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Marks & Spencer looks to bring spark back after FTSE demotion

Home builder Redrow and cybersecurity firm Sophos will also be delivering numbers

Marks and Spencer Group PLC -
Restructuring costs and a lacklustre performance may hit M&S profits

On Wednesday Marks and Spencer Group PLC (LON:MKS) provides its first trading update since its embarrassing demotion from the FTSE 100 in September.

As the retailer had been in the index since it was formed in January 1984, it was a deep stain on the ties of chairman Archie Norman and chief executive Steve Rowe, though they maintain that the pieces are now in place to turn the company around after around a decade of declining profits.

One of the most recent moves was a new “buy now, pay later” service launched last week and another was the tie-up with Ocado, which dominated the headlines in February, though the high street fixture's product range will not be available through the online grocer until next September.

The retailer’s core business will be the key focus when it delivers its half-year results this week, though 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.

Home-builders under the hammer

There will also be an eye kept on house-builder Redrow (LON:RDW) for signs of a Brexit-related consumer slowdown when it gives a quarterly trading update.

Fellow builder Crest Nicholson issued a profit warning last week, which worryingly showed not only new sales being dented, but that some buyers were pulling out of purchases for which they had already signed contracts.

With larger rival Persimmon’s trading update hot on its heels, Redrow will likely to be seen as another bellwether for the industry, which is thought to be suffering at the moment from political uncertainty, as well as stalling house price inflation which is tightening margins for builders.

Analysts at Shore Capital warned that Redrow “may have to echo Crest’s experience”, since like Crest, Redrow tends to offer premium-priced houses and is weighted toward the south of the country.

Redrow’s southern division was responsible for 39% of total revenues last year, meaning a dip could hit profits hard.

Peel Hunt, which has the housing company on a ‘buy’ rating, added that signs to look for are changes in sales rates, price inflation and cost pressures, especially over the last six to eight weeks while Brexit concerns have increased.

Sophos to be locked down in £3bn private equity deal

Shares soared 37% at Sophos Group PLC (LON:SOPH) in October after news broke that the cybersecurity firm had been locked down in a £3bn private equity deal with Thoma Bravo, leading investors to breathe a sigh of relief after the promise of a generous 583p per share.

The news came after a tough last year for the internet security company, repeatedly missing its overly-optimistic profit guidance due to slow billings growth.

Ahead of its second-quarter results on Wednesday, the firm has already announced that it expects billings to be up 9% in constant currency terms, with growth in end user and network security revenues, and report 12% growth in subscriptions.

If growth comes in lower than hoped, however, Nicholas Hyett, equity analyst at Hargreaves Lansdown, warns that investors might be tempted 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”.

Nevertheless, Hyett said shareholders shouldn’t count their chickens yet, as the final acquisition price could look “significantly different” from the quoted 583p per share offer, since it is denominated in dollars, and sterling continues to be volatile.

Significant events on Wednesday 6 November

FinalsConnect Group PLC (LON:CNCT)

InterimsMarks 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

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