Top UK Stocks to Watch: Vodafone shares rise as growth accelerates

Vodafone’s topline grows faster than expected, Ultra Electronics preparing to recommend a £2.6 billion takeover, Premier Foods comes up against tough comparatives, Beazley holds off reintroducing its dividend, and Ted Baker’s HQ goes from Ugly to Gorgeous.

UK

Top News: Vodafone smashes expectations in first quarter

Vodafone shares moved higher this morning as revenue growth accelerated in the first quarter of its financial year, allowing the telecoms giant to smash expectations.

Revenue in the first quarter jumped to EUR11.10 billion from EUR10.50 billion the year before, coming in well ahead of the EUR10.66 billion expected by analysts. More impressive was the fact service revenue jumped 3.3% in the quarter, accelerating from the 0.8% growth reported in the last quarter, which in turn came in twice as fast than expected. Analysts were only expecting service revenue growth of 0.9% in the first quarter.

Vodafone shares were up 3.6% in early trade this morning at 120.16p.

The company said it saw a year-on-year improvement in both business and consumer units and flagged faster expansion in its core market of Germany, which saw service revenue growth accelerate to 1.4% from 1.2% in the final quarter of the last financial year.

There was also welcome news that service revenue in both Europe and Africa returned to growth in the quarter for the first time since the pandemic erupted. UK service revenue increased 2.5% and Spain was up 0.8%, but Italy struggled more with a 3.6% decline – although this was still a huge improvement from the 7.8% decline booked in the last quarter.

‘In Europe, the operating and retail environment has not yet returned to normal conditions, but we are delivering a good service revenue performance. In our Business segment, we are seeing stronger growth with our public sector and corporate customers, whilst further building a pipeline of demand for our digital services, such as IoT, security and cloud,’ said chief executive Nick Read.

Vodafone said the churn of mobile customers in Europe has now fallen below pre-pandemic levels, although said commercial activity is yet to return to normal. Revenue from roaming and travellers piggybacking off its network while in Europe soared 56% from the year before when it was hampered by lockdowns, but remains some 54% below pre-pandemic levels.

Vodafone said it remains on track to deliver annual adjusted Ebitda (reported as adjusted Ebitdaal) of between EUR15.0 billion to EUR15.4 billion and adjusted free cashflow of at least EUR5.4 billion. That can be compared to the adjusted Ebitda of EUR14.88 billion and EUR5.7 billion in cashflow delivered in the last financial year.

Ultra Electronics to recommend £2.6 billion takeover offer

Ultra Electronics confirmed this morning that it has received a possible 3,500p non-binding takeover offer from Cobham that values the business at around £2.58 billion.

Cobham, controlled by Advent International, revealed its potential interest in Ultra Electronics back in June and has made several unsuccessful offers. It is thought to have made an initial bid of 2,800p last month.

However, the current offer to be tabled is for 3,500p per share in cash plus the interim dividend of 16.2p that will be paid in September. The 3,516p offer represents a 42% premium to Ultra’s closing share price yesterday.

Ultra Electronics shares jumped over 32% in early trade this morning to 3,276.0p.

‘Having considered the proposal, the board has indicated to Cobham that it is at a value the board would be minded to recommend to Ultra shareholders, subject to consideration and satisfactory resolution of other terms and arrangements, including the establishment of safeguards for the interests of Ultra's stakeholder groups. In relation to this, Cobham has indicated to the board that it is minded to offer the UK government appropriate undertakings in respect of national security,’ Ultra Electronics said.

Ultra Electronics has now entered formal talks with Cobham as a result. Cobham will now have until the end of play on August 20 to make a firm offer or walk away.

Premier Foods to hit top-end of expectations despite tough comparatives

Premier Foods said sales fell in the first quarter of its financial year as it starts to come up against strong comparative periods from last year when demand boomed during the pandemic, but said its performance should lead to it to hit the top end of expectations this year.

