Mindful Money’s Monday share tips: United Utilities, Compass, Kingfisher & Wolseley

25th November 2013

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Investors will be hoping for no unwelcome surprises and a report inline with expectations from United Utilities when it delivers its second quarter results on Wednesday writes Philip Scott.

The group, which operates the regulated electricity distribution, water and wastewater networks in north west England has seen its shares fall by 3% in the past three months and lose 1% over the past year.

Citigroup reiterated its ‘neutral’ stance on the firm last week while Sheridan Admans, investment research manager at The Share Centre lists the stock as a ‘buy’. He says: “With the decision fast approaching for the next regulatory period and on the back of recent political pressure that is growing on utility groups, any comments on the situation from the company will be of interest.”

Following a late September trading update, which provided some reassurance, contract catering giant Compass Group, delivers its full-year results on Wednesday.

The management previously noted its “expectations for the full year remain positive and unchanged.” A 0.2% increase in the group’s operating profit margin was forecast, with analysts currently predicting a 7.2% rise in pre-tax profit to £1.16bn.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers highlights that the management also noted that both the group’s North American and emerging markets divisions are, once again, expected to have led performance, although management’s prior flagging of “some modest slowdown in activity” for the latter is likely to see investors scrutinising any accompanying outlook comments closely.

Over the past 12 months the group’s shares have firmed by a solid 27%. Broker Panmure Gordon has repeated its ‘hold’ position on the stock, a sentiment Admans backs. He says: “Investors will be keen to hear if there has been any improvement in trading in Compass’ European and Japanese operations, where it has been implementing aggressive restructuring.”

Bowman says: “Prior to the announcement and with Compass still seen as offering an attractive combination of defensive growth characteristics, analyst opinion continues to denote a ‘buy’.”

B&Q owner Kingfisher updates with a trading statement on Thursday and investors will be keen to see if the rise in mortgage lending in the UK, supported by the Government’s Help to Buy programme and a stabilising retail market, is reflected in the group’s sales growth and margin performance.

Over the past year, its shares are up 39% but the last three months have seen them loosen by 1%. Credit Suisse is bullish on the prospects and has an ‘outperform’ rating on the stock.

Admans says: “Lacklustre trading conditions prevailing in Europe, poor wage growth, rising unemployment and poor consumer sentiment means Kingfisher is likely to need strong revenues and profits from its UK operations to offset that from its continental business. We currently list Kingfisher as a ‘hold’.”

The divergent economic backdrop for its two key markets – the UK and France – is likely to remain a core theme says Bowman. He adds: “Less volatile and more seasonal weather, along with improving trends in the UK housing market should support growth in like-for-like sales at its UK B&Q subsidiary.

“Less favourably, and with France having recently moved back into recession, French like-for-like sales are likely to have remained subdued. In all and prior to the update, analyst opinion currently points towards a ‘strong hold’.”

In Wolseley’s trading update, also expected on Thursday the most important item to focus on will be the comments made as to the health of the US housing market asserts Admans.  Over the past year the group’s shares have enjoyed a 15% hike while and the last three months have seen them shed 3% of their value. Analysts at Deutsche are calling the shares a ‘buy’.

Admans says: “Other areas of interest will be the European situation, which has been under pressure and has led to some restructuring, and hopefully continued signs of improvement in the UK. Costs and margins will also be topics noted by investors. We currently list Wolseley as a ‘hold’