and has enabled us to simultaneously increase prices and gain market share.”

“Following major investments in our production network, SG&A reduction and progress on our sales strategies, the Group is in a strong position to maintain its leadership position in the refractory industry and to navigate future challenges.”

RHI Magnesita announced an EPS of €2.06 from €2.01 in HY1 2021, and a flat dividend per share of €0.50.

Spectris profits fall in HY1, share buybacks to recommence and dividend raised

Natasha Doris
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0
Spectris profits fall in HY1, share buybacks to recommence and dividend raised

Spectris shares dropped 5.8% to 2,930p in late afternoon trading on Monday following a reported pre-tax profit fall of 77% to £41.8 million in HY1 2022 compared to £181.9 million the last year.

The precision measuring firm announced a statutory operating profit dip of 2% to £54.3 million against £55.4 million, along with an operating margin fall of 0.8% to 9.5% from 10.3%.

Spectris confirmed a 6.1% growth in sales to £570.2 million compared to £537.5 million, with a 20% rise in like-for-like order growth and a record order book, providing strong visibility for HY2.

The firm also drew attention to an 11% like-for-like sales growth driven by market shares gains, with a 6% increase in statutory reported sales.

The group mentioned a 55.1% decline in cash generated from operating to £43.4 million against £96.7 million.

Spectris further noted an EPS from continuing operating tumble of 82.6% to 26.5p compared to 152.4p year-on-year.

The company highlighted its completed sale of Omega for £410 million headline proceeds in July, delivering additional shareholder value.

“Over the past three years, we have transformed the Group into a more focused, more profitable and more resilient business, with the ability to compound growth at a higher rate through the cycle,” said Spectris CEO Andrew Heath.

“Today, Spectris is in a position of strength with a robust balance sheet, well positioned in attractive end markets, with strong fundamentals, supported by key sustainability themes to deliver structural growth. We have fantastic, engaged people all contributing to a purpose-led, high-performance growth culture.”

“I am pleased with our progress in the first half of 2022. We are continuing to see healthy demand for our products and services, with strong LFL growth in both orders and sales. While vigilant to the macro environment and alert to signs of changes in demand, we have confidence in our business and have increased our investment for growth in R&D, to enhance our customer offerings.”

The group confirmed an expected high-single-digit order growth and margin expansion for FY 2022, boosted by its Spectris Business System and pricing already present in the order book.

Spectris raised its dividend 5% to 24.1p against 23p the year before. The company also reported the completion of its £150 million share buyback, with the remaining £150 million scheduled to recommence.

FTSE 100 starts week on front foot following strong HSBC and Pearson results

Natasha Doris
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0
FTSE 100 starts week on front foot following strong HSBC and Pearson results

The FTSE 100 started the week on a positive note gaining to 7,465.9 in early afternoon trading on Monday as results from bank heavy weight HSBC helped lift the index.

The positive corporate results continued to roll in, with banking giant HSBC and education company Pearson hitting the ground running with high-flying HY1 reports.

“The FTSE 100 started the week higher following some relatively positive corporate updates, notably from index heavyweight HSBC,” said AJ Bell investment director Russ Mould.

“Education publishing specialist Pearson was among the winners on Monday as it stuck with full year guidance and reported a significant increase in profit following stronger sales.”

HSBC

HSBC shares soared 10.3% to 834.8p after the banking group reported a $9.2 billion post-tax profit in HY1 2022.

The company announced an adjusted pre-tax profit drop of $900 million to $10.7 billion, and a small decline in revenue to $25.2 billion.

The results still came in ahead of market expectations, as analysts noted the money HSBC set aside to cover bad debts over the financial term.

Meanwhile, firm remained set in its decision to not break off its Asian operations and list them in Hong Kong, despite intense pressure from major shareholder Ping An.

“Breaking up is never easy to do and HSBC is being pretty steadfast in resisting the push from major shareholder Ping An to divorce its Asian operations from the rest of the bank and list that part in Hong Kong,” said Mould.

“As evidence for the merits of HSBC’s current strategy, today’s first half results were, for the most part, pretty favourable.”

“Profit came in ahead of expectations, if a little below last year’s total as the company was forced to set aside cash to cover bad debts.”

HSBC reported a dividend of 9c per share for the HY1 period, and pledged to reinstate quarterly dividends from next year, with an eventual return to historical shareholder payouts.

Pearson

Pearson shares climbed 9.9% to 831.7p after the education firm announced an adjusted operating profit rise of 22% to £160 million in HY1 2022.

