The Week Ahead: Updates due from Severn Trent, Kingfisher, Topps Tiles and De La Rue
The pursuit of Severn Trent by foreign investors and demand in the DIY sector will interest investors during a quieter week for corporate updates.
The latest position on the takeover interest in Severn Trent looks set to dominate the water giant’s annual results.
The group, which supplies 4.2million households and businesses across the Midlands and parts of Wales, recently rejected an approach from an overseas consortium headed by Canadian infrastructure investment group Borealis.
Severn said the approach, thought to be priced at under £5billion, “completely fails” to recognise the water company’s value, adding that it offered only a “modest premium” to its share price. However, analysts think Borealis and its partners, the Kuwait Investment Office and Universities Superannuation Scheme, will return.
Andrew Mead, analyst at Goldman Sachs, said: “Historically none of the previous approaches in the water sector that have been announced in the last 10 years have failed in taking over the water company.”
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Severn is set to report a slight dip in underlying pre-tax profits to £271.5m for the year to the end of March when it reports on Thursday, down from £275.3m a year earlier, according to a consensus of analysts, although revenues are forecast to rise to £1.83bn from £1.77bn.
Predators have been targeting the few remaining publicly traded water companies in recent years, after buyouts of Yorkshire Water, Northumbrian Water and Thames Water.
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British water firms are prized by foreign investors and pension funds for their monopoly on customers and relatively stable returns.
Borealis already co-owns the UK’s biggest ports operator, Associated British Ports, and the London to Paris High Speed 1 rail line. It invests on behalf of thousands of Canadian workers and pensioners in the Ontario Municipal Employees Retirement System.
The Kuwait Investment Authority invests the emirate’s vast oil wealth and the Universities Superannuation Scheme invests the pensions of UK higher education workers.
B&Q and Screwfix owner Kingfisher looks set for more disappointing quarterly figures on Thursday, with concerns growing that its poor performance could be about more than just the weather.
Sales of gardening and DIY products this year are likely to have been hit by the prolonged cold spell which extended into March.
But analysts are also worried about Kingfisher’s revenues being threatened by a shift from “do-it-yourself” to “do-it-for-me”, while there is also concern over possible structural problems in the business.
The latest trading update, covering the period from February to April, is the first since full-year results in March showed annual profits and sales tumbling, with the fall blamed on a wet summer and weak consumer confidence.
Analysts Cantor Fitzgerald forecast operating profits down to £156m from £160m compared to the same period last year, with like-for-like sales off 1.2%.
This includes a weaker performance both in Britain and in Kingfisher’s French businesses Castorama and Brico Depot. The looming threat of a recession in Poland could also hurt its other main market, Cantor said.
Putting a sell rating on the stock, it said stores were too large, hard to shop and not aligned to the new trend for smaller, convenience-style stores.
However, Keith Bowman at Hargreaves Lansdown said initiatives in the pipeline including a major revamp of B&Q’s online offering and a move to reduce store space made it a “cautious buy”.
Topps Tiles, the UK’s largest tile and wood flooring retailer, is expected to report another dent in profits on Wednesday as it unveils half-year figures.
The group, which has 320 stores across the UK, warned earlier this year that it expected to see underlying pre-tax profits for the six months to the end of March fall to around £4.3m, compared with £5.6m for the same period last year. It said like-for-like revenues were expected to have fallen by 0.3%.
The company said it was facing weaker-than-expected demand but that cost-cutting initiatives would help it meet full-year profit forecasts of £13.3m to £13.8m.
The annual figure fell to £12.8m last year, blamed on the stagnating economy and low level of housing transactions. At the time it said 18 stores had been given a facelift in the past 12 months with more to come over the year.
Analyst Philip Dorgan retained a hold rating on the shares on the basis that the company was well-placed to benefit from an upturn in the housing market - which has been boosted by a series of Government initiatives.
However, N+1 Singer remained cautious amid volatile consumer confidence and concern that Topps faces increased competition from DIY retailers such as B&Q.
Delayed orders for currency and intense competition will flatten earnings at banknote printer De La Rue when it publishes annual results on Thursday.
Last year the group warned a number of significant orders had been pushed into its next financial year, and would lead to annual earnings treading water. That sent shares in the FTSE 250 group lower, although they have recovered some ground since February as some of these orders belatedly trickle through.
Analysts expect the group to post operating profits of £63m for the year to the end of March, level with a year earlier, while underlying pre-tax profits are expected to hit £57.1m, a slight dip on £57.7m last time.
The 200-year-old company, which produced around 6.4bn banknotes and about 9,000 tonnes of banknote paper during the financial year. is battling increased competition in the market for banknote paper, which is holding back prices.
However, the group is expected to show progress with improving its cost-saving plan, which is improving procurement and making its sites more efficient.