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FTSE 350 favourites eye fireworks but some damp squibs likely

There will be announcements in the coming week from retailers Marks & Spencer, Sainsbury's, Associated British Foods and Superdry, plus Persimmon, Ryanair and Flutter Entertainment

Fireworks

As we head into the week of Bonfire Night, a host of big names from the FTSE 100 and 250 will be aiming for fireworks rather than damp squibs, while the Bank of England on Thursday is likely to keep standing back and watching to see if the election clears the smoke from the Brexit situation. 

Among these names, tobacco firm Imperial Brands PLC (LON:IMP) will be ripping the cellophane off its final results and aiming to avoid another scorching from shareholders as seen when it fired off a profit warning in September due to US vaping worries.

Revenues at the Lambert & Butler maker are expected to grow just 2% in the year with flat earnings per share amid tougher trading in its newly reorganised Africa, Asia and Australasia division, with figures for the segment likely to be watched closely after the firm highlighted more competition in Australia which could offset its results in Europe and the Americas.

Investors will also be on the lookout for any signs of a change in strategic direction after IMP’s long-serving chief executive, Alison Cooper, announced she was stepping down in early October, as well as any developments in its new generation products (NGPs) which includes products such as vapes.

“In our view the market lacks confidence in [Imperial’s] ability to grow an NGP brand profitably, and focus is now likely on disposal progress and what new management could do”, said analysts at UBS, although they conceded that neither of these issues were likely to be addressed in the results.

Ocado deal masks lack of spark at Marks

While Marks and Spencer Group PLC’s (LON:MKS) tie-up with Ocado dominated the headlines in February, the high street fixture's product range will not be available through the online grocer until next September, so the retailer’s core business will be the key focus when it delivers its half-year results on Wednesday.

Many shareholders are likely to still be smarting from its demotion from the FTSE 100.

The numbers are unlikely to provide much positivity as restructuring costs and a lacklustre performance from the clothing & home division mean operating profits could drop by 20%.

Store closures are also likely to weigh on revenues, potentially pushing the decline lower than the 3.6% fall in sales in M&S’s last set of full-year figures.

One saving grace could be the company’s food business, where a focus on better pricing and the inclusion of the Easter period providing a potential sales boost.

Sainsbury performance improving but what next?

Recently monthly grocery market data has shown that J Sainsbury PLC (LON:SBRY) has got its act together after the curtain fell prematurely on showtune-singing boss Mike Coupe’s attempt to merge with Asda earlier in the year.

In the 12 weeks to mid-October, for example, Sainsbury's was the only supermarket of the “big four” to achieve sales growth, confirming its improving status after the shabby performances last year.

Ahead of these upcoming interim numbers, Sainsbury’s said that first-half underlying profit was likely to be £50mln lower than last year, with like-for-sales down 0.2% in the second quarter and down 1.6% in the first.

Noting that the sales performance was better to our competitors, Coupe also looked to get investors back on side with plans to slash costs by closing weaker stores.

The shares have essentially gone sideways for the past six months, with the strategic review, including slashing £500mln over the next five years, refurbishing tens of thousands of stores and raising £270mln-£350mln developing surplus land, not seeming to inspire.

Will Coupe try and pull another rabbit out of the hat or stick to his knitting?

Primark outlook is key, after sugar sours guidance

Associated British Foods PLC (LON:ABF) has scheduled its full-year results on Tuesday, with no fireworks expected ahead of Bonfire Night as Primark’s owner said it all in its September pre-close update.

The conglomerate said year-end net cash would be around £900mln, with the anticipated decline in the sugar division offsetting strong profits brought in by the grocery section and Primark.

Investors seem to believe the group has been sinking like many other UK competitors, as the fast-fashion branch, which brought in two-thirds of ABF’s total profits last year, reported a 2% decline in like-for-like sales in the half-year results.

The outlook should be one area of interest ahead of the key festive season.

Superdry probably still quite damp

Troubled fashion brand Superdry PLC (LON:SDRY) is publishing on Thursday its half-year pre-close statement after a phase of management turmoil.

It was announced earlier this month co-founder Julian Dunkerton would remain as chief executive until April 2021.

Having walked away from the board in 2018, Dunkerton forced his way back earlier this year, even though senior board members warned his return would be “extremely damaging”, following a 65% share price plunge over 12 months.

