Top UK Stocks: Stagecoach and National Express explore merger

Stagecoach and National Express talk about joining forces, Kingfisher ups its dividend and launches a buyback, airline stocks head higher as the US opens up, Alphawave’s outlook brightens, Compass sees improvement, and PensionBee is set to keep up the momentum.

UK

Top News: Stagecoach and National Express discuss combination

Stagecoach and National Express are in talks about merging together in order to realise significant revenue and cost synergies as the pair look to bounce back from a tough 18 months for bus operators.

Both companies confirmed they were holding talks about a possible all-share merger this morning. The pair are currently looking at a deal that would see Stagecoach shareholders get 0.36 of a National Express share for each Stagecoach share they currently own. That would result in Stagecoach shareholders owning around 25% of the combined group with National Express investors owning the other 75%.

Based on the close of business yesterday, the two companies said the value of the deal implies an 18% premium to their last closing prices and a 17.6% premium to the volume weighted average share prices over the past six months. The deal values Stagecoach at around £442 million.

Stagecoach shares jumped over 17% this morning while National Express was trading 5.7% higher on the news.

‘The boards of Stagecoach and National Express believe that the potential combination would be a strategically compelling proposition with the potential to realise significant growth and cost synergies, as well as delivering strong value creation for both sets of shareholders,’ said the two businesses.

Stagecoach said the merger would allow National Express to use Stagecoach’s depot network to run its coach operations and accelerate progress of its higher-growth businesses such as private coach hire and corporate shuttles.

Where next for the Stagecoach share price?

Stagecoach share price has been trending lower since April. The latest leg lower saw the share price trade within a descending channel since late July. 

The surge higher this morning has seen the share price break above the upper band of the channel and the 50 sma on the 4 hour chart. The price has also retaken the 200 sma hitting a high of 82.50 a level last seen 2 months ago. 

The RSI has shot into overbought territory so could consolidate or even ease lower until any confirmation of a merger price. 

Immediate resistance can be seen at 85p July 7 high, ahead of 89p the July high. 

On the flip side a fall back below the 200 sma at 75p would be significant opening the door to 70p the upper band of the falling channel. A move below here could see sellers once again gain traction. 

Where next for Stagecoach shares?

Kingfisher ups dividend and launches buyback

Kingfisher hiked its dividend and launched a new buyback as it continues to reap the rewards from the surge in demand for DIY and home improvement since the pandemic began, prompting it to accelerate its investment and expansion.

Sales grew 20% in the six months to the end of July to £7.10 billion from just £5.92 billion the year before, with like-for-like sales rising by 22.8%. The company, which runs DIY and trade supply brands including B&Q, Screwfix and Brico Depot, said LfLs were still over 21% ahead of pre-pandemic levels.

Kingfisher said the UK & Ireland, France, the Iberia region and Romania all delivered strong performances, but said it struggled in Poland as stores had to remain closed in the period. Ecommerce sales were up 21% from last year and 216% higher than before the pandemic hit, accounting for just under one-fifth of total sales.

Adjusted pretax profit jumped over 61% to £669 million from just £415 million the year before. That was ahead of the guidance range supplied by Kingfisher in July, which in turn had been upgraded from its original goal. Adjusted profits rose thanks to better margins, higher trading profit and a reduction in net finance costs.

Reported pretax profit at the bottom-line was up over 70% to £677 million.

‘We have navigated well through the challenging operational impacts of the pandemic, retaining good product availability at competitive prices and operating safely. We have addressed many of Kingfisher's past issues, with 'fixes' now complete in the UK and Poland. We are also on track in France, with positive results from our ongoing programme to repair our ranges and optimise the logistics network. Retail profit in France more than doubled in the first half,’ said CEO Thierry Garnier.

Kingfisher hiked its interim dividend by 38% to 3.8 pence from the 2.75p payout made last year and complimented that with a new £300 million share buyback programme. That decision was made as free cashflow declined over 30% year-on-year to £723 million and net debt was slashed by over one-third to £908 million from £1.37 billion.

