Top UK Stocks to Watch: Sumo shares jump on Tencent takeover

Sumo Group agrees to be bought by Chinese giant Tencent, AstraZeneca’s Imfinzi drug is approved in China, Ultra Electronics raises its dividends after profits surge, Synthomer says earnings will double this year, SThree ups expectations, and three firms go public on AIM today.

UK

Top News: Chinese giant Tencent agrees to buy Sumo Group

Video game maker Sumo Group is set to be acquired by Chinese technology giant Tencent in an all-cash deal that values the London-listed company at £919 million.

Tencent has agreed to pay 513.0 pence in cash for each Sumo share, representing a 43% premium to its closing share price on Friday.

Sumo Group shares were up 43.8% in early trade this morning at 511.0p.

The board of Sumo Group is recommending the deal, stating it is ‘fair and reasonable’ and that it will be encouraging shareholders to approve it. The directors, which together hold around an 8.1% stake in the business, have already pledged to support the sale. Other significant shareholders have also provided their support and, in total, investors with around a 33.4% stake have said they will vote in favour of the deal.

‘The board of Sumo firmly believes the business will benefit from Tencent's broad videogaming eco-system, proven industry expertise and its strategic resources, which will help secure and further the aspirations and long-term success of Sumo,’ said non-executive chairman Ian Livingstone.

Sumo Group joined AIM back in 2017 at a price of just 100.0p. The deal, if approved, is expected to be completed in the fourth quarter of 2021.

AstraZeneca’s Imfinizi approved to treat cancer patients in China

AstraZeneca said its Imfinzi drug has been approved in China to treat patients with extensive-stage small cell lung cancer that are undergoing chemotherapy.

The pharmaceutical giant said Imfinzi is the ‘only PD-1/PD-L1 immunotherapy to demonstrate both a significant survival benefit and improved response rate in combination with a choice of chemotherapies’.

The approval has come from China’s National Medical Products Administration following positive results from a Phase III trial that showed Imfinzi combined with chemotherapy demonstrated a ‘statistically significant and clinically meaningful improvement in overall survival versus chemotherapy alone.’

Importantly, the results from the trial in China aligned with that of other international trials.

‘Today's approval of Imfinzi plus chemotherapy brings an important global standard of care to patients with extensive-stage small cell lung cancer in China, who have had few treatment options and a dire prognosis,’ said Dave Fredrickson, executive vice president of AstraZeneca’s Oncology business unit.

‘Physicians can now offer these patients a well-tolerated immunotherapy regimen with sustained overall survival and prolonged treatment response, as well as convenient dosing. This is also the first-time physicians have had the choice to combine immunotherapy with cisplatin, a preferred chemotherapy in this setting in China,’ he added.

Currently, only 7% of all people with small cell lung cancer survive five years after being diagnosed and that number drops to just 3% when they have extensive-stage cancer.

AstraZeneca shares were trading 0.9% lower in early trade this morning at 8240.5p.

Ultra Electronics raises dividend as profits surge higher

Ultra Electronics said it performed better than expected during the first half of its financial year, delivering a surge in profits, reporting a record order book and hiking its dividend.

Revenue in the six months to July 2 fell 2.1% to £404.5 million from £413.1 million the year before, but rose 4.7% on an organic basis. It ended the period with a record order book worth £1.27 billion, having grown over 8% from £1.17 billion a year earlier.

Underlying pretax profit jumped 18% to £56.5 million while reported pretax profit at the bottom line leapt 55% to £46.2 million.

‘As flagged in our 5 July trading update, demand in our core defence & critical detection markets have remained robust. This together with our focused strategy and technology investment is driving expansion in our £12 billion sales pipeline, and further growth in our order book which, at £1.3 billion, is a record for Ultra,’ chief executive Simon Pryce said.

The strong results prompted Ultra Electronics to raise its interim dividend by over 5% to 16.2 pence from 15.4p.

Still, Ultra Electronics shares were trading 1.2% lower in early trade at 2337.0p.

Ultra Electronics said its ‘Focus; Fix; Grow’ transformation programme is progressing better than anticipated. This means it is now expecting to grow revenue, gain market share and expand its margin at a quicker rate than previously expected and that annual savings are expected to be £57 million by 2024.

‘We delivered good underlying revenue growth in the period and operational performance was strong, despite the mainly Covid-19 driven operational inefficiencies in Maritime which have now been broadly resolved. Our Focus; Fix; Grow transformation programme is already delivering ahead of plan and we are now more confident in our improvement potential with a better payback than originally anticipated. This should allow us to accelerate top-line growth and gain market share through additional investment in research & development, improved operational delivery and by further optimising our cost base,’ said Pryce.

Synthomer earnings to almost double after raising guidance

Polymer provider Synthomer raised its guidance for the full-year this morning as it continued to grow the business, expand its margins and benefitted from a strong performance from its new Nitrile latex business.

The company said it is now expecting to deliver interim Ebitda of around £320 million. That will be more than treble the £100.2 million delivered in the first half of 2020. Synthomer will release its interim results on August 5.

