The week ahead: Tesco, Card Factory, Saga

The retail sector is back in the spotlight, with annual results next week from supermarket giant Tesco as well as updates from ASOS, Card Factory, WH Smith and Dunelm.

Monday 9 April

Trading statements

Cathay International, Etalon, Keywords Studios

Tuesday 10 April

Card Factory (CARD)’s strong record of cash generation means the vertically integrated retail chain has returned almost £250 million to shareholders since its IPO in May 2014.

In light of two profit warnings in four months, the company’s guidance on further returns of surplus cash to shareholders in the coming months will be interesting to note in annual results on Tuesday.

The chain is still growing underlying sales, but this is being driven by lower margin categories such as gifts and dressings. Amid import cost headwinds and wage inflation, earnings for the year to the end of January will be between £93 million and £95 million compared with last year’s £98.5 million.

Trading statements

Boku, Card Factory, Eddie Stobart Logistics, Hydrogen, M.P. Evans, Nanoco, Serica Energy

Wednesday 11 April

Sales momentum and the completion of its £4 billion Booker takeover have lifted the mood at Tesco (TSCO), which reports annual results on Wednesday.

Investors are now increasingly confident that the supermarket chain is moving in the right direction, as highlighted on Friday by Deutsche Bank and Goldman Sachs reaffirming their buy ratings and 220p target prices.

Other brokers have said that they think Tesco is capable of reaching 250p, which would represent the highest level for shares since 2014.

Operating profits for the last financial year are expected to be up 20%, with the chain due to reinstate its full-year dividend following the 1p interim pay-out in October.

Going forward, Barclays thinks there’s room for annual dividend growth of 46% based on the group’s stated 2 times target for dividend cover. This implies a yield of about 4.6% for the 2020/21 financial year.

A deterioration in UK consumer confidence is a major risk, but so far Tesco appears to be one of the better performing supermarkets. Recent figures from Kantar Worldpanel showed that both Tesco and Morrisons (MRW) achieved sales growth of 2.4% in the 12 weeks to March 25.

Trading statements

ASOS, McCarthy & Stone, Page, Tesco, Vedanta Resources

AGM/EGM

Rio Tinto

Thursday 12 April

With Saga (SAGA) shares still near to a record low, the pressure is on chief executive Lance Batchelor to convince investors that he has the strategy to turn around the over-50s holidays-to-insurance company.

The group, which is due to report annual results on Thursday, issued a profits warning in December after being hit by the collapse of Monarch Airlines and a difficult market for insurance broking.

It said growth in underlying profits was expected to be between 1% and 2% for the year to the end of January, followed by a 5% drop this year due to headwinds and an extra £10 million on customer acquisition costs.

Despite the downgrades, Saga has not changed its dividend policy and said that the forthcoming pay-out will be in line with forecasts. UBS previously said it expects 8.93p per share for the full year.

Batchelor believes that actions being taken now, such as a new claims platform and the renewal of its shipping fleet, will result in a better quality of earnings and help support a progressive dividend policy for shareholders.

Trading statements

Destiny Pharma, Dunelm, Greene King, Hays, Man, PZ Cussons, Quiz, Saga, WH Smith

Friday 13 April

AGM/EGM

Ros Agro

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