The Week Ahead: Figures due from Royal Mail, Thomas Cook, Kingfisher, Severn Trent and Topps Tiles
- Credit: PA
Royal Mail will present its first set of results as a listed company this week, alongside figures from groups including Thomas Cook, Kingfisher and Severn Trent.
Royal Mail shares have soared since being valued at 330p in last month’s initial public offer, which saw 690,000 members of the public pick up tranches worth around £750.
At one point they were trading at nearly 600p, fuelling claims that they had been underpriced by the Government and that City traders had been allowed to make vast profits at taxpayers expense.
Business Secretary Vince Cable dismissed the surge as “froth” but they have held steady at well over 500p.
However, a recent analysts’ note from UBS poured cold water on the strong run, saying despite its good prospects the stock now looked overpriced and targeting a much-lower value of 450p instead.
They argued that while margins will continue to improve amid a transformation in the business, it faces challenges including declining letter volumes, competition, and hurdles in trying to cut the workforce.
However, Shore Capital disagreed, targeting a 540p level and noting that “industrial action, whilst rightly feared, has remained in the background throughout the business’s major transformation in recent years”.
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Chief executive Moya Greene returned Royal Mail to profit last year after four years of successive losses, as the company prepared for privatisation.
Operating profits for the year to the end of March this year more than doubled to £440million. Its last set of interim results saw a figure of £144m for the six months to September 2012, up sharply from £12m the year before.
Looking to the half-year results on Wednesday, UBS expects to see some weakness in parcels due to tough comparisons, pricing increases and a slowdown in e-commerce growth, although it still expects Royal Mail to benefit from a strong Christmas.
Across the 12 months, the broker believes operating profits will edge up by around £5m to £445m, with a bigger jump to £591m the following year.
In the run-up to the results, Ofcom said the recently-privatised company missed a requirement to deliver 93% of all first class letters on the day after collection, reaching 91.7%.
Thomas Cook chief executive Harriet Green will face the spotlight as she sets out the latest update on the 172-year-old travel operator’s battle to return to profit.
Annual results to be published on Thursday will cover the first full 12-month period under her stewardship.
The group had been on the brink of collapse before agreeing a rescue deal with its bankers in May last year. Ms Green took up her post two months later after joining from electronics firm Premier Farnell.
Last November the travel agent revealed annual pre-tax losses had sunk to £485.3 million and the new boss described the results as “unacceptable”.
It fired the starting gun on a fresh round of cost-cutting and the six months to the end of March saw losses narrow to £275.6m. The company then announced it was axing 2,500 jobs and closing nearly 200 high street travel agencies.
In May, the group unveiled a £425m fundraising with shareholders in a bid to cut debt, part of a wider £1.6billion refinancing plan.
It has said that in the financial year 2012/13 it would cut costs by £170m. In August, the group said net debt had been halved from £1.1bn to £452m.
Ms Green said underlying earnings for the third quarter, which nudged into the black, showed the travel agent was “back from the brink”. But the group was still nursing pre-tax losses of £79m for the period.
In a pre-close update in September, she said full-year results would be in line with City expectations - currently for an underlying profits figure of just over £100 million. But the group said turmoil in Egypt had hit recent bookings.
Last month, Thomas Cook unveiled a new “sunny heart” logo to be rolled out across all its websites, high street stores and planes as part of a major brand overhaul. A new “Let’s Go” slogan replaces “Don’t just book it, Thomas Cook it”.
B&Q parent Kingfisher is set to reveal a weather boost to trading figures on Thursday after the hot summer and unseasonably mild autumn spurred on sales of home improvement and garden products.
The group saw sales of outdoor goods at DIY chain B&Q surge 17% in the second quarter after the heatwave sent demand for hosepipes and barbecues soaring along with the temperature.
It is expected to been helped further in the third quarter thanks to the hot August Bank holiday and warm autumn, which compared with colder temperatures a year earlier.
Analysts at Bernstein are predicting a 2% rise in UK and Ireland same store sales, also including the group’s the Screwfix chain, down only slightly on the 2.5% lift seen in the third quarter.
But Deutsche Bank is expecting much of the third quarter sales rise to come from Kingfisher’s Screwfix arm as it benefits from a pick up in the trade market.
It is forecasting a more muted 1% rise at B&Q, although this would still be a marked turnaround on the 4% plunge seen a year earlier.
While the market will be keen for any signs of a boost from the recent housing market revival, Deutsche Bank experts believe B&Q will have to wait until next year before it feels the benefit.
They said: “UK house moves should rise by around 15% in 2013 to the highest level since 2007, but are still 25% below historic averages.
“Help to Buy launched during the third quarter, hence a major sales recovery at B&Q is unlikely until 2014/15.”
Trading profits across the group are likely to see an impressive rise, by as much as 12.6% to £289m in the third quarter, according to Bernstein’s team, thanks to a favourable currency movements and a decent performance across its international operations.
Water company Severn Trent publishes half-year results on Tuesday, a week after announcing the appointment of BT executive Liv Garfield to lead the company from next year.
The 38-year-old is expected to become the youngest chief executive in the FTSE 100 when she takes over after current boss Tony Wray retires in the spring. She has been lured from BT’s Openreach division with a pay package of up to £2.4m.
Before that takes place, the utility giant faces the task of submitting its business plan to regulator Ofwat by December 2, ahead of its price review covering the period from 2015 to 2020.
It comes as the body takes a tough line on tariffs, having refused an application for an additional price increase asked for by Thames Water.
Ofwat chairman Jonson Cox recently wrote to all water companies asking them to consider whether they needed to increase their bills for 2014-15 by the full amount set out in the last price review given the squeeze on household incomes.
It has called on their business plans for the next five year plans to “reflect their customers’ priorities” and said that it “believes there is scope for reductions in bills from 2015”.
Severn Trent supplies 4.2m households and businesses across the Midlands and parts of Wales and earlier this year rejected a £5.3bn takeover offer from a Canadian-led consortium.
Full-year underlying pre-tax profits to the end of March were £266.3m, a 3.3% fall attributed to investment and a rainy summer in 2012 lowering farmers’ water consumption. Half-year underlying pre-tax profits in the six months to September 2012 were £157.5m.
Britain’s economic recovery and a pick up in consumer confidence will help Topps Tiles report a modest return to profits growth on Tuesday.
The UK’s largest tile and wood flooring specialist said in September that it was expecting profits for the year to September 28 to edge up to £13m, against £12.8 million a year earlier after halting sales declines in its final quarter.
Like-for-like sales were held flat in the last three months, limiting the overall annual fall to around 0.5%.
The profit performance comes in stark contrast to the 8% decline seen the previous year. Topps said the economic recovery and signs of an improvement in consumer confidence was providing a boost, while the group is also benefiting from £2 million of cost cutting and “self-help measures” being led by chief executive Matthew Williams.
Mr Williams slashed staff bonuses and employee hours to make savings earlier this year, impacting its 1,700 workforce.
Topps is banking on an expected benefit from the housing market recovery and believes long-term investments including its store and online offering leave it well-placed to take advantage.
It now trades from 328 stores, having opened 18 outlets and closed or relocated 15 during the financial year.