Kingfisher said it has continued to focus on building out its ecommerce sales and its mobile-led service such as its new mobile app for Screwfix. It has also continued to introduce more of its own exclusive brands while trialling out newer, more compact stores.

It said it has decided to accelerate its investment in fulfilment and the range of products its offers online, and said it plans to expand its Screwfix store network in the UK & Ireland and Castorama in Poland during 2022. It also said it expects to open its first Screwfix store in France next year and relaunch the TradePoint brand in the UK.

‘With the business in a strong position, we are now ready to accelerate our investments to capitalise on the attractive growth opportunities available to us,’ said Garnier.

Looking forward, Kingfisher said it has made a good start to the second half but has started to feel the impact of tougher comparatives – with LfL sales down 0.6% in the third quarter to September 18, but still over 16% higher than before the pandemic. Despite the uncertainty going forward, the company said it is now expecting full year LfLs to be down 3% to 7% this year, marking a tighter range from -5% to -15% beforehand.

Annual adjusted pretax profits is expected to be in the range of £910 to £950 million this year. That would be a significant improvement from the £786 million profit delivered in the last financial year and the £544 million delivered the year before.

Kingfisher shares were down 4.1% this morning at 354.4p as investors worry about slower growth and higher spending.

Airline stocks fly higher as US opens up

Airline stocks remain in play after gaining ground yesterday, spurred on by news that fully vaccinated travellers will be able to enter the US from the UK and the EU from the start of November.

Fully vaccinated travellers will be able to enter the US from the two regions but will still have to undergo testing and contract tracing.

Reports suggested that searches for flights from the UK to the US soared by over 700% after the announcement, with the likes of New York, Orlando, Las Vegas, Miami and Los Angeles emerging as favourite destinations.

The news pushed British Airways-owner IAG and other UK-listed airline stocks higher, alongside others such as engine maker Rolls Royce. European airlines like Air France KLM and Lufthansa also pushed higher on the news.

That trend was continuing this morning, with IAG trading up 5.2%, Rolls Royce rising 0.5% and Air France up 2.4%.

Alphawave outlook brightens as orders flood in

Alphawave IP Group raised its guidance for the full year after delivering impressive growth in revenue and bookings during the first half, marking a solid start since completing its IPO earlier this year.  

The company, which designs the critical components in charge of connectivity in semiconductor chips, said revenue soared to $27.6 million in the first six months of 2021 from $11.5 million the year before. With margins of over 50%, adjusted Ebitda jumped to $13.9 million from $6.3 million.

Alphawave said it had won six new customers in the period spanning a diverse range of markets spanning storage and networking to wireless 5G and artificial intelligence.

Bookings, which provides an insight into the level of future work, grew over 490% in the period to $196.1 million, underpinning its growth going forward. The flood of work, twinned with hopes of signing multiple deals in the US during the second half, has prompted Alphawave to raise its guidance and now expects full year bookings to exceed $230 million.

It said revenue is now expected to be up around 125% year-on-year at over $75 million, marking an acceleration from the 100% growth guided when it completed its IPO earlier this year. Adjusted Ebitda margins are expected to improve in the second half and come in over 55% for the year as a whole.

‘The first half of 2021 was a breakout period for us, with exceptional growth in revenue and bookings which underpins our confidence in raising full year guidance. The strength of demand for our market-leading IP, combined with the platform provided by our successful IPO, will enable us to continue to expand our leadership position in the connectivity space and sustain our long-term growth trajectory,’ said president and CEO Tony Pialis.

Alphawave shares were trading up 7.4% this morning at 369.6p, having listed at an IPO price of 410.0p back in May.

Compass Group sees improvement as sports gets back on track

Compass Group said it has performed slightly better than expected in the latest quarter as the revival in outdoor sports helped lift demand for its food.

The company, which supplies food and catering to a wide range of industries in around 45 countries, said it expects revenue in the fourth quarter to the end of September will be equal to around 86% of what was delivered in 2019 before the pandemic hit. That is slightly better than the 80% to 85% range targeted by Compass.

For the full year to the end of this month, revenue will be equal to about 76% of 2019 levels.

The improvement in the latest quarter has been led by the revival in sports and leisure as countries ease lockdown restriction, ‘particularly outdoor sports’, which has helped lift the spending per capita by its clients. It also said demand from education is starting to improve since the start of September as students return to campuses, while the performance from business and industry was ‘in line with our cautious expectations’.

Meanwhile, the sectors that saw minimal disruption from the pandemic – such as healthcare, defence, offshore and remote workplaces – have continued to deliver a resilient performance with revenue still running ahead of pre-pandemic levels.

Compass Group said its underlying operating margin in the fourth quarter will be around the midpoint of its 5.5% to 6.0% target range, but said this will be closer to 4.4% for the full year. Compass said it remains confident it can get its margin back above 7% before volumes return to pre-pandemic levels.

‘We continue to be encouraged by the ongoing growth opportunities including strong momentum in new business wins, from the acceleration in first-time outsourcing, and increased potential for market share gains,’ said Compass. ‘Looking ahead to the start of the new financial year, most of our sectors are expected to continue performing well; although we remain cautious about Business & Industry given continued uncertainty over the pace of office reopening in our major markets.’

Compass Group will release full year results on November 23.

Compass Group shares were trading broadly flat this morning at 1482.8p.

PensionBee to maintain momentum as customer numbers grow

PensionBee said it continued to rapidly acquire customers in the first half and remains on course to double revenue this year.

The online pension provider said revenue more than doubled to £5.4 million in the six months to the end of June from £2.6 million the year before. It said its annual run-rate revenue grew even faster to £12.3 million from £5.7 million.

That came as PensionBee grew the umber of invested customers by 81% to 92,000, with active customers increasing 78% to 155,000. Assets under administration jumped to £2.0 billion from just £915 million a year ago. It said its retention rates for both customers and assets under administration are above 95%, level with last year.

PensionBee remained in the red, with its loss before tax swelling to £12.8 million from £5.2 million. Its adjusted Ebitda loss also widened to £7.6 million from £4.0 million.

The company raised investment and spending in the period, rolling-out a new national brand campaign and launching a new data platform to help improve its marketing spend going forward, but said the cost of acquiring a new invested customer had remained within its targeted range.

The results come after the company completed its IPO in April at 165p. Today, PensionBee shares were trading 1.3% higher at 148.9p.

‘Our scalable and resilient business model, combined with our strong financial position, means that we are well placed to capitalise on the significant market growth opportunity. We expect to maintain our strong momentum, deliver high double-digit revenue growth for the current financial year 2021 and to reach monthly Ebitda breakeven by the end of 2023, in line with the guidance we set out at the time of our IPO,’ said CEO Romi Savova.

Travis Perkins investors set for windfall after plumbing and heating sale

Travis Perkins said it is preparing to pay shareholders a special dividend and launch a new share buyback programme after completing the sale of its plumbing and heating distribution business.

The company sold off its plumbing and heating business to HIG Capital for £325 million back in May and said it intended to return this cash to investors once completed. This morning, Travis Perkins said it expects the sale to complete on or around September 30.

As a result, Travis Perkins said it will pay a special dividend of £79 million – equal to 35.0 pence per share – to investors on November 5 to those shareholders on the register on October 1. That will be accompanied by the first tranche of its new share buyback plan worth £100 million that will be launched at the start of next month.

‘Any further tranches of the buyback programme, which may be conducted after completion of the Initial Programme, will be announced in due course,’ said Travis Perkins.

Travis Perkins shares were up 1.3% this morning at 1709.0p.

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