FTSE 250: Engineers' profit warnings tug midcaps lower

A barrage of profit warnings knocked the FTSE 250 lower on Thursday, led by IT security expert NCC and engineers Keller and Senior.

NCC said that its core IT assurance division had been hit by the cancellation of three large contracts, the deferral of another big one and contract delays in managed services.

Even though the company assured that its profit expectations for the full year remained in line, analysts and investors were skeptical.

"Management state that guidance is being retained for the present, but we anticipate a need for caution, likely leading to downgrades to our numbers," said Daud Khan at Canaccord. "Clearly, a lack of visibility is set to weigh on the share price."

Indeed it did, with the stock, having hit an all-time high earlier in the month, down 36% to 220.8p by late afternoon.

Keller cratered 26% on the back of its second warning in three months, with management cautioning that full-year 2016 underlying results will be around 15% below current market expectations, mainly due to underperformance in the Asia Pacific division.

Numis cut its 2016 earnings per share estimate by 15% to 76.3p and for 2017 by 10% to 87.2p.

“Whilst management have made some positive noises in regards to outlook, this is the second profit warning in three months and therefore investors may be sceptical of management guidance,” the brokerage said.

Senior revealed that challenging market conditions in both truck and off-highway, and oil and gas would mean full year performance was likely to be lower than previously expected.

On an underlying organic basis, revenue from operations was down 4% at constant currency as growth from the aerospace division was offset by lower revenue in Flexonics due to weaker truck and off-highway, and oil and gas markets.

The shares, not helped by Senior also going ex-dividend on the day, slumped more than 20% initially before crawling back over the day to stand down 12% with half an hour still to go.

Not a profit warning but a downgrade from Credit Suisse that did for another industrial stock on Thursday, with temporary power provider Aggreko's the rating on the cut to ‘underperform’ from ‘neutral’ and its price target slashed to 740p from 1,065p amid increasing competition risks.

CS said that Karpowership, a subsidiary of privately owned Karadeniz Holding, was growing its fleet substantially and could displace Aggreko as the global number-one, leading to a 15% cut in 2018 earnings forecasts.

Card Factory was among the main fallers as it went ex-dividend alongside Howden Joinery and William Hill.

Positive stories were thinner on the ground, but International Personal Finance posted a strong trading update for the third quarter, thanks in part to a return to growth in Mexico.

This was accompanied by a continued good performance in Southern Europe and a strong performance in IPF Digital.

Poland-Lithuania returned to modest growth after contracting in the first half, while market conditions in the Czech Republic remained “particularly challenging”, the board said.

House broker Numis has increased its pre-tax profit forecast for this year by 3.4% to £98.2m from £95.0m and next year by 3.5% to £106.8m from £103.2m.

"We continue to believe in the long term growth and high return profile of IPF and view the shares as very cheap being valued at 6.6x 2018 (the first clean year) earnings where we expect 16% EPS growth," analysts wrote.

Asset manager Rathbones Brothers rose as it revealed total funds under management swelled 8.5% in the third quarter to £33.2bn, of which net flows made up £0.5bn (1.6%) and performance £2.1bn (6.9%).

But some of the edge was taken off with the news that its defined benefit pension deficit, which had jumped from £4.5m at the end of last year to £32.0m at 30th June ’16, rose further to £58.3m in the three months to September.

Paul McGinnis at Shore Capital highlighted said he saw Rathbones as bearing the costs but not yet the revenues of several growth initiatives and "is still likely to report operating margins of close to its 30% target (a level substantially above its listed peer group) during this period speaks volumes about the quality of the business in our view".

"So while being unable to point to a specific trigger/catalyst, we would be amazed if Rathbones’ shares were to still be trading on a prospective Dec ’18 PE multiple of 13x at this time next year."

FTSE 250 (MCX) 17,921.14 -0.66%

FTSE 250 - Risers

International Personal Finance (IPF) 299.10p 11.02%
Laird (LRD) 170.10p 7.39%
Softcat (SCT) 327.70p 6.92%
Homeserve (HSV) 633.00p 4.98%
Rathbone Brothers (RAT) 1,803.00p 2.15%
Fidelity China Special Situations (FCSS) 192.00p 1.86%
Thomas Cook Group (TCG) 68.80p 1.78%
AO World (AO.) 183.40p 1.72%
Woodford Patient Capital Trust (WPCT) 93.70p 1.57%
NMC Health (NMC) 1,498.00p 1.56%

FTSE 250 - Fallers

NCC Group (NCC) 220.00p -36.36%
Keller Group (KLR) 650.00p -26.60%
Senior (SNR) 179.40p -12.14%
Aggreko (AGK) 873.00p -7.13%
Card Factory (CARD) 269.50p -6.13%
Bodycote (BOY) 604.50p -5.47%
Sophos Group (SOPH) 228.30p -4.95%
IMI (IMI) 1,035.00p -3.63%
Marshalls (MSLH) 271.80p -3.55%
Hill & Smith Holdings (HILS) 1,119.00p -3.45%