The group credited its profit growth to a positive trading performance, FX benefit and property savings, offset slightly by inflation, portfolio investment and phasing costs in FY 2021.

Pearson confirmed an underlying sales increase of 6% to £1.7 billion, driven by its 16% Assessment and Qualifications expansion and a 22% growth in its English Language Learning sector.

“The increasingly digital-focused company is less exposed to some of the cost pressures facing other types of businesses and this is helping it in the current environment,” said Mould.

“For a long time Pearson has been negatively impacted by structural changes in its market which saw demand for high-margin sales of expensive physical, academic textbooks disappear.”

“Now the business seems to have got its act together to face a world where an increasing amount of learning is done online.”

The company recommended a dividend of 6.6p for HY1, with its £350 million share buyback continuing and over £165 million in shares repurchased as of 29 July 2022.

China Manufacturing Slowdown

China’s manufacturing purchasing managers’ index dropped to 49.0 in July from 50.2 in June, missing analyst expectations of 50.4 for the month.

The results reflected a dramatic slowdown in the country’s production after a summer of intensive Covid-19 lockdowns pumped the brakes on Chinese production.

Stocks tied to the country took a hit, with Asia-focused fashion group Burberry dipping 0.3% to 1,789.2p and Scottish Mortgage Investment Trust falling 0.6% to 856.3p.

The price of Brent Crude oil fell to $102 per barrel as fears of reduced consumption in the largest global consumer dragged the commodity’s price down.

“Elsewhere, oil prices were under pressure after weak Chinese manufacturing figures which really show the continuing impact of lockdowns on the country’s economy,” said Mould.

“China remains one of the biggest consumers of oil and other commodities.”

Lloyds share price: should I buy as a core dividend allocation?

Natasha Doris
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0
Lloyds share price: should I buy as a core dividend allocation?

Lloyds has maintained a strong slate of results in its latest HY1 report, and the banking group has remained on solid ground in the last few months despite a current trend of macro-economic volatility.

There is an argument to be made that Lloyds shares are not an ideal investment right now, especially as its position as the UK’s largest mortgage lender might be on track to become somewhat more of a liability than an asset in the current housing market.

The company reported a mortgage book growth of £3.3 billion to £296.6 billion year-on-year, suggesting the slowing housing market is yet to catch up to the bank.

However, the firm’s guidance for the coming year included an anticipated growth in net interest margin above 280 basis points, return on tangible equity of 13% and capital generation in excess of 200 basis points.

Lloyds share price chart

Lloyds confirmed its margin headwinds from mortgage book growth and pricing were sufficiently offset by UK interest rate rises, deposit growth, structural hedge earnings and continued funding and capital base optimisation.

Lloyds dividend

The strong performance saw Lloyds share price jump in the wake of the results, helped by positive news on the Lloyds dividend.

The company increased its dividend 20% to 0.8p per share in the HY1 financial period, reflecting confidence in its returns going forward.

Lloyds boasts a dividend yield of 4.5 and a more than adequate dividend cover of 3.9 to cover the group in the event of shocks to the sector, and leaves plenty of room for dividends to increase substantially in the future.

The bank has a PE ratio of 5.8, indicating the shares are still somewhat undervalued despite the possibility of tricky and volatile market environment in the coming months.

The housing market is showing mild signs of slowing down, however the bank appears well-positioned for growth despite any risk to its mortgage income.

The shares are currently undervalued, and the company is in a strong position to increase payouts in the years to come, making Lloyds shares a solid choice for long-term income seekers.

Oil prices fall to $102 on China manufacturing slowdown

Natasha Doris
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1
Oil prices fall to $102 on China manufacturing slowdown

The price of oil took a hit on Monday after China reported a manufacturing purchasing managers’ index result below analyst estimates of 49.0 from the expectation of 50.4.

The price of Benchmark Brent Crude fell to $102 per barrel, with the soaring prices enjoyed by the commodity on the back of the Ukraine war starting to tumble as the world’s largest consumer felt the impact of Covid-19 lockdowns over summer this year.

On similar ground, mining groups have downgraded their production guidance on expectations of lower consumption across China, including FTSE 100 mining giant Rio Tinto.

“Questions over demand are outweighing serious supply constraints, suggesting industrial outlooks are bleak,” said Hargreaves Lansdown lead equity analyst Sophie Lund-Yates.

“The biggest contributor to this recent shift is without a doubt the news that factory activity in the world’s largest oil importer, China, has fallen unexpectedly.”

“For the global consumer, this is likely to be met with relief as the cost to fill up cars recedes, but the broader theme of uncertainty sadly outweighs these short-term wins.”

