It could be a quiet week on the corporate front, with updates from Daily Mail, Ferguson and Greggs the headliners.
Monday 2 October
Despite a 2.8% reversal this week with a portfolio shuffle potentially on the horizon, momentum is firmly against Daily Mail owner Daily Mail & General Trust (DMGT) ahead of a trading update that kicks off the week. Year-to-date, the firm has seen a fifth of its value go up in smoke.
“Labouring” full-year like-for-like (LFL) revenue growth of 1%, up from 0% at the nine-month stage, hardly gets the excitement going. Broker Panmure Gordon expects earnings per share (EPS) for FY2017 to come in at 51.5p, but has nudged EPS forecasts for 2018 and 2019 down by 1.7% and 0.7% respectively. Recently proposed disposals, meanwhile, could bring further EPS dilution.
DMGT Friday announced the sale of part of its Hobsons education technology division. The disposal of the “challenged” admissions software business, which makes up a quarter of Hobsons’ revenues, to Campus Management Corp should be welcomed, according to Liberum.
While analyst Jonathan Helliwell accepts that the fundamental valuation “undoubtedly looks cheap” after such share price weakness, a valuation of 12 times forecast 2018 earnings coupled with negative momentum means the investment case is “less compelling”.
He also reduces his target price modestly to £7, suggesting upside of 13%, but with a ‘hold’ rating as he waits for “a better entry point”.
James Halstead, Daily Mail and General Trust
Tuesday 3 October
On a slightly more upbeat note, analysts at UBS think full-year results from plumbing and heating product supplier Ferguson (FERG) Tuesday could be a “positive catalyst” for the company formerly known as Wolseley.
Shares began climbing in anticipation last week, having bounced between the £44 and £48 level since June. The stock currently trades 9% higher than a fortnight ago.
After disappointing operational performance over the recent past, UBS’s Gregor Kuglitsch says a return to operational leverage in the US, which now accounts for almost 90% of EBITA, means there’s scope for a £300-£500 million special dividend or share buyback.
“Top-line growth has been good at +8.5% LFL in Q3, which we expect to continue into Q4 and moderate slightly to +7% in FY18,” he says. “We expect operational leverage to improve to around 8% in Q4 and around 10% going forward, supporting modest margin expansion of around 10 basis points per year in the US.”
Having said that, Kuglitsch has pared back his target price by around 5% to 5,050p due to recent weakening of the US dollar versus sterling, giving modest potential upside of 3.5%. He remains ‘neutral’ on the stock. “We note that after Q417, Ferguson will report in USD, removing most of the FX related volatility.”
Ferguson, Greggs, Blancco Technology, Electrocomponents
Wednesday 4 OctoberTrading Statements
Walker Greenbank, Avacta, Ceres Power
Amedeo Air Four Plus Ltd, AdEPT Telecom
Thursday 5 OctoberTrading statements
SkinBioTherapeutics, Pacific Assets Trust
Friday 6 OctoberAGM/EGM
San Leon Energy
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