Earnings season is basically over but now we are getting trading updates from key companies across the globe that also provide insights into how certain markets are performing.
Investors next week will see how the tobacco market is performing as BAT delivers an update, if a travel boom is in the cards for WH Smith and if there are new dividends coming out of B&M.
Outside the UK, retail giant Inditex, which owns Zara, will give investors a quarterly update.
Here's what to look out for:
WH Smith (SMWH.L) — Trading statement on Wednesday 5 June
The travel retailer was hit hard during COVID but has made a strong comeback with a “good” start to the financial year. However, its share price has plummeted 44% over half a decade and investors might be questioning their decision to hold.
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“WH Smith last reported that strong trading momentum had continued into the second half. That was just a month ago and, with the peak summer period still to come, investors aren’t expecting too many changes. First half profit growth was slower than revenue, so investors will be looking to see if moderating inflation is giving margins a boost,” Derren Nathan, head of equity research at Hargreaves Lansdown, said.
While the broader market gained around 12% in the last year, WH Smith shareholders lost 26%, including dividends. However, there are growth opportunities for the company.
“The market’s not expecting a huge acceleration in growth in the second half, despite the growing travel hub footprint, so there is some potential scope for upside as the year progresses," said Nathan.
"There’s a substantial opportunity to take market share overseas, particularly in North America, so analysts will be looking at site openings, which were last thought to be around 110 in the current financial year. The estate totals around 1,300 travel stores, of which just under half are in the UK. Travel is now the dominant arm, with more than double the number of stores seen on the high street.”
For those looking to invest, the retailer is seen as a bargain FTSE 250 stock, with its shares commanding a price-to-earnings growth (PEG) ratio of just 0.9.
B&M (BME.L) — reports full-year results on Wednesday 5 June
The UK discount chain has experienced some volatility when it comes to its share price, with the stock going as high as ￡5.58 and falling to the lows ￡5.
Its latest results will provide some clarity to investors as to whether the current trading price is reflective of the actual value of the company or if it’s an investment opportunity for those picking undervalued stocks.
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Markets are expecting total sales growth of 8%, to ￡5.9bn and an increase in adjusted Ebitda of 6% to around ￡670m.
“Analysts and shareholders will doubtless look to management for any early steer on trading in the first quarter of the new financial year, as the end to the year looked soft in some eyes, especially as a key rival, Wilko, went out of business last year,” Russ Mould, investment director, Danni Hewson, head of financial analysis, and Dan Coatsworth, investment analyst, all of AJ Bell, wrote.
Shares in B&M European Value Retail are up by around a fifth in the past year and the bargain store stuck to its guidance for the full year to the end of March.
Investors will also be keen to get an update regarding dividends.
“B&M European Value Retail declared a special payment of 20p a share alongside January’s update and paid that in February. The FTSE 100 firm increased its interim dividend by 0.1p a share to 5.1p and analysts think the dividend for the whole of the past year will be 15.6p, up from 15p. For the year ahead, a further modest increase is expected for the regular dividend, with another 20p-per-share special on top of that,” AJ Bell wrote.
British American Tobacco (BATS.L) — Trading update on Tuesday 4 June
Investors will get a feel for how bad the tobacco market is performing when BAT reports next week. Trends in 2022 show a continued decline in tobacco use rates globally. With about one in five adults worldwide consuming tobacco compared to one in three in 2000.
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The share isn’t exactly an investor darling because of ESG concerns and underperformance that has seen its price drop by 14% in the last five years.
However, the company does have an attractive dividend policy that might convince shareholders to hold on to the stock.
“British American Tobacco’s full year guidance of low single-digit growth in both revenue and operating profit may seem unambitious. But, with the tobacco market in continuing decline, it’s down to robust pricing and increasing demand for next generation products, like vapes, to keep financial performance moving in the right direction,” Nathan from Hargreaves Lansdown said.
“The company’s already mentioned that this year is likely to be second-half weighted, so investors will be finding out next week just how much heavy lifting will be required for the rest of the year. Progress on paying down net debt will also be in focus, which is seen as key to enabling further share buybacks.”
Inditex (IDEXY) — Reports quarterly results on Wednesday 5 June
Spanish textile giant Inditex, owner of the fashion brand Zara, is expected to deliver a "solid, but not spectacular" quarter for the Spanish ready-to-wear group when it reports next week.
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Barclays analysts said they expected the apparel giant's growth to decelerate in its first offset quarter. Still, the bank expects the Zara owner's operating margin to have held up well in the quarter to the end of April.
Meanwhile RBC Capital Markets has taken a fresh look at the retail fashion sector in Europe and decided to downgrade Inditex.
Inditex's differentiated business model has helped it to deliver strong outperformance during and after the pandemic, RBC noted, but as a result its stock has gained 10% year to date and almost 40% over the course of the last year.
“We now expect trends gradually to normalise, thus providing less scope for upside surprises, and we have more valuation upside for some other retail stocks,” the bank added.
Thus, RBC has downgraded its rating on the Zara owner to ‘sector perform’ from ‘outperform’, keeping its target price at €47.
Barclays maintains a 'weight online' recommendation on the share, with a target price of €39.
