Top UK Stocks: Vistry ups expectations for profits and dividends

Vistry looks to accelerate dividend growth, DS Smith offsets rising costs with higher prices, Ted Baker sees an improvement in sales and margins, Cairn Energy shareholders set to receive a windfall in the second half, and McBride shares fall after a tough year.

UK

Top News: Vistry Group ups profit target for 2021

Vistry Group said it is intends to accelerate dividend growth after declaring a 20p payout for the first half of 2021, driven by improvements in revenue, profits and cashflow, prompting it to raise expectations for the rest of the year.

Vistry Group shares were trading 3.5% higher in early trade this morning at 1265.8p, marking its highest level since mid-June.

The housebuilder said it completed 5,351 homes in the first half, up 76% from the 3,034 homes built a year earlier when the pandemic hindered output. That, combined with a 5.7% lift in average selling prices to £351,000, delivered an 82% jump in revenue to £1.10 billion.

The company also delivered a significantly better housebuilding gross margin of 21.8% in the half compared to just 14.1% last year.

Vistry turned to an operating profit of £139.1 million from a £9.7 million loss last year, while its pretax profit of £156.2 million swung from a £12.2 million loss.

Vistry reported operating cashflow of £89.5 million compared to a £65.8 million outflow the year before. That left Vistry with £31.6 million in net cash at the end of June, a marked improvement from the £357.3 million of net debt it had a year ago.

The significant improvement prompted Vistry to pay an interim dividend of 20.0 pence, having not made any payout last year. Notably, Vistry said it plans to accelerate the dividend cover to two times cover ratio this year.

‘With balance sheet strength, the board is committed to prioritising investment in the business to support the group's growth strategy, pursue a sustainable two times dividend cover policy, and return any further excess capital generated in the future to shareholders via either a share buyback or special dividend,’ said Vistry.

Going forward, Vistry said the positive trend in demand and sales has continued into the second half. It has forward sales worth £3.0 billion on its books compared to only £2.7 billion in September 2020.

The company did flag rising input costs and challenges within the supply chain, but said the lift in house prices was more than offsetting any increases in costs.

Vistry said it now expects to deliver annual adjusted pretax profit of around £345 million – markedly ahead of the £329.4 million expected by analysts. That would compare to the profit of £143.9 million delivered in 2020 and £193.3 million in 2019.

‘Following an effective operational integration, Vistry is in great shape and delivered a step change in financial performance in the first half. The group holds a unique market position with strength and capability across all housing tenures, and we are firmly focused on maximising the opportunities this brings. Housebuilding delivered a significant improvement in margin in H1 and we expect this to continue, whilst Vistry Partnerships is firmly on track to deliver more than £1 billion of revenue in FY 22 and a margin in excess of 10%, driven by the accelerated growth of its higher margin mixed tenure revenues,’ said chief executive Greg Fitzgerald.

DS Smith stays on track as price increases cushion higher costs

Packaging giant DS Smith said it is making good progress in recovering a rise in production costs through higher prices, which has kept it on track to meet expectations this year.

DS Smith shares were trading 3.2% higher in early trade this morning at 462.4p, representing its highest level since October 2018.

The company has benefited from increased demand for packaging during the pandemic as more people shop online. It said trading has remained in-line with expectations since the start of May, with box volumes growing ‘very strongly’ versus both last year and 2019 thanks to its differentiated sustainable packaging offering.

‘Whilst this growth has been across all parts of the group it has been especially strong in the US and Southern Europe and with our large FMCG multi-national customers. Industrial customers have also seen significant increases in demand but this represents a relatively small proportion of our overall customer portfolio given our development in the resilient and growing FMCG customer base,’ said the company.

Input costs continue to rise, especially for energy and transportation, while costs for old corrugated cases remains high. This has led to a rise in the cost of paper, but DS Smith said there is a strong demand for its packaging and that it has been able to offset this with increases in price.

It also said its new packaging manufacturing sites in Italy and Poland are proceeding to plan and should both be operational in the fourth quarter of this year. Both plants have already secured contracts for at least 50% of their anticipated capacity. The new plants were funded by the sale of its De Hoop paper mill.

Ted Baker sees improvement in sales and margins

Ted Baker said sales performed in-line with expectations during the second quarter of its financial year while its trading margin improved thanks to fewer promotional sales and a greater focus on revitalising its premium position in the market.

The company said sales in the 16 weeks to August 14 were 50% higher than the year before, when lockdowns forced many retail stores to close. It said consumer confidence had improved in both North America and the UK, helping drive sales in concessions and malls. Ted Baker said momentum was higher in the final four weeks than the quarter as a whole, painting an upbeat picture for the third quarter.

Store sales were up 142% year-on-year but still remained some 45% below pre-pandemic levels. The reopening of stores has also revitalised demand for its wholesale and licensing arm, which reported a 151% increase in revenue in the quarter, but again remained some 29% below 2019 levels.

