Stocks to watch: Twitter, Umicore, Thomas Cook, Travis Perkins, AD – Financial Times

Tuesday 13:30 BST

What’s happening

Twitter surged about 8 per cent in US premarket trading after its first-quarter results showed 18 per cent year-on-year revenue growth to $787m, which beat a $775m consensus.

Advertising revenue and user data for the quarter proved better than expected, at $679m and 134m monetisable daily average users respectively, with the social media network’s non-US operations contributing most to net user growth of 8m. Earnings before interest depreciation and amortisation of $291m was better than the $247m median forecast and, while guidance for the current quarter was below the midpoint of market forecasts, analysts saw the targets as conservative.

Twitter’s results “demonstrated an across the board beat in revenue, user metrics and operating income,” said UBS. “In particular, advertising was driven by a strong performance in the US and price per ad impression improving to minus 4 per cent year on year (compared to very steep declines six to 12 months ago). In total, we see a company focused on driving platform health . . . but increasingly a company that has turned around its platform to generate solid growth in users and engagement that can be aligned with increased market share of digital ad budgets (especially success with video advertising).”

Umicore plunged to a two-month low on a profit warning. The Belgian materials maker said earnings from its Energy & Surface Technologies division would be well below the 2018 level because of a delayed production ramp for cathode materials, an increased cost base and the effect of a depressed cobalt price on refining and recycling.

Management blamed weakening electric vehicle demand from China, due to subsidy cuts and delayed customer launches, as well as safety worries in Korea. Production targets for the current year and medium term were pushed back by 12 to 18 months and full-year earnings were guided to €257m, compared with a €292m consensus.

“Umicore’s results have never been easy to predict, but a large miss in the business that drives Umicore’s premium valuation is a clear setback,” said Kepler Cheuvreux.

Thomas Cook bounced on news that the tour operator was exploring options including the sale of the business after receiving preliminary approaches both for divisions and for the entire group. Chinese investor Fosun, Thomas Cook’s biggest shareholder, was widely reported to have made contact, while private equity groups KKR and EQT denied they were interested.

In February, Thomas Cook started a strategic review of its airline business and has brought in turnround specialist AlixPartners to work on options for reducing debt. Thomas Cook did not comment.

“We think an injection of capital, ideally, is required to shore up Thomas Cook’s balance sheet. The group has been assessing various options, and the sale of the airline is a possibility, in our view, given the ongoing strategic review, but we also note that the group undertook a rights issue in 2013 when faced with similar balance sheet difficulties.”

Barclays

Fosun, Thomas Cook’s 17 per cent shareholder and Chinese joint-venture partner, would be blocked from operating the group’s airline division under European ownership restrictions. The story may “provide comfort around a potential anchor investor for a rights issue to raise liquidity, should it be necessary in the coming months”, said JPMorgan Cazenove. “Should discussions not result in a full takeover, interest from Fosun for example could also be demonstrated through new equity and an increased stake.”

Sellside stories

● Merrill Lynch upgraded Travis Perkins, the builders’ merchant, to “buy” from “underperform” with a £17 target price.

“We believe that the combination of a stabilising backdrop for UK renovation activity, low interest rates for longer, the planned simplification of the business though asset disposals and the new chief executive officer starting this summer could lead to a re-rating of the stock.”

Merrill Lynch

Investors have failed to recognise the cost savings and profit improvement potential from the upcoming disposal of its plumbing and heating business, Merrill said. The broker also argued that Wickes, Travis’s consumer chain, was a candidate for disposal in the medium term. Selling both businesses would improve Travis’s return on capital employed by 2.5 percentage points once adjusted for lease costs, it said.

● Morgan Stanley upgraded Qualcomm, the US communications chipmaker, to “overweight” with a $95 target price. The market had not yet fully appreciated the value of Qualcomm’s settlement with Apple, which should trigger a re-rating for the stock towards the ratings awarded sector peers, it said.

Qualcomm is “the key enabler” of 5G network technology “and believe that it should be valued accordingly”, said Morgan Stanley.

The company “enjoys a range of under-appreciated options outside handsets that have the potential in the long run to make Qualcomm perhaps the largest semiconductor company in the world. Further, we believe that any rebound in near-term handset demand and/or a return of Huawei to full royalty compliance will yield upside to our current estimate.” Huawei of China has said its wholly owned HiSilicon subsidiary can make 5G processors that undercut Qualcomm chips.

● In brief: AD cut to “market perform” at Bernstein; BillerudKorsnas downgraded to “sell” at Goldman Sachs; Camurus rated new “buy” at Jefferies; Close Brothers rated new “sector perform” at RBC; DNA raised to “hold” at Berenberg; DWF Group rated new “buy” at Jefferies and Stifel; Deutsche Wohnen upgraded to “buy” at Kepler Cheuvreux; Edenred cut to “hold” at Société Générale; Hochtief upgraded to “neutral” at Merrill Lynch; Kingspan cut to “neutral” at Merrill Lynch; Man Group rated new “buy” at Berenberg; Nobina rated new “buy” at Kepler Cheuvreux; Petra Diamonds upgraded to “buy” at Berenberg; Secure rated new “underperform” at RBC; Smurfit Kappa upgraded to “neutral” at Goldman Sachs; Stora Enso raised to “buy” at Goldman Sachs.

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