Water firm United Utilities Group PLC (LON:UU.) will be keenly watched as it releases final results on Thursday, particularly as the shares in both having been diluted in recent weeks by rising political worries and tougher regulatory rulings.
John McDonnell, the Labour party’s shadow chancellor, confirmed last week that the next Labour government would aim to pay just book value to investors as part of its plans to renationalise England’s water companies. Book value of the 15 companies would be less than £15bn, compared to the compensation of £44bn estimated by the companies themselves, based on market value.
Moreover, water regulator Ofwat last month published its draft determinations for Severn Trent, United Utilities and fellow listed peer Pennon PLC (LON:PNN), setting out the prices the companies can charge over 2020-25.
Earlier this week, Severn Trent PLC (LON:SVT) profits jumped by almost 8% last year, despite the huge costs (£22mln) associated with “one of the hottest and driest summers” on record. Pre-tax profits to £563mln in the 12 months ended 31 March (2018: £527mln).
Attentions now turn to United Utilities and its results. In a recent note on the sector, Deutsche Bank said the “slightly more conservative” forecasts for allowed returns and outperformance led it to lower its equity return estimates by an average of 0.5%, although the prices could still change modestly if Ofwat revised its view.
United Utilities reports on Thursday, with a 22% increase in PBT predicted to £451mln, a 20% increase in adjusted EPS to 53.5p and a 2% DPS growth.
Testing times ahead for Intertek?
The FTSE 100-listed group, which acts as a ‘quality stamp’ for products in the healthcare, food and construction sectors, in March put out final results containing a whopping 39% increase in its year-end dividend as sales and pre-tax profit climbed 4.7% and 8.3% respectively on rising demand for its services.
In a preview, analysts at the Share Centre said the company has been “a steady performer for some years now and nothing too different is expected for the first quarter of the year”, apart from updates on the four acquisitions and investments it made in the period.
“As a company with testing laboratories at ports across the world, it will be interesting to see if the tariff feud between the US and China will lead to any comments by management regarding the impact on trade volumes or any additional expenses relating to administration,” they added.
Higher costs to dent Mitchells & Butlers’ half-year profit
Among Thursday’s other highlights is pubs operator Mitchells & Butlers PLC (LON:MAB) which is expected to reveal a drop half yearly profits.
Like-for-like sales were solid in the first quarter, climbing 2.2% despite the squeeze on consumer spend, although Peel Hunt expects them to have softened slightly in the following three months.
Staff costs have gone through the roof, as has the cost of food and drink, while business rates and taxes are also crippling those in the sector.
M&B has previously guided for a £60mln jump in costs this year, so keep an eye out to see if this is still the case.
In terms of the bottom line, City broker Peel Hunt has pencilled in a £3mln drop in profits to £76mln.
Finals de-risked for TalkTalk following guidance cut
Broadband and telecoms provider TalkTalk Group PLC (LON:TALK) guided down full-year expectations with its third-quarter results at the start of February so the final numbers, due on Thursday, look to have been de-risked, according to analysts at Deutsche Bank.
The guidance cut reflected a higher-than-expected drag from IFRS15 accounting changes, more rapid migration of customers to fibre broadband, and the ongoing consolidation of FibreNation (FN) as it became clear that a joint venture deal for the business would not be signed before the year-end.
In a preview note, the German bank’s analysts said: “Though competition remains 'vibrant', this guidance reset should have de-risked the FY print and Q4 likely saw a slower rate of customer growth (i.e. lower customer acquisition costs).”
They also noted that recent press reports that at a formal process has commenced to fund FN to build fibre out to 3mln homes and reported private equity/infrastructure fund interest in fibre assets across Europe.
The analysts said this sees them increasingly optimistic that the project will go ahead, which would de-risk the prospect of ongoing losses and consolidation of FN’s capital expenditure, which they assume at £20mln in the current year.
They pointed out that just 2mln, or 7% of UK homes are passed by a full fibre network - FN before any finance deal passes around 30,000 and targets 100,000 - and though BT Group PLC’s (LON:BT.A) Openreach is accelerating deployment there is a considerable opportunity for other infrastructures to take meaningful share from Openreach, which currently controls 80% of UK broadband lines.
Tate & Lyle’s strategy in focus as takeover rumours swirl
Food ingredients group Tate & Lyle PLC (LON:TATE) has seen its share price boosted recently amid rumours that the company could be a takeover target, however the group’s own strategy plan will likely be the main focus when it delivers its final results on Thursday.
There may also be interest in how increasing demand for healthier diets and lower sugar content in food could benefit the company further, while the performance in North America, its largest market, will continue to carry weight.
Thursday May 23:
Finals: United Utilities PLC (LON:UU.), TalkTalk Group PLC (LON:TALK), Tate & Lyle PLC (LON:TATE), Mothercare PLC (LON:MTC), Dairy Crest Group PLC (LON:DCG), QinetiQ PLC (LON:QQ.), Mediclinic International Plc (LON:MDC), Helical PLC (LON:HLCL), Paypoint PLC (LON:PAY), New River REIT PLC (LON:NRR)
Economic data: German IFO business climate index; US weekly jobless claims, US new home sales