Analysts reckon this “clean-up” period of addressing strategic mishaps will see underlying profit before tax losing £7mln, as well as a 6% fall in revenue due to a greater focus on full-price sales, less discounting and legacy product that the new team cannot influence.

The faux-Japanese brand, started from a market stall in Cheltenham, is expected to recover from the second half onwards, so comments on current trading will be scrutinised.

Persimmon profits not in season

Housebuilder Persimmon PLC (LON:PSN) is posting a trading update on Thursday, with investors watching closely for changes in trends regarding sales rates, house prices or cost inflation as the big cap has already been reporting on.

One of its biggest issues is the shift towards build quality and customer service, having registered some improvement in the past quarter but still remaining a while away from its peers.

Uncertainty is a killer for the housing market, analysts said, expecting further bumps over the next months as the UK politics navigates through an election and the further Brexit developments.

The forecasts are for a 5% drop in sites volume as 2019 guidance, with operating margins declining to 30.5% in the second half

Turbulence continues for Ryanair

Shareholders are hoping that Ryanair (LON:RYA) will whisk them away from airline sector gloom when it reports interim results on Monday, with the shares having already flown 40% higher since August’s near-five-year low.

The past quarter is the most important for the year, with the consensus estimate pointing to profit after tax of €1.08bn.

But with costs on the rise due to fuel and adverse foreign exchange movements, analysts at UBS expect profits to slow to €933mln from €981mln this time last year even with sales rising to €2.9bn.

Also likely to weigh on Ryanair’s earnings is industrial action undertaken by pilots in the last three months, which rival budget airline Easyjet PLC revealed last month had boosted demand.

Investors might also be keeping an eye on announcements about its 400-strong fleet of Boeing 737s, which Ryanair, among other airlines has been ordered to check after “pickle fork” cracks were discovered on planes in US.

Ryanair was due to have received five of the aircraft in the first quarter, but these were delayed until next January, with analysts anticipating further delays in regulatory approvals and therefore further declines in deliveries.

All of a Flutter

Flutter Entertainment PLC (LON:FLTR) shares had fallen to a four-year low in the summer amid concerns about the tighter regulatory environment for its betting shops in the UK, and May’s weak first quarter numbers.

But since the end of June, optimism has returned to the sector, helped by hopes for growth in the rapidly developing US market and then October’s agreed merger with Toronto-listed Stars Group that will make it the world’s largest online betting and gaming operator.

Analysts at Shore Capital are among those that have some doubts about the former Paddy Power Betfair.

Having been viewed as “the quality, low risk entry into the sector” due to its strong brands, conservative debt metrics and early lead in the US sports betting market.

However, ShoreCap sees an equity valuation at 23 times forward earnings as difficult to square with “more modest revenue growth in recent periods, limited scale beyond the UK, Australia and increasingly the US, and continued regulatory headwinds”.

The proposed Stars deal would bring “several benefits” but at 16x post-tax profit “it is not inexpensive” and will leave a heavy debt burden.

This week’s third-quarter update follow mixed half-year results, where revenue rose 18% as online growth returned in the second quarter and the FanDuel unit in the US surged 148%, though profit before tax fell 24% to £81mln and underlying earnings (EBITDA) dropped 10% due to an incremental £47mln of taxes and duties.

Full steam ahead at Trainline

Shareholders in Trainline PLC (LON:TRN) will hope to find the rail tickets company on track meet its expected “low to mid 20% range” revenue growth for the full year, when it reports its third set of results as a listed company on Tuesday.

Ticket sales continue to shift online and the use of electronic tickets rises, which boosted UK consumer revenues 34% in the six months until 31 August.

Nevertheless, shares have trended down since September, after the ticket seller said it expected UK sales to be “significantly lower” in the second half of the year, as a result of the annualisation of new revenue streams.

Small to mid-cap broker Peel Hunt has kept the transport company at a ‘Hold’ rating, saying there are ‘known unknowns’ in the Trainline’s future, including the Williams Reviews of UK railways this autumn, the potential for Uber to expand its nascent train business, and the advance of the “Reserve with Google” feature on Google Maps.

As WeWork wobbles, we look at rival IWG

Serviced Office Group IWG PLC (LON:IWG) management said a few months ago they were “looking forward to the remainder of the year with confidence”, with the shares reflecting that by doubling between January and the start of September.