Its trading margin was up over 500 basis points in the quarter after Ted Baker achieved higher full price sales across all retail channels. The company is trying to reclaim its premium position in the market and is therefore conducting fewer promotional sales events, which it used heavily last year in an effort to battle against the pandemic.

One consequence of the reduction in promotional activity was a hit to its online sales compared to last year. Ecommerce sales in the quarter were down 25% from last year and accounted for 39% of total sales.

‘We have made encouraging progress, with trading over the second quarter in line with expectations, albeit the speed of recovery is different across store locations and regions.  Full price sales mix has significantly improved across all our retail channels as we continue to re-establish our premium lifestyle brand positioning,’ said chief executive Rachel Osborne.

‘The Ted Baker brand remains strong, evidenced by YouGov's recognition of Ted Baker as the second most popular luxury brand in the UK.  Our product also continues to strengthen, and we are pleased by the start to the Autumn/Winter 2021 collections which is being well received by our customers.  Combined with our robust balance sheet and strong cash management we are well placed for the future.  It is still early days in the recovery, but we are confident that Ted is starting to emerge from Covid a stronger and more resilient business,’ she added.

Ted Baker shares were trading 1.1% lower in early trade this morning at 164.8p.  

Cairn Energy outlines busy schedule for the second half of 2021

Cairn Energy said it is expecting a busy and transformational second half as it looks to offload its producing assets in the UK North Sea, purchase a gas-weighted portfolio of assets in Egypt, and resolve its long-running dispute with the Indian government – which will pave the way for shareholders to receive a windfall.

Cairn is known for its ability to rationalise its portfolio and sold-off its producing assets in the UK North Sea earlier this year and bought a portfolio of gas-focused assets in Egypt, helping address concerns about long-term growth.

Cairn is expecting to complete its acquisition in Egypt in the third quarter and the disposal of its UK offshore assets in the fourth. The company said Egypt will form the basis of a new growth platform for the business and has significantly de-risked the business by replacing its offshore assets in the North Sea with onshore assets that have better growth potential.

‘The material portfolio provides long-term sustainable, low-cost production in one of the most prolific basins in North Africa, with an attractive oil and gas revenue mix and a supportive host government. Following completion, we anticipate a ramp up in investment during H1 2022,’ said Cairn.

Cairn said production in Egypt is currently producing in-line with expectations. Cairn reiterated its hopes of delivering working interest output of between 33,000 to 38,000 barrels of oil equivalent per day over the full year.

In the meantime, its UK producing assets delivered revenue of $257 million and a gross profit of $140 million in the first half but were classed as discontinued operations due to the pending sale.

Cairn reported an overall pretax loss from continuing operations of $87.4 million compared to the $83.8 million loss booked the year before.

Cairn also said it hopes its long-running dispute with the government of India will be resolved in the near term. This should see Cairn receive around $1.06 billion, of which it intends to return $700 million to shareholders – comprised of a $500 million special dividend and a $200 million share buyback.

Cairn Energy shares were trading 3.5% higher in early trade this morning at 202.9p, its highest level since March.

McBride shares fall after experiencing a year of two halves

McBride said it experienced a ‘year of two halves’ after experiencing a strong first half followed by a much tougher second, and warned that the challenging environment plagued by supply chain problems is likely to continue until at least the end of 2020.

The company, which manufactures a range of cleaning and hygiene products on behalf of other companies, said revenue was down 3.4% in the 12 months to the end of June at £682.3 million from £706.2 million the year before. That was below the £693.6 million forecast by analysts.

The company achieved 1.7% topline growth in the first half but was followed by a tougher second half that saw sales fall 9.5%. McBride said the pandemic continues to impact demand.

Adjusted pretax profit was down almost 18% to £19.9 million but held broadly steady on a reported basis at £11.3 million compared to £11.2 million the year before. Adjusted EPS jumped 23.2% to 11.7p from 9.5p, which came in much better than the 7.93p expected by analysts.

While the pandemic continues to weigh on demand, supply is suffering from ‘exceptional’ input cost inflation which worsened in the final quarter of the year. McBride said this was ‘driven by Covid-19 shocks to supply chain and rapid and exceptional inflation of key feedstocks’.

McBride said it is looking to deliver £10 million worth of cost savings in order to help it battle rising costs elsewhere in the business.

‘Our balance sheet remains robust and we expect current market conditions to create opportunities for selected in-fill acquisitions at attractive valuations.  We continue to anticipate a weak first half year, especially when compared to our strong first half last year, with profits therefore heavily weighted to the second half of the year,’ said chief executive Chris Smith.

McBride ended the year with net debt of £118.4 million, equal to around 2.6x annual adjusted Ebitda. The company bought back 8.6 million shares for £6.8 million during the year, but said it has decided to keep its dividend under review and not make a payout for the recently-ended financial year.

McBride shares were down 3.5% in early trade this morning at 76.9p.

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