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Thursday Update

DB Live: Rolls-Royce raising £3bn; iomart upbeat

REFRESH PAGE FOR UPDATES

5.30pm: David Lockhart dies

Property entrepreneur David Lockhart, who led Scottish company Halladale to the stock market before selling it and setting up retail and leisure REIT NewRiver, has died.

Full story here

4.30pm: London shrugs off Rolls-Royce slide

The FTSE 100 managed to overcome concern over Rolls-Royce (see below) and oil majors and focused instead on US stimulus hopes.

Rolls-Royce shares fell 10.2%, while oil stocks slumped 3.4% to a two-month low as crude prices dropped more than 5%.

The index closed up 13.35 points, or 0.2%, at 5,879.45.

Among the risers was Perth-based SSE, which closed 3.7% higher. The energy firm warned that the coronavirus pandemic will hurt its first half outcome, but it continues to perform well and is making a good progress on divestments.

The company estimates a hit of around £120m-£130m from the virus outbreak in the six months to 30 September and between £150m-£250m in financial 2021, before mitigation measures.

Halfords surged 31.5% to its highest level since June 2019 after it raised its first-half profit outlook as it continued to benefit from a cycling boom during the pandemic.

1pm: Edinburgh’s Christmas goes online

Hopes of staging even a semblance of an outdoor Christmas celebration in Edinburgh have been dashed.. and the First Minister has delayed lockdown decision.

Full story here

9.30am: Rolls-Royce investors ‘need faith’

Following Rolls-Royce’s capital raising announcement (see below)… Russ Mould, investment director at AJ Bell, says: “Investors taking part in the share and bond issue need to have considerable faith in the aviation industry getting back on its feet.

“Handing over money now to back Rolls-Royce would also require considerable patience as this is unlikely to be a rapid recovery story.

“There are two factors to consider – the first is how long it will take for demand to return for plane travel. Airlines need to see sales improve to restrengthen their balance sheets. And that leads to the second factor – in general they can’t think about ordering new planes, and therefore engines, until they are in a much stronger position financially.

“It could be long waiting game for Rolls-Royce, hence the need to boost its liquidity now to see it through potentially three or four years of further depressed activity.”

8.15am: London opens higher

Traders were buoyed by the prospect of more stimulus in the US and the positive sentiment crossed the Atlantic to lift the FTSE 100 by 58.5 points (12%) to 5,924.66

Rolls-Royce

7am: Rolls-Royce confirms capital raising

Aero engine maker Rolls-Royce is raising £2bn via a fully underwritten 10 for 3 rights issue priced at a deeply-discounted 32p share.

It will also issue bonds to raise ‘at least’ an additional £1bn and has agreed a £1bn loan. The company has received an indication of support in principle from UK Export Finance for an extension of its 80% guarantee to support a potential increase of the company’s existing £2bn five year term loan of up to £1bn.

The rights issue price represents a 41.4% discount to the theoretical ex-rights price against the closing price of 130p at the close of the market last night.

The company said: “These steps will provide the group with improved financial resilience and a more appropriate balance sheet structure in order to weather macro-economic risks before we return to strong cash generation, expected in 2022.

“We expect the restructuring programme to result in a proposed reduction in headcount of at least 9,000 roles. We have continued to make further good progress on this plan, with approximately 4,800 people having left the business by the end of August, with at least 5,000 expected by the year-end.”

Iomart upbeat

Scottish cloud computing firm Iomart said it has performed well despite the global slowdown in corporate activity, with growth from existing customers in line with expectations for the period. If remains on the lookout for acquisition opportunities.

In a trading update the board said it anticipates revenue growth of c.2% for the six months, to over £56m (H1 FY20: £55.1m) and steady levels of adjusted EBITDA, at approximately £21m (H1 FY20: £21.8m).

The group’s cash generation has been strong and ahead of the board’s expectations, with the period end cash position increasing to approximately £19m at 30 September 2020 (31 March 2020: £15.5m).

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Reece Donovan, who has succeeded long-serving Angus MacSween as CEO of the Glasgow company, said: “The integrations of Memset and ServerChoice, which were acquired towards the end of the last financial year, have progressed well and we remain alert to the opportunity to integrate further cloud businesses, customer bases and capabilities into the iomart group.

“With high levels of cash on our balance sheet, a compelling offering, and strong ongoing customer relationships, we are confident in the ongoing health of the business.”

Halfords cycle boom

Retailer Halfords has raised its first half profit outlook as it benefits from a cycling boom during the coronavirus pandemic. 

The group, which sells motoring and cycling products and services, said first half pretax profit was now expected to be over £55m, up from the £35-40m previously guided. 

It said cycling product sales were up 46% year-on-year in the five weeks to 25 September, driving group like-for-like sales growth of 22%.

Markets

London is expected to open slightly higher following a positive close in New York on hopes of further US government stimulus.

The blue-chip FTSE 100 index closed down 31.40 points, or 0.5%, at 5,866.10 and is forecast to tick 18 points higher at the open.

Wall Street’s three main indexes ended higher, with the Dow Jones Industrial Average up 1.2%, S&P 500 0.8% higher and the Nasdaq Composite rising 0.7%.

Today’s agenda

ScotSoft conference with keynote speaker Kate Forbes, Finance Secretary

Scottish International Week (day four)

First Minister reviews lockdown measures

Scottish Open at Renaissance Club (day one)

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