Group sales were down 13.2% year-on-year in the 13 weeks to July 3. In the year ago quarter, sales had boomed 22.5% as consumers bought more food to eat at home as they were forced into lockdown. Still, while down from their pandemic-induced highs, sales in the quarter were still 6.3% higher than two years ago before the virus hit.

Notably, quarterly sales of branded goods were down 13.9% year-on-year but 9.3% higher than before the pandemic, while non-branded sales were down 8.0% from last year and 10.9% lower than two years ago.

‘We have made a very encouraging start to the year, with quarter one sales at the top end of our expectations, as our brands again benefited from the introduction of new products and continued marketing investment,’ said chief executive Alex Whitehouse.

‘With our continued strong trading momentum and the substantially lower coupon of the new fixed rate notes at 3.5%, we now expect to deliver adjusted profit before tax at the top end of our expectations for FY21/22,’ he added.

The consensus compiled by Reuters suggests adjusted pretax profit will come in at around £107.5 million in the year to the end of March 2022 compared to the £115.3 million profit delivered in the last financial year.

Premier Foods shares were trading 1.9% higher in early trade this morning at 107.0p.

Beazley opts not to reintroduce dividend as performance improves

Insurer and underwriter Beazley reported better-than-expected results in the first half of its financial year but said it has decided to hold-off reinstating its dividend.

Gross written premiums jumped 22% in the first six months of 2021 to $2.03 billion, with net earned premiums rising 14% to $1.39 billion. Revenue climbed to $1.48 billion from $1.32 billion the year before, coming in slightly ahead of expectations.

Beazley escaped the red during the year with a pretax profit of $167.3 million compared to the $13.8 million booked the year before and that was also much better than the $73.6 million profit expected by analysts.

The performance sent Beazley shares over 4% higher in early trade to 375.46p.

‘Reserve releases across all divisions supported a half year combined ratio of 94% and the investment return achieved was also strong at 1.2% year to date,’ said chief executive Adrian Cox.

Some investors may be disappointed this morning that the improved performance was not accompanied by the reinstatement of the dividend, although Beazley said it is considering restarting payouts before the end of this year.   

‘I am excited about the growth opportunities ahead. Our capital base remains strong and we are well placed to support an ambitious growth plan at similar levels to 2021. The board remains committed to a dividend payment and will consider this at year end after taking into account the 2021 results as a whole’, Beazley said.

Ted Baker HQ goes from Ugly to Gorgeous

Fashion firm Ted Baker said it has secured its new global headquarters at 101 on Cleveland in the centre of Fitzrovia in London.

The HQ will be called the Gorgeous Brown Building, a statement that plays on the fact its existing HQ tht has homed the business for over two decades is famously called the Ugly Brown Building.

The new HQ has been secured under a 10-year lease and Ted Baker intends to move in the summer of 2022. The annual rent is considerably lower at just £900,000 compared to the £3.25 million it pays for the Ugly Brown Building.

‘These savings are separate to the fixed rent cost saving target of 15% for financial year 2022 that the group announced at its preliminary results on 14 June 2021,’ Ted Baker clarified.

Ted Baker completed the sale and leaseback of the Ugly Brown Building back in 2020, securing £78.75 million in proceeds and securing a short-term lease until the end of March 2023. Ted Baker had originally planned to lease a redeveloped unit next door but said it had opted against this because the ‘property market landscape has changed dramatically’.

Notably, the unit next door to the Ugly Brown Building would of cost up to £4.2 million in annual rent.

‘The group has taken advantage of this and agreed a more commercially attractive deal for a prime central London office, allowing the option on Block A to lapse.  Over the first five years of the Gorgeous Brown Building lease, aggregate cashflow benefit of the new HQ is in excess of £13 million compared to the lease on Block A.  This further demonstrates the cashflow discipline the team has established over the last 18 months,’ Ted Baker said.

Ted Baker is spending around £8 million of the proceeds from the sale and leaseback deal in 2020 to fund the fit-out of its new offices, meaning its annual capex guidance of £15 million for the current financial year remains unchanged.

Ted Baker shares traded 1.3% higher in early trade this morning at 139.50p.

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