Provident Financial and Royal Mail out of FTSE 100

“As might be expected after your share price craters nearly 70% in a single day, Provident Financial is being booted out of the FTSE 100. PFG shares have rallied 50% since then to shy of £9, having been worth £32 as recently as May. Investors buying on averages might be helping but the embattled doorstep lender has a slew of troubles, not least the FCA investigation into Vanquis. Meanwhile its core consumer credit division is pretty well worthless unless Chris Gillespie can turn things around there, and fast.

Royal Mail is also out. Maybe the government didn’t get such a bad price for it after all. Its stock is down 11% from the float, suggesting that the criticism levelled at the government may have been a touch unfair. Royal Mail faces structural problems, namely falling letter volumes and parcel business being leached to rivals and independent operators who are nimbler and more efficient.

It’s also facing trouble with unions. This is a big battle about the way the company operates and one Royal Mail will need to win to satisfy investors. Costs could climb to as much as £1.3bn a year from the current level of £400m if unions get their way. Pension reform also risks industrial action that will disrupt the business, which could hit confidence and revenues. With a deadline of September 6th set for the company to come up with a new offer, this could also mean strikes over Christmas.

NMC Health and Berkeley Group in

In come NMC Health and Berkeley Group Holdings. NMC Health is probably not one that many people know about but this Abu Dhabi based private hospital operator has a market cap of more than £5bn. Its share price has jumped by a quarter since knockout results showed a 34% leap in revenues.

Meanwhile Berkeley Group Holdings returns to the FTSE 100 a year after being demoted. Shares are up 50% in the last year. It’s stuck two fingers up to the London property market slowdown with a 53% jump in pre-tax profits. Deutsche Bank has raised its price target lately. UK housebuilders took a massive knock after the EU referendum but still look decent given market fundamentals of constrained supply, huge demand and loose credit conditions and ultra-low interest rates.

Carillion

Carillion has been demoted from the FTSE 250. No wonder given the amount of short interest in this stock. Markets expect a capital raise, which may come when it reports interim results on September 29th. Market cap is about £240m while liabilities are around £1.6bn. Even the award of lucrative HS2 contracts is not helping.

888

Good and bad for 888 today. Whilst it’s being promoted to the 250, it’s also been slapped with an £8m fine. Well, £7.8m actually. Shares in the stock have decline 15% since May.

Morses Club

More evidence of the botched revamp at Provident Financial – rival Morses Club is stealing business hand over fist.

In a bullish trading update, Morses says a ‘significant increase in territory builds’ have helped it to increase customer numbers by 12% to 233,000, while total credit issued has risen by 25% to £82.2m.

Morses says the territory builds have performed ahead of management's expectations set at the beginning of the year. This is perhaps an understatement – they could not have known how badly Provvy would botch its changes and quickly agents would switch to them. This is more evidence that the idea to change a business model that’s worked perfectly well for a 130 years was not so clever.

Morses looks poised for more growth after expanding its existing loan facility by £15m to £40m to fund expansion. The expiry date of the facility has also been extended to August 2020 from March 2019.This new loan facility is expected to deliver 400 new agent territories over this financial year – the troubles at the Provvy mean it may require a bit more.”

Ladbrokes Coral interims

Despite a lack of ‘sporting sparkle’ in 2017, these were good interim results from Ladbrokes Coral. On a proforma basis group revenues rose 1% with operating profits up 7%.

After a terrible year at the races, bookies have had a better year in horseracing with friendly results at Ascot and Cheltenham in particular.

Synergies from the tie-up are now expected to be £150m per year by 2019, which is more than double the original estimate.

Again it’s a tail of two halves for Ladbrokes Coral. Digital is very strong but retail is weaker. UK Retail net revenue of £697.2m was 6% behind last year, with profits 10% lower. Digital net revenue of £374.5m was 17% ahead of last year

But the outlook remains very cloudy as we await the outcome of the triennial review and an expected clampdown on fixed odds betting terminals.

The government review is likely to see the maximum stake on these machines reduced from £100 to around £10-20, but it depends on the amount of pressure Labour can exert on the government now the Conservatives have lost their majority – Labour has pushed for a cap of £2. A £2 limit would amount to a serious problem for bookies and probably hasn’t been fully reflected in the share price declines of the last 12 months.

But will the government cave in? Tax revenues from bookies are high and there are plenty of jobs tied up with the shops (as the industry is keen to stress). The government may not wish to give up the tax money at this time, which might result in a more modest reduction in maximum stakes.”

 

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