Mindful Money’s Monday share tips: M&S, Morrison and Rolls Royce

4th November 2013

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A spate of FTSE 100 listed firms including retailers Morrison and Marks & Spencer are updating the market this week – we look at what action stockbrokers are recommending investors take.

Marks & Spencer is due to report its half-year results on Tuesday. With the retailer’s higher margin general merchandise (GM) sales having contracted for the last nine consecutive quarters, and despite increased lower margin food sales, pre-tax profit is expected to decline – down by 10% to £267m says Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers.

He adds: “Nonetheless with the rate of sales decline for GM having slowed down -1.6% in the first quarter, versus -3.8% in the fourth quarter last year, and premium food sales doing well, hopes that the group may be nearing a turning point appear to have strengthened.”

Analyst opinion has moved from a ‘hold’ at the first quarter update to a ‘strong hold’ prior to the results.

On Tuesday Imperial Tobacco delivers its fourth quarter results and investors will be keen to see if the group has reduced the rate of falling volumes and getting costs down. The past year has seen its shares decline by 2% and rise by 4% over the last three months.

But the consensus on share website Digital Look has the stock a “buy”, as does Sheridan Admans, investment research manager at The Share Centre. He says: “Investors will be looking for further evidence of Imperial Tobacco continuing to build market share in key markets and increasing demand for its luxury products, such as Cuban cigars and Snus.”

Miner Randgold Resources announces its third quarter results on Thursday. Brokers are seeing the firm’s 40% share price fall over the past year as a prime opportunity to ‘buy’.

Admans says: “The underlying gold market has been volatile post taper comments resulting in similar moves in Randgold Resources’ share price. However operationally, investors can be pleased with what’s going on with the company. Investors should welcome the record levels of production the company has been experiencing and will also be on the lookout for further details of exploration results in the Ivory Coast.”

Morrison Supermarkets is scheduled to report its third quarter trading update on Thursday. The last 12 months have seen its shares edge ahead by 5% and fall by 4% over the past three months. With the company behind rivals in adopting both convenience stores and an online offering, like-for-like sales are again expected to decline while current full year pre-tax profit is also expected to decrease by around 11.5% to £797m says Bowman.

He adds: “More positively, moves to address strategy deficiencies have been made – a joint venture with delivery company Ocado has been agreed – whilst a cut in capital expenditure and potential property sales and lease backs are expected to boost shareholders returns.

“Nonetheless, with Morrison now playing strategy catch-up and the company arguably competing the most (among the big four retailers) with the discount retailers, analyst opinion currently denotes a ‘sell’.”

On Friday Rolls Royce updates the market and investors will want to hear of contract wins and the level of order backlogs, which have been at record levels, pushing its shares up 30% of the last year. Admans says: “News of the progress on the Salam re-pricing contract along with the impact earnings guidance for 2013 and 2014 should be of interest. We currently list Rolls Royce as a ‘buy’.”

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