Just one blue-chip Company – Bunzl PLC (LON:BNZL) – is on the corporate diary in the week ahead, but a batch of mid cap firms will provide some interest, not least in the transport sector, where FirstGroup PLC (LON:FGP) has a crunch general meeting, and Stagecoach PLC (LON:SGC) issues a trading update.
On the macro front, all eyes will be on the latest two-day G20 meeting in Japan, which starts on Friday and continues at the weekend, with the main focus on an expected meeting between US President Donald Trump and Chinese president Xi Jinping which should discuss possible resolutions to the ongoing trade wars between the two superpowers.
Big meeting for FirstGroup
It is crunch time for FirstGroup and its 10%-shareholder and activist investor Coast Capital with a general meeting on Tuesday to bring their clash to a head.
Coast is looking to get shareholders in the transport group to vote on its proposal to sack six of the Company’s 11 directors and replace them with seven nominees of Coast’s choice, including former UK transport minister Steve Norris. This follows May 2018’s sudden departure of FirstGroup’s then boss Tim O’Toole.
Russ Mould, investment director at AJ Bell commented: “This ticks many classic activist boxes: a strategic reassessment of the business as assets are put up for sale or a spin-off, to create a more coherent set of core operations; further improvement in the cost base to improve operational performance; and a focus on more rigorous capital allocation, to maximise operational profits, buttress the balance sheet and enhance shareholder returns.
“However, FirstGroup said that pressure from Coast was not the catalyst for the strategic re-think while Coast said the plan did not far enough. Mr Gregory still needs to consult with stakeholders, shareholders, regulators and pension trustees, so there he has much work to be done, and this meeting may decide whether he gets the chance to get cracking or not.”
Stagecoach lawsuit to overshadow results
But since then, the transport operator has been disqualified from the tender process for the West Coast, East Midlands and South Eastern franchises due to concerns over future pension funding.
Stagecoach has launched legal action against the Department for Transport after being barred from bidding for the West Coast and East Midlands franchises and is also considering suing the government department over South Eastern.
The row is likely to overshadow the Company’s results for the year ended April 27 with the focus on how the loss of the franchises will impact future earnings.
Liberum Capital expects Stagecoach to post pre-tax profit of £143.5mln for the 2019 financial year, compared to £95.3mln last year.
The City broker predicts pre-tax profit will fall to £101.9mln in 2020 and to £89.5mln in 2021.
Stagecoach’s East Midlands contract expires in August, while its South Eastern franchise is due to end in November, and the West Coast franchise finishes in March 2020.
Hoping for some detail in Bunzl update
Unusually, Bunzl’s first-quarter trading statement in April did not please everyone and the shares in the FTSE 100-listed support services group took a pasting with the result that they have gone nowhere fast.
The group does not normally discuss profits in its trading statements, leaving that to the actual interims, which usually come out in August.
However, just in case it does, analysts will be looking at two things from Wednesday’s second quarter update from the firm - operating margin and its US performance.
In a preview, AJ Bell’s Russ Mould pointed out: “Bunzl’s return on sales has been pretty stable around the 6.5% to 7.0% level for the last decade or so, on an adjusted basis, as we can see here, although the stated number has been more volatile, owing to restructuring costs related to the companies purchased.”
He added: “The USA was the source of that Q1 disappointment. Bunzl flagged lower sales in grocery and retail in particular, thanks to a lack of volume growth and the absence of price increases. Do note that Bunzl won some additional grocery business in the USA in Q2 last year so the base for comparison is tougher.”
Acquisition and contract wins to lift Serco revenue
In its 2018 results statement in February, the outsourcing firm raised its sales guidance for 2019 to £2.9bn-£3.0bn, from a previous estimate of £2.8bn-£2.9bn.
That compares to revenue of £2.8bn last year, which was down 4% year-on-year due to a weak UK market.
Since the results, Serco has announced a number of contract wins and extensions in the US, Dubai and Australia along with a £140mln share placing to help fund the US$225mln acquisition of US engineering firm Alion’s naval systems division.
The acquisition of the US naval business is expected to complete in the second half of 2019 and will contribute an estimated US$370mln in revenues in the first year of ownership.
When Serco reports its first quarter trading update on Thursday, investors will be hoping the recent contract wins and acquisition will lead to another upgrade to its outlook.
They will also want to know whether the company is any closure to resuming dividend payments, and look for any further comment about its rejected attempts to takeover Babcock International PLC (LON:BAB) earlier this year, confirmed recently.
Production news key for Tullow Oil
Tullow - shares in which are little changed from where they were four years ago - in April trimmed its total production guidance to 90,000-98,000 barrels of oil per day, but has high expectations for its “exciting” exploration campaign in Guyana and also has ambitions of making a final investment decision (FID) on another potentially sizeable project in Kenya this year.
Investors will be expecting an update on these first three Guyanese exploration wells, though drilling results are not expected in July and a Guyana FID in the second half of the year is pending a final tax decision from the country’s government.
“An oil price of around US$60 a barrel may not be as high as Tullow would have hoped for, but given the increased level of production should still see the group generate a healthy slug of cash this year,” said analyst Nicholas Hyett at Hargreaves Lansdown, eyeing the company’s plans to reduce debt and pay a sustainable dividend.
Order book progress wanted from Wood Group
Oil services firm Wood Group PLC LON:WG.) will also post a trading update on Wednesday.
It’s shares have almost halved since last September as the group continues with restructuring since its merger with while Amec Foster Wheeler, not helped by last month’s admission that trading was only “slightly ahead” of last year and that the full year result would be more than usually reliant on an improvement in the second half of the year.
The FTSE 250-listed group has been hit particularly by lower oil prices along with tension in the Middle East which has the potential to impacts its contracts, analysts at the Share Centre said in a preview, and they are looking for any increases in the order book from US$10bn to “help allay some of these concerns”.
Ahead of interims in mid-August, analysts at UBS said they expected Wood’s latest update to cover “deleveraging and potentially progress on disposals for which Wood has guided to US$200-300mln. We will also be looking for commentary on synergies, cash flow and dividend.”
Trading update a distraction from Petrofac’s woes
Fellow oil services mid-cap Petrofac PLC (LON:PFC) remains engulfed in a Serious Fraud Office investigation into historic allegations of bribery, so Tuesday’s last trading update could provide a distraction.
While the FTSE 250-listed company has not been charged with any offences, there’s potential for fines and other regulatory penalties, and that continues to hang heavy on the share price.
Looking beyond the investigation at the underlying business, cost control has been an important area of focus for Petrofac , and analysts at The Share Centre expect more progress on that front - with headcount likely to continue falling.
In a preview of the update, The Share Centre analysts said: “Petrofac’s engineering contracts usually come with long lead times and it’s important the order book is kept full with new projects to support future profitability.
“Recent years have seen the value of outstanding contracts shrink significantly – that’s linked to a general downturn in activity in the oil & gas sector, but the ongoing investigation probably isn’t helping. The size of the order book is therefore our key metric to watch at the moment.”
How are BCA’s takeover talks coming along?
WeBuyAnyCar owner BCA Marketplace PLC (LON:BCA) confirmed recently that Wednesday’s full-year results will be in line with expectations, despite the “continuing macro, UK-specific economic and political challenges” that many companies have moaned about in recent months.
BCA bosses also told investors that this year’s final dividend will be bumped up to 6.65p a share, compared with 5.95p last time around.
None of that is much of a concern at the moment, though, given that in the same announcement, BCA revealed it was in “advanced” talks with private equity firm TDR Capital over a potential £2bn sale.
TDR, which owns David Lloyd Leisure, has proposed an offer of 243p per share in cash. That is only a proposal at the moment, and TDR has to confirm its intention to make a formal offer by 18 July.
BCA investors will be hoping to hear of more progress with talks between the two parties, as well as why bosses think a sale might be the best option for the business.
Margin rebuild underway at Gear4Music
Musical instruments retailer Gear4Music (Holdings) PLC (LON:G4M) will report a 36% jump in sales when it publishes its full-year results on Tuesday.
But G4M has struggled to convert the top-line growth into extra profits, not least because of additional distribution costs following a busier-than-expected Christmas.
As a result, it is now guiding for underlying earnings (EBITDA) to be “not less than £2mln” for the year just gone, almost half of that it achieved in the previous 12 months.
Management has promised to focus on rebuilding margins in 2019 in order to return to a “more profitable growth trajectory”. Investors will want to see evidence that this is happening.
Trump/Xi key to G20 meeting
Sometimes what goes on behind the scenes at the G20 get-togethers is more important that what takes place and is seen in public, as was reportedly the case in 2016 when the so-called Shanghai Accord was struck to talk down the dollar and help stabilise global financial markets.
This time around, everyone will be looking to see if President Trump and President Xi Jinping can reach an agreement on trade.
After the last G20 meeting in Buenos Aires, Argentina, in November 2018, the US President said there would be a trade deal by March and otherwise he would slap extra tariffs on Chinese goods. That deal did not materialise but neither did the tariffs.
Financial markets are now hoping that Trump and Xi will reach a deal in Japan, not least because global economic data is looking spotty and central banks are getting edgy about growth.
Significant announcements expected for week ending June 28:
Monday June 24:
Economic data: CBI distributive trades report; German IPO business climate survey
Tuesday June 25:
Economic data: BBA UK mortgage lending; US new home sales; US consumer confidence
Wednesday June 26:
Interims: Autins Group PLC (LON:AUTG)
Economic data: US durable goods
Thursday June 27:
Finals: Greene King PLC (LON:GNK), Itaconix Plc (LON:ITX), Liontrust Asset Management PLC (LON:LIO), James Latham PLC (LON:LTHM), Manolete Partners PLC (LON:MANO), SDCL Energy Efficiency Income Trust PLC (LON:SEIT), XPS Pensions Group PLC (LON:XPS)
Ex-dividends to knock 6.18 points off FTSE 100 index: British American Tobacco PLC (LON:BATS), British Land Company PLC (LON:BLND), Burberry Group PLC (LON:BRBY), Experian PLC (LON:EXPN), JD Sports PLC (LON:JD.)
Economic data: US weekly jobless claims; US GDP; US pending home sales; US PCE inflation
Friday June 28:
Economic data: UK GfK consumer confidence; Nationwide house prices; UK quarterly GDP; US personal income/spending; US Chicago PMI; University of Michigan final consumer confidence survey