Trading updates from utility stocks are set to flood the week ahead’s agenda with water companies Pennon Group plc (LON:PNN) and United Utilities PLC (LON:UU. among those reporting.
Utilities have come under pressure in recent months from increased political pressure, the prospect of interest rate rises and the announcement of tougher regulations.
Water regulator Ofwat has been consulting on price controls and will set final limits in December 2019.
Pennon ‘well-placed’ to respond to regulatory clampdown
Pennon, which reports a trading statement on Monday, said in its interim results last November that Ofwat’s review will be “challenging” but the company is well-placed to respond to any changes.
“This is reassuring, although investors would be even more comfortable if Pennon gave a better indication of what shareholder returns might look like in the new regulatory world,” said Nicholas Hyett, equity analyst, Hargreaves Lansdown.
Pennon, the parent company of South West Water, reported a 2.3% increase in pre-tax profit to £131.1mln and a 5.6% rise in underlying revenue to £723.9mln for the first half.
At the time it said it was on track to meet cost savings and synergy targets of £17mln per year from 2019.
It has also negotiated a reset to its waste recycling contract with the Greater Manchester Waste Disposal Authority, which wants terminate its 25-year private finance initiative deal with Pennon’s Viridor joint venture to recycle waste and use some of it as fuel to generate electricity.
Investors eye inflationary impact on United Utilities
United Utilities is also bracing for a tougher regulator stance from Ofwat and has been in discussions with the watchdog over its future business plan.
At the first half results in November, the company said its “leading operational performance and customer satisfaction places us in a good position heading into the next regulatory review”.
Higher inflation raised its finance costs by £29mln in the period to £155mln, though it managed to eke out a £5mln increase in underlying pre-tax profits to £194mln.
The company shouldered £3.7bn of inflation-linked debt to help fund its investment in upgrading water networks in the north west of England by 2020.
Investors will be looking to see how well the company has responded to inflationary pressures and regulatory challenges when it reports a pre-close trading update on Tuesday.
“The threat that has come from regulatory and political issues has led to poor share price performance over the last 10 months,” said Graham Spooner, investment research analyst at The Share Centre.
“Investors who normally expect little in the way of excitement from trading updates will be looking closely for signs of management defending the sector as well as comments regarding future dividends.”
Npower merger focus for SSE
Energy supplier SSE plc (LON:SSE) joins the list of utilities stocks reporting with a pre-close season update on Thursday.
Investors are likely to concentrate on comments on the company’s proposed deal to demerge its supply business and merge the retail business with Npower.
However, they will also want a view on the recent Ofgem announcement regarding the next regulatory period, which is expected to lead to lower returns for energy network groups, particularly as concerns remain over falling customer numbers and the sustainability of future dividends.
Moss Bros under pressure
There can be no doubt about what will be on the minds of investors come Tuesday when Moss Bros Group plc (LON:MOSB) releases its full year results.
A profit warning, on March 21, flagged that 2018/2019 profit is expected to be “at a level materially lower than current market expectations” and plans to pay a reduced dividend for full-year 2017-2018.
Whilst the high street suit hire firm said it didn’t expect any change to the previously announced expectations for the results for the 52-week period ending 27 January 2018, investors aren’t likely to be in bullish mood by the time they land.
Analysts downgraded Moss Bros in the wake of the profit warning.
DFS Furniture faces challenging 2018
Following last month’s trading update, for the second quarter, DFS Furniture Plc (LON:DFS) is seen to be on-track to meet full year expectations. The sofa seller revealed that, excluding its acquired units, sales were said to be down 3.5% on the previous year.
With the integration of the Sofology business and the opening of new stores it is anticipated that the business is gaining momentum, and management has guided that they expect a stronger performance against comparatives through the remainder of the financial year – even if the market remains tough overall.
“DFS state the living room furniture market is likely to remain challenging in 2018 given consumer confidence levels,” Shore Capital analyst Phil Carroll said in a note last month. “However, it expects to meet FY expectations which are for modest growth in EBITDA excluding acquisitions. This is to be driven via the annualisation of product and operating cost efficiencies in H2.”
He added: “We believe DFS has been investing heavily in marketing spend over the Festive period so we are surprised that underlying sales are in decline to the extent reported. We were expecting a flatter performance albeit at a cost.”
DFS releases its interim results on Wednesday.
Currencies a factor for Ferguson, but demand solid
Plumbing and heating supplies group Ferguson Plc (LON:FERG) is expected to report solid first-half results on Tuesday although the weakening of the sterling/dollar rate will have an impact on the US focused group.
Ferguson – which changed its name from Wolseley last year to reflect its increased US bias – is likely to continue to be supported by ongoing strength in both the residential and non-residential repair, maintenance and improvement markets, based on reports from their key US peers.
However, with the group’s poorly performing Nordic division being sold off, more attention will also go onto its UK business which has also struggled lately due to a challenging environment.
