Smiths Group PLC (LON:SMIN) will fly the flag for the engineering sector on Friday with its interim results.
Investors are likely to be eyeing trends across its four main divisions for any signs of increasing momentum.
A first-quarter trading statement in January indicated some stabilisation in the company’s industrial business; however, energy and aerospace were still showing weakness so investors will be looking to see if the situation has changed.
Also in focus will be the dividend, with analysts having pencilled in a total payment for the current year of 40p per share, as well as the status of the firm’s planned spin-off of its medical division.
“In terms of strategy, analysts’ shareholders will be on the look-out for three things: updates on the Medical spin-off; progress toward the £70 million cost savings target, following last autumn’s launch of a restructuring programme; and any commentary on the group’s medium-term operating margin target of 18% to 20% on an underlying basis, compared to last year’s 15%,” said Russ Mould at AJ Bell.
Turning to macroeconomic matters, UK retail sales data for February is due out and Pantheon Macroeconomics thinks the market will be in for a pleasant surprise after January’s depressing slump.
“The consensus forecast for a 2.1% month-to-month rise in the official measure of retail sales volumes in February, released on Friday, is far too cautious. We look for a top-of-the-range 4.5% jump, reversing nearly half of January's 8.2% decline,” said Pantheon’s chief UK economist, Samuel Tombs.
“Lockdown rules didn't change in February, but it appears that more retailers started to trade again, having failed to reopen after Christmas. The ONS's Business Impact of Covid-19 survey shows that 67.2% of businesses in the wholesale and retail trade sector were trading in the two weeks to February 21, up from 61.8% in the two weeks to January 24.
“People also appear to have been more willing to venture out of their homes and visit shops that are classified as essential; the number of people visiting shopping locations was 39% of its level a year ago in February, a step up from 35% in January, according to Springboard. Households also became more confident; GfK's composite index rose to -23 in the first half of February, from -28 in early January, before increasing to a 12-month high of -16 in early March,” Tombs noted.
Supermarkets probably benefited greatly from restaurants being closed on Valentine’s Day, Tombs speculated, while non-food sales “likely recovered partially” after plunging 24.4% in January.
“Sales in January were 21.5% below November's level, even though lockdown rules for shops were the same, demonstrating their ample scope to have recovered in February, as retailers fulfilled demand through online sales or via click-and-collect services,” the economist added.
Significant announcements expected
Interims: Smiths Group PLC (LON:SMIN)
Economic data: UK retail sales, US personal incomes, US Michigan consumer sentiment