Since US rival WeWork's IPO-related wobbles in September, IWG stock has slipped around 8% and so boss Mark Dixon's comments about the sector will be closely followed.

In the first half of the year, the company formerly known as Regus completed the sale of its Japanese business for £320mln as part of a new franchise strategy collaboration with Tokyo-based TKP, with talk of significant interest at attractive prices for other assets, all leading to increased investor interest and an interim profit after tax of £294.9mln.

Broker Peel Hunt said the fee was “extraordinary” and Credit Suisse analysts told clients the move was part of IWG beginning an “evolution towards a franchise model with consequent benefits to financial leverage, return on capital, volatility and, in our view multiples”.

IWG then followed up with another deal for its Taiwanese assets with TKP, involving an initial cash consideration of £22.7mln.

With first-half revenues from “pre-2018” properties growing 5.2% but profit before tax on continuing operation down 4%, Peel Hunt expects revenue growth of circa 3% in the third quarter and while the Q3 numbers should be "supportive" but “the main focus will be more on the progress of the move to a franchising model”.

No major hikups expected for Hikma

Third-quarter trading for Hikma Pharmaceuticals Plc’s (LON:HIK) generic drugs business may have been buffeted by headwinds from new competitors and pricing.

Injectables arm should be able to maintain strong profit margins in the second half, suggested analysts at Peel Hunt as they understand that Pfizer is “some way” from the full relaunch of its competing pain relief products.

“The balance between the downside risk in generics and the upside potential from Injectables will determine the outlook for the remainder of 2019, we think.”

At August’s interims the Anglo-Jordanian group upgraded guidance for the generics business and its injectables arm, so the analysts were not anticipating another strong shift to guidance in this update.

Regulatory pressures could dent Direct Line

The week includes a number of updates from insurers of different flavours, including Hiscox Ltd (LON:HSX), RSA Insurance Group plc (LON:RSA) and wrapping up the week Beazley PLC (LON:BEZ) and Direct Line Insurance Group PLC (LON:DLG).

For consumer-facing operators in the sector, prospects are overshadowed by fears that the UK industry is facing new regulations on renewal hikes.

This follows a report from the Financial Conduct Authority (FCA) issued last month, where the watchdog proposed a suite of remedies to remedy the problem including a ban on raising prices for consumers who renew year on year and restrictions on automatic renewal.

Insurers will also have to publish information about price differentials between customers.

For Direct Line, investors will be hoping the red phone can turn itself around in the second half after its interim results in July reported a 10.8% drop in profits to £261.3mln alongside a 2.2% fall in gross premiums to £1.57bn.

Shareholders may also be awaiting an update on the group’s transformation of its IT systems to make it more competitive in the crowded insurance market, as well as any updates from the new finance boss, Tim Harris, who joined the company at the start of October.

RSA is expected to point to continued improvement in the current year profitability of the business, predicted UBS, while for the likes of Beazley, analysts see management at the Lloyd’s of London outfit noting an elevated loss environment in the past quarter. 

Sophos deal vulnerable?

Cybersecurity firm Sophos Group PLC (LON:SOPH) was locked down in October in £3bn private equity deal with San Francisco-based fund Thoma Bravo, whose portfolio already includes stakes in antivirus companies McAfee and Barracuda Networks.

Investors have had a tough time after the internet security company repeatedly missed profit guidance last year, and were cheered by news of the acquisition, sending shares rising 36.8% to 581.9p.

The final price could end up being “significantly different” from the quoted acquisition price of 583p for each share, said Nicholas Hyett at Hargreaves Lansdown, since the offer is denominated in dollars and sterling continues to be volatile.

Hyett added: “It might make sense to sell the shares now rather than hold on until the deal completes – even if that does rule out the possibility of a bump in price from any rival bid.”

Sophos has already announced that it expects second-quarter billings to be up 9% in constant currency terms, with growth in end user and network security revenues, and report 12% growth in subscriptions.

Bank of England getting itchy trigger fingers?

With the general election now inked in for December, the Bank of England is almost certain to sit on its hands at Thursday’s  policy meeting.

This is despite the hints from Governor Mark Carney and his colleagues of their desire to push through further interest rate increases.

Hikes would make sense, given low levels of unemployment and wage growth that is outstripping inflation, said Russ Mould at AJ Bell, but the MPC is also mindful of Brexit-related uncertainty, which is a big reason for not increasing the headline cost of borrowing.