China manufacturing growth report misses market expectations on Covid lockdowns impact

Natasha Doris
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0
China manufacturing growth report misses market expectations on Covid lockdowns impact

China reported a manufacturing growth below market estimates, following on from its dramatic slowdown in economic activity last month to 0.4% growth, coming far below analyst expectations of a 1.2% forecast.

China’s manufacturing purchasing managers’ index slid to 49.0 in July from 50.2 in June, dropping beneath the market estimated of 50.4.

Analysts confirmed the effects of Covid-19 lockdowns were seen in core trends, along with overall concerns linked to the economy as a result of drastic monetary tightening moves.

The report pointed out contractions in output, new orders, buying levels and export levels.

The news has served to make the market uneasy, adding to the pressures of soaring inflation in the UK and US, and recession fears spiking across the global market scope.

“The latest National Bureau of Statistics of China manufacturing purchasing managers’ index unexpectedly fell to 49.0 in July, from 50.2 in the previous month and missing market forecasts of 50.4,” said Hargreaves Lansdown lead equity analyst Sophie Lund-Yates.

“There was a very mixed bag hidden within the results, with core trends showing the negative effect of new lockdowns in key cities and general concerns over the global economy, following sharp monetary tightening efforts.”

“Output, new orders, buying levels and export orders all shrank. This latest data set does very little to offset concerns around darkening global economic output, especially when put together with a further easing of sentiment.”

AIM movers: Wishbone Gold encourages and Alien Metals disappoints

Andrew Hore
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0
AIM movers: Wishbone Gold encourages and Alien Metals disappoints

Wishbone Gold (LON: WSBN) has announced encouraging drilling results at the Red Setter project in Western Australia. It is the best performer on the day with a 23.3% share price increase to 13.25p. The current hole has been drilled to a depth of 370 metres and the core will be sent for assay in the coming weeks. The previous hole intersected visible mineralisation and it will be re-entered after the current hold is completed.

Vast Resources (LON: VAST) says that it will commence molybdenum concentrate production in August at its Baita Plai polymetallic mine in Romania. The mine produced 268.8 DMT of copper concentrate in the second quarter, which was a 17% increase on the previous quarter. Last week, it was announced that there will be an official opening ceremony for the Takob joint venture in Tajikistan. Vast receives a participation equivalent to a 12.25% royalty over sales of non-ferrous concentrate and other metals produced by the Takob processing project. The share price jumped 21.1% to 0.775p.

Fulcrum Utility Services (LON: FCRM) recovered by 13.6% to 5.85p. The utility connections business is still struggling. Full year revenues were 31% ahead at £61.8m, but it continues to lose money.

Franchise lettings group Belvoir Group (LON: BLV) revenues increased 11% in the first half of 2022 with lettings growth offsetting lower property sales. The main growth came from financial services. Net debt is £3.1m. Full year pre-tax profit is expected to dip to £9.7m before returning to growth in 2023. The share price firmed 6.25% to 4.25p.

Minoan Group (LON: MIN) shares have risen 14% to 1.225p following Friday afternoon’s interim results announcement. Minoan reduced its interim loss, and the repayment of secured debt has been extended to the end of 2022. Discussions continue about the resort development of the project in Greece.

Deepverge (LON: DVRG) subsidiary Modern Water has gained orders worth £2.1m to treat wastewater from chemical plants in India and provide desalination services in North Africa. All Membrane Brine Concentration technology will be used. These orders will be delivered in 2022 and 2023. The share price rose 4.92% to 16p.

Alien Metals (LON: UFO) has received the laboratory analysis results for its Mexican projects at San Celso and Donovan 2. There were no significant intersections at San Celso and access has been denied for drilling of the priority target. There was an anomalous section at Donovan 2 which returned an assay of 0.33% copper with lead and zinc. However, the sample recovery was sub-standard for the industry. A zone of weakly anomalous zinc was identified, and this could indicate a potential target at greater depth. The share price fell 11.1% to 0.6p.  

Symphony Environmental (LON: SYM) is raising £1m at 18p a share from Sea Pearl Ventures and there are four million warrants associated with the placing that are exercisable at 25p each. The share price declined 7.9% to 17.5p. Sea Pearl will own a 17.4% stake in the oxo-biodegradable plastics technology developer. First half revenues dropped from £4.9m to £3m due to logistics problems and orders delayed. Contracts that have been announced in recent weeks will help the second half to be much stronger. Zeus still expects 2022 revenues to improve from £9.2m to £11.9m and Symphony Environmental should break even.

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