Synthomer also updated its full-year guidance and is now targeting Ebitda of £500 million, up from its previous target of £450 million. That means earnings are forecast to almost double year-on-year from the £259.4 million booked in 2020.

‘Since its last update on 21 April 2021, Synthomer has continued to see strong trading momentum across the business with volumes and unit margins ahead of the prior year in all divisions. In addition, the Nitrile latex business has continued to perform well, driven by exceptional demand due to the Covid-19 pandemic,’ said the company.

‘Synthomer continues to expect that the Nitrile latex business will return to more normalised levels during 2022. The company will provide an update on this and its 2021 outlook in conjunction with its H1 interim results announcement,’ Synthomer added.

Nitrile has benefited from strong demand for the likes of gloves during the pandemic, but Synthomer is expecting this demand to unwind as vaccination programmes progress and lockdown rules are eased.

Synthomer shares were trading 0.6% lower in early trade this morning at 500.4p.

SThree ups expectations as growth surpasses pre-pandemic levels

Staffing specialist SThree raised expectations for the full year after revenue and profits both exceeded pre-pandemic levels in the first-half.

Revenue rose to £615.1 million in the six months to the end of May from £596.0 million the year before after net fees jumped by 10%.

Reported operating profit doubled to £28.2 million from £14.3 million while pretax profit leapt to £27.7 million from £13.6 million. Basic EPS jumped to 14.5 pence from 6.4p.

SThree had promised to reintroduce its dividend ahead of the results and delivered by stating it would pay a 3.0p payout, in-line with pre-pandemic levels. That decision was supported by the fact it ended the period with £47.5 million in net cash compared to only £31.0 million the year before.

SThree shares were trading 0.2% higher I nearly trade this morning at 467.3p.

Notably, SThree flagged the fact that the second quarter benefited from weak comparatives from the year before when the recruitment industry was severely disrupted by the pandemic. Still, SThree said net fees in the second quarter were still 8% higher than two years earlier while net fees were 3% higher. Quarterly adjusted operating profit was up 18% from two years ago.

‘We are delighted to report strong overall performance in the first half, driven by the hard work of our teams across the globe. Our profit has grown substantially from HY 2020, and has surpassed the pre-pandemic levels of 2019, reflecting the strength of the business and our growth trajectory,’ said chief executive Mark Dorman.

‘Profit growth was driven by improving market conditions, including especially strong demand for STEM skills, and productivity growth,’ he added.

SThree said it is now expecting to beat expectations in the current financial year as a whole on the assumption the improvement will continue in the second half.

IPO News: Revolution Beauty, Poolbeg Pharma and Bradda Head

Three companies successfully joined AIM this morning after completing their initial public offerings.

Revolution Beauty Group will start trading today under the ticker ‘REVB’ after completing a placing that gives the company an initial valuation of £495 million. The company sold shares at 160 pence each and raised £110.7 million to fuel growth while also raising another £189.3 million for shareholders.

‘We began eight years ago to start a revolution in beauty and in order to ensure high quality, cruelty free cosmetics and skincare are affordable for everyone. Admission to AIM is an extraordinary stage in our journey and reflects our exceptional growth to date, global presence and significant prospects. We have built a trusted and authentic brand that is capable of rapidly responding to the global megatrends that drive the mass beauty industry,’ said co-founder and chief executive Adam Minto.

Shares in Poolbeg Pharma, a clinical stage infectious disease pharmaceutical company, are also being admitted to AIM today under the ticker ‘POLB’. The company starts life as a public company with a market cap of around £50 million after raising around £25 million at 10p per share. The funds will be used to progress its influenza treatment, monetising other parts of the portfolio and acquiring new drugs.

‘The IPO and funds raised have provided a strong platform to begin our rapid growth plan. With experienced management on board and the exciting assets acquired from Open Orphan, we look forward to delivering value to our shareholder base and generating innovation in the previously overlooked infectious disease space which is now one of the fastest growing markets and is expected to exceed $250 billion by 2025,’ said chief executive Jeremy Skillington.

Lastly, Bradda Head is also joining AIM today under the ticker ‘BHL’ after raising £6.2 million at a price of 5.5 pence, giving it an initial valuation of £16.1 million. The company is developing lithium mining projects in North America, which will be developed using the funds raised during the IPO.

‘We are delighted with the response we have we have received from investors, as well as to be bringing Bradda Head to AIM, particularly at a time when lithium exploration is shaping up to be a key component in the global transition to zero-emissions technologies,’ said chief executive Charles FitzRoy. ‘The United States is facing a dramatic shortfall in domestic low carbon footprint lithium supply and Bradda is ideally positioned to supply this growing key market. We have a diverse and exciting portfolio of assets in Arizona, and Nevada, with unique exposure to lithium in sedimentary, pegmatite and brine claims.’

How to trade top UK stocks

You can trade a wide variety of UK stocks with City Index in just four easy steps:

  1. Open a City Index account, or log-in if you’re already a customer.
  2. Search for the company you want to trade in our award-winning platform
  3. Choose your position and size, and your stop and limit levels
  4. Place the trade 

Build your confidence risk free

More from Equities

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.