“Throw in interest rate cuts from central banks on Europe and America, to name but two, and it’s pretty hard to see the BoE raising rates and a lot easier to see it shifting stance toward making a case for cuts.”

The monetary policy committee should unanimously keep the interest rate at 0.75%, economists reckon.

Looking further forward, Citigroup, which sees the doves among the policymakers pointing to weak economic confidence and hawks gesturing to solid wage growth, said a decisive election result before Christmas could bring rate hikes.

“If voters decisively back the Conservatives’ Brexit deal or a ‘Remain alliance’ and second EU referendum, and the winners execute their fiscal easing plans, rate hikes could follow (global economy permitting).

“If not, a rate cut becomes more likely.”

Significant events on Monday 4 November

Interims: Norcros PLC (LON:NXR), Ryanair Holdings PLC (LON:RYA)

Trading statements: Hiscox Ltd (LON:HSX)

Economic announcements: UK and EU construction PMI, US factory orders

Significant events on Tuesday 5 November

Finals: Associated British Foods PLC (LON:ABF), Imperial Brands PLC (LON:IMB), UP Global Sourcing Holdings PLC (LON:UPGS)

Interims: Castleton Technology PLC (LON:CTP), Mxc CapitalLtd (LON:MXCP), Trainline PLC (LON:TRN)

Trading statements: IWG PLC (LON:IWG), Weir Group PLC (LON:WEIR)

Economic announcements: UK, EU and US PMI services, UK BRC shop price index, UK balance of trade, US non-manufacturing ISM, EU producer prices

Significant events on Wednesday 6 November

Finals: Connect Group PLC (LON:CNCT)

Interims: Marks and Spencer Group PLC (LON:MKS), Sophos Group PLC (LON:SOPH)

Trading statements: Apax Global Alpha Ltd (LON:APAX), Croda International Plc (LON:CRDA), Intu Properties PLC (LON:INTU), Redrow plc (LON:RDW), Tyman PLC (LON:TYMN)

AGMs: Hansard (LON:HSD), Hermes Pacific Investments PLC (LON:HPAC), Innovaderma (LON:IDP), Redrow plc (LON:RDW), Schroder Japan (LON:SJG), Strategic Equity Capital PLC (LON:SEC), Vast Resources PLC (LON:VAST)

Economic announcements: Halifax house prices, EU retail sales, US MBA mortgage applications

Significant events on Thursday 7 November

Interims: 3I Infrastructure PLC (LON:3IN), Auto Trader Group plc (LON:AUTO), Great Eastern Energy Corporation Ltd (LON:GEEC), Halfords Group PLC (LON:HFD), JZ Capital Partners Ltd (LON:JZCP), Renewi PLC (LON:RFD), J Sainsbury PLC (LON:SBRY), System1 Group PLC (LON:SYS1), Tate & Lyle PLC (LON:TATE)

Trading statement: Bank Of Georgia Group PLC (LON:BGEO), Derwent London PLC (LON:DLN), Flutter Entertainment PLC (LON:FLTR), G4S PLC (LON:GFS), Hikma Pharmaceuticals Plc (LON:HIK), Howden Joinery Group PLC (LON:HWDN), IMI PLC (LON:IMI), Inchcape PLC (LON:INCH), Inmarsat Plc (LON:ISAT), Lancashire Holdings Ltd (LON:LRE), McCarthy & Stone PLC (LON:MCS), Persimmon PLC (LON:PSN), Provident Financial PLC (LON:PFG), Purplebricks Group PLC (LON:PURP), RSA Insurance Group PLC (LON:RSA), Superdry PLC (LON:SDRY), TI Fluid Systems PLC (LON:TIFS)

AGM: Supermarket Income REIT (LON:SUPR)

Economic announcements: Bank of England rate decision, US jobless claims, US consumer credit

Ex-dividends to knock 6.5 points off FTSE 100 index: BP PLC (LON:BP.), Whitbread plc (LON:WTB

Significant events on Friday 8 November

Trading statement: Castings PLC (LON:CGS), Direct Line Insurance Group PLC (LON:DLG), Beazley PLC (LON:BEZ)

AGMs: Red Emperor (LON:RMP)

Economic announcements: US Michigan confidence, US wholesale inventories

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