More UK bids?

Macro & Overnight

US Treasury yields continue to increase, with the 10 yr above 4%.

The $ continues to creep higher.

Salesforce has caught the Silicon Valley “efficiency” bug, possibly due to shareholder activism. Its new focus on profitability saw its shares up 16% after the close last night.

Bid approaches look set to continue in the UK, with press reports that Macquarie is in the early stages of exploring a bid approach for M&G (Sky) and Restaurant Group is effectively “in play” following a spat with shareholder Oasis (Times).

UK Company News

Alfa Financial Software, a software developer for the asset finance industry, reported strong results with revenue up 12%, operating profit up 20%, subscription revenues up 17% and continued strong free cash flow conversion of over 100%. 75% of revenues are recurring. The company said it remains confident in Alfa’s prospects for 2023 and beyond.

Captia FY results indicated that it has finally finished its restructuring. It appears well-positioned for sustainable revenue growth and profitability. Reducing restructuring costs, contract-related provisions and impairments, and a £397m reduction in net debt give Capita a much cleaner image. The company sees a medium-term outlook of mid-single-digit revenue growth.

The Irish-based building materials distributor and DIY retailer Grafton produced FY results. Its portfolio of higher-margin businesses offers market-leading brands and geographic diversity. Its net cash of £458m. It commented that with the decline in public equity valuations, its preferred capital allocation policy has been to buy back equity. Grafton returned £208m shareholders in 2022. A fall in real disposable incomes will continue to weigh on activity in the RMI market, and higher materials and labour costs will impact project affordability. However, strong labour markets with low levels of unemployment and declining energy prices should positively impact consumer spending. UK, housing RMI activity will likely remain weak.

Hunting FY results saw strong performance in 2022, leaving it well-positioned for 2023, with demand continuing to improve for all segments. Order book increased by 124% to $473m. Revenue increased by 39% to $726m. Gross margin improved to 24% from 12%. Hunting is well positioned to benefit from increased investment in energy security and higher demand for energy as China continues to re-open. The energy outlook continues to be robust. Forecasts continue to indicate a daily requirement of c.102m barrels of crude oil per day – or an increase of c.1.5m to 2.0m per day over 2022. The outlook for natural gas remains strong as customers of Russia-origin natural gas move to other global LNG suppliers. Material under investment in new oil and gas production since 2019 will likely lead to continued growth for all industry participants. North American investment in drilling is projected to grow further, leading to steady growth in the demand for our perforating systems. EMEA and Asia Pacific operating segments continue to see increases in enquiries.

Haleon FY results since it demerged from GSK to become the first listed company 100% focused on consumer health. It guided to a positive outlook for 2023, FY2023 organic revenue growth expected to be 4-6% and FY2023 adjusted operating profit margin broadly flat. 

ITV updated its short-term outlook saying it is challenging, with total advertising revenue expected to be down around 11% in Q1. However, it remains focused on successfully executing the strategy and entering 2023 with momentum. It is on track to deliver 2026 KPI targets and will continue to invest in supporting its strategy. 

Melrose traded ahead of expectations in 2022 on sales growth, profit and cash generation. The Group recorded EPS 126% higher than last year. Melrose is looking to demerge GKN and focus on aerospace. 

Challenger high street bank Metro Bank reported that its financials significantly improved year-on-year. Underlying revenue increased by 31%, Net Interest Margin improved by 52bps. Underlying costs were reduced by 3%. All this signalled a completed turnaround. It described 2023 as a transitional year.

Prognosticator