Credit Suisse recently cut its price target for Ferguson back to 6,280p from 6,500p given the year-to-date weakening of the pound, but reiterated an 'outperform' rating on the stock as it believes the group‘s fundamentals are still solid.
The Swiss bank also lifted its group organic growth estimates for the Plumb Center owner for the next three years, pointing to a better demand outlook.
Irn-Bru reformulation key for AG Barr
The soft drinks industry is facing a shake-up with the introduction of a tax on soft drinks with higher sugar contents from April, and Irn-Bru maker AG Barr PLC (LON:BAG) has responded by reformulating its products to lower sugar recipes.
As a result, 99% of the firm’s portfolio will be exempt from the new levy, however, there have been concerns that the reformulated drinks could alienate the group’s legions of fans, though a February trading update suggested it had been well received.
However, it is vital that early performance continues, so commentary around ongoing Irn-Bru sales will be critical in AG Barr’s full-year results on Tuesday.
Plastic not so fantastic for RPC Group
With a fair amount of coverage in the media on plastic packaging and plastic waste at the moment, a fourth quarter update from RPC Group PLC (LON:RPC) on Thursday may well attract more attention than usual.
The last update from the FTSE 250-listed company in February showed organic revenue growth of 4% in the third quarter and RPC said then that profits had grown in line with expectations.
However, with demand for plastic packaging likely to fall, organic revenue growth of over 3% in the final quarter of the year would be respectable, and if it can repeat the 4% that would be a good result.
RPC prides itself on its innovation and given the increased complexity of fully recyclable products that could work in its favour, the group has also been investigating bio-polymers and compostable materials.
Significant events expected:
Monday March 26:
Trading updates: Pennon PLC (LON:PNN)
Finals: Instem Plc (LON:INS), JKX Oil & Gas PLC (LON:JKX), SpaceandPeople Plc (LON:SAL), Satellite Solutions Worldwide Group PLC (LON:SAT), Tapitica International PLC (LON: (TAP), Tissue Regenix Group PLC (LON:TRX)
Interims: YouGov PLC (LON:YOU)
Economic data: BBA mortgage lending figures; US Chicago Fed Activity index, US Dallas Fed Manufacturing report
Tuesday March 27:
Trading update: United Utilities PLC (LON:UU.)
Interims: Ferguson Plc (LON:FERG), Earthport plc (LON:EPO), Orchard Funding Group PLC (LON:ORCH)
Finals: Ladbrokes Coral Group PLC (LON:LCL), AG Barr PLC (LON:BAG), Alliance Pharma plc (LON:APH), Billington Holdings PLC (LON:BILN), Biome Technologies PLC (LON:BIOM), T Clarke PLC (LON:CTO), DP Poland Plc (LON:DPP), Elecosoft PLC (LON:ELCO), e-Therapeutics PLC (LON:ETX), Gulf Marine Services PLC (LON:GMS), Moss Bros Group plc (LON:MOSB), Nostrum Oil 7 Gas PLC (LON:NOG), Scisys Plc (LON:SSY), STM Group Plc (LON:STM), S&U PLC (LON:SUS), Touchstone Exploration Ltd (LON:TXP)
Economic data: Bank of England Financial Policy Committee minutes; US consumer confidence index; US Case-Schiller house prices
Wednesday March 28:
Trading update: TUI AG (LON:TUI), Diploma PLC (LON:DPLM)
Interims: DFS Furniture Plc (LON:DFS), Inland Homes PLC (LON:INL), Tracsis PLC (LON:TRCS), Vernalis plc (LON:VER)
Finals: AA plc (LON:AA), Anglo Pacific Group plc (LON:APF), Arbuthnot Banking Group PLC (LON:ARBB), Ergomed Plc (LON:ERGO), Hilton Food Group PLC (LON:HFG), North Midland Construction PLC, Petropavlovsk PLC (LON:POG), Time Out Group Plc (LON:TMO)
Economic data: CBI UK distributive trades survey; US GDP third reading, US international trade in goods, US pending home sales
Thursday March 29:
Acceptances close for Melrose's bid for GKN
Trading updates: RPC Group, PLC (LON:RPC), SSE plc (LON:SSE), CMC Markets Plc (LON:CMC)
Finals: Chesnara Plc (LON:CSN), Eddie Stobart Logistics PLC (LON:ESL), GAN PLC (LON:GAN), Wentworth Resources PLC (LON:WRL)
Interims: DX Group PLC (LON:DX.), Quarto Group PLC (LON:QRT)
Ex-dividends: To knock 3.9 points off FTSE 100 - British Land Company PLC (LON:BLND), InterContinental Hotels Group PLC (LON:IHG), Prudential PLC (LON:PRU),
Economic data: Nationwide UK house prices; UK GDP; UK consumer credit; US weekly jobless claims, US personal income, consumption, US Chicago PMI, US consumer sentiment
Friday March 30:
GOOD FRIDAY