Top UK Stocks to Watch: Morgan Sindall shares pop to new high after raising expectations

Morgan Sindall makes a strong start to the year, Informa and Rentokil both hope 2021 will be a ‘year of transition’, Taylor Wimpey says it won’t return excess capital to investors until next year, Domino’s reports ‘exceptional’ sales, and Alphawave prepares to launch a London IPO.

UK

Top News: Morgan Sindall ups expectations after strong start to 2021

Construction and regeneration group Morgan Sindall said it expects to report annual results ‘significantly ahead’ of its previous expectations after making a strong start to the new year.

‘At the time of the 2020 full year results in February 2021, the board reported that it was well set for strong growth in 2021.  Since then, all divisions have made further positive operational and strategic progress in their markets and momentum across the group has continued to increase,’ said the company.

‘On the basis of the performance to date, the group's operational delivery capabilities and the current visibility of future workload for delivery in the remainder of the year, the group is now on track to deliver a full year performance which is significantly ahead of its previous expectations,’ it added.

In February, Morgan Sindall had said it was expecting its results in 2021 would be ‘slightly ahead’ of what was delivered in 2019.

Construction work has seen its order book grow by 10% since the end of 2020 while infrastructure has seen its margin grow. Fit Out’s order book has grown over 18% this year and is currently bidding for hundreds of millions of pounds of further work. Fit Out will be one of the core drivers of the better-than-expected results this year.

Property services has seen volumes hold up well and its margin is expected to improve as the year goes on, while partnership housing has seen ‘good margin and profit growth’.

All-in-all, Morgan Sindall has £8.1 billion of secured work at the end of March. That is down 2% from the figure at the end of 2020. Its construction order book has continued to grow and stands at £4 billion while infrastructure has fallen since the start of the year to £4.1 billion.

‘Our high-quality secured workload and our operational delivery capabilities give us great confidence for the rest of the year and as such, we expect to deliver a full year performance significantly ahead of our previous expectations,’ said chief executive John Morgan.

Where next for the Morgan Sindall share price?

Morgan Sindall has been trending higher since early November trading within an ascending channel. It trades above its 20 & 50 EMA in an established bullish trend.  

Today’s 11% jump higher has taken the share price to a fresh all time high. It has also broken out above the upper band of the ascending channel.  

The RSI has also moved into overbought territory at almost 80 so some consolidation or a pull back into the ascending channel could be on the cards before a further move higher. 

Immediate resistance can be seen at 2100 today’s high ahead of the round number 2200. 

On the flip slide support can be seen at the previous high of 1950 ahead of the 20 EMA and mid-point in the ascending channel at 1870. A move below here could negate the near-term uptrend and see the sellers target 1750 the 50 EMA. 

Rentokil growth driven by disinfection and pest control services

Rentokil delivered better-than-expected revenue growth during the first quarter of 2021 as disinfection services remain key during the pandemic and demand for pest control services starts to bounce back as shops and offices start to reopen.

Ongoing revenue came in at £711.3 million in the first three months of the year, rising 12.8% at actual exchange rates and by 15.4% at constant currency. It delivered organic revenue growth of 9.4% and got a 6% boost from new acquisitions. Revenue of £713.6 million was up 12.5% at actual rates and 15.1% at constant currency.

Rentokil said the growth was driven by sustained demand for disinfection services during the pandemic, with its Hygiene division reporting a 48.5% rise in ongoing revenue. However, demand for disinfection has dropped from its peak in the final quarter of 2020 and is expected to unwind significantly this year.

The other strong area was pest control, which reported ongoing revenue growth of 10.5% in the quarter and returned to organic growth of 1.2%.

‘Recovery in our core businesses, particularly pest control, has demonstrated growing momentum over the quarter, and we exited March 2021 with group organic growth of 2.5% (excluding disinfection) and organic growth in pest control of 6.3%,’ said Rentokil.

Rentokil warned that the ‘path to normality’ will be uneven and that the pandemic means the outlook is uncertain, describing 2021 as a ‘year of transition’.

Rentokil shares were trading 2.2% lower in early trade at 500.2.

Informa swings to loss but hopes 2021 will be ‘year of transition’

Informa revealed it swung to a hefty loss in 2020 as the coronavirus pandemic caused disruption for its events business and forced it to book a significant amount of impairments.

The company said revenue fell to £1.66 billion from £2.89 billion the year before while adjusted operating profit plunged to £267.8 million from £933.1 million. Revenue was bang on analyst estimates whilst profits were slightly higher than the £262.8 million expected.

At the bottom-line, which takes into account almost £650 million worth of impairments and one-off Covid-19 costs, Informa turned to an operating loss of £880.4 million from a £538.1 million profit in 2019. The reported pretax loss amounted to a staggering £1.13 billion compared to a £318.7 million profit.

Informa said its subscription-based businesses have continued to grow in the early stages of 2021. The company said Taylor & Francis should deliver positive growth over the full year whilst Informa Intelligence is targeting at least 4% underlying revenue growth.

2021 will be a ‘transition year’ for its events business. Informa has said any hopes of a better-than-expected performance this year will largely come down to how quickly events recover before returning to growth between 2022 to 2024.

‘The strength and performance of Informa's subscriptions businesses, combined with actions undertaken in 2020 to protect and preserve our brands and customer relationships in B2B events, are delivering continuing stability and security in 2021, in what will be the year of transition,’ said chief executive Stephen Carter.

‘This transition year will be defined by continued strength and improving growth in our subscriptions-led businesses, further growth in B2B digital services and a progressive reopening of physical events, led by Mainland China and North America, which will ensure we deliver our revenue commitments for 2021, and remain cashflow positive throughout,’ he added.

Informa shares were trading 0.8% lower in early trade at 562.8.

Taylor Wimpey won’t return excess capital until 2022

Taylor Wimpey said the next time it returns excess capital to shareholders will be in 2022 as it said sales have grown, cancellations have fallen and that the fundamentals of the housing market remain strong in a trading update ahead of its annual general meeting later today.

The housebuilder said its net private sales rate has risen to 1.00 since the start of 2021 compared to 0.90 at this time last year, while the cancellation rate has fallen to 14% from 16%. Average prices also improved and Taylor Wimpey’s order book has grown to 10,995 houses worth around £2.80 billion, up from the 10,835 homes worth £2.66 billion a year ago.

‘We have made good early progress on our 2021 priorities, including driving operating profit margin and an enhanced cost control mindset across the business. Our focus remains on delivering our operating profit margin target of 21-22% in the medium term,’ said Taylor Wimpey.

Shareholders will be voting today on whether to approve the 4.14 pence final dividend for 2020. That will be paid on May 14 if approved.

‘As we look forward, it remains our intention to return excess capital to shareholders in line with our policy. We are not planning to make a capital return in 2021 and will review the potential level of excess capital at the time of our 2021 full year results in March 2022, for payment in 2022,’ said the housebuilder.

‘Despite the continuation of national restrictions in the first few months of the year, customer demand for new housing has remained resilient. The extension of the Stamp Duty Land Tax holiday and the announcement of the 95% Mortgage Guarantee Scheme demonstrate that housing remains a priority for the UK government,’ it added. ‘Trading is in line with expectations and we remain on track to deliver against our guidance set out at our 2020 full year results in March.’

Taylor Wimpey shares were trading 0.6% lower in early trade at 182.6.

Domino’s Pizza Group makes ‘exceptional’ start to 2021

Domino’s Pizza Group said it has delivered ‘exceptional trading’ since the start of its new financial year as demand for pizza remains ‘largely unaffected’ by the ongoing pandemic ahead of holding its annual general meeting later today.

The company said sales in the UK & Ireland jumped 18.7% year-on-year in the first quarter to £317.3 million. Like-for-like sales were up 18.5% excluding splits. Domino’s said its delivery business also performed well with growth of 6.8% in the period while collection rates have continued to recover to about 65% of pre-pandemic levels.

‘We are pleased with the strong performance of the business in the first quarter of the year. The investments we are making to deliver our multi-year strategic plan give us confidence in our ability to capitalise on the opportunities which lie ahead as the nation begins to emerge from the Covid-19 lockdown restrictions,’ said chief executive Dominic Paul.

‘With management focused on our core UK & Ireland business, we are working to fulfil our vision of being the UK & Ireland's favourite food delivery and collection business. I look forward to sharing an update on our progress at our half year results,’ Paul added.

Domino’s also confirmed that the sale of its businesses in Sweden and Iceland should be completed by the end of May and said it will release its interim results on August 3.

Domino’s Pizza shares were trading 2% lower in early trade at 359.9.

Alphawave IP Group plans London IPO

Alphawave IP Group has announced it is considering listing in London through an IPO that could value the business at up to $4.5 billion.

The company owns intellectual property that helps with connectivity in semiconductor chips to allow data to travel faster and use less power. It focuses on the ‘hardest-to-solve connectivity challenges created by the exponential growth of data’.

Notably, Alphawave has been profitable since it was formed in 2018, with impressive gross margins of 95% and Ebitda margins of almost 54% in 2020. Growth is rapid – the $80 million of revenue booked in the first quarter of 2021 exceeded the $75 million made over the entirety of 2020.

Alphawave would represent a unique opportunity if it lists. The Canadian and British company claims to be the only non-US firm able to supply high speed connectivity to clients globally and counts some of the largest companies in the world as its customers, including Taiwan Semiconductor and Samsung.

‘We are a global business and proud to be taking Alphawave IP public here in the United Kingdom where the Silicon IP business model was invented by great British companies like Arm and Imagination and where there is a deeply experienced semiconductor community. There is a long track record in the UK of investors who understand the value of licencing semiconductor IP,’ said chairman John Holt.

Any IPO could see Alphawave raise up to $500 million and existing shareholders will also sell some of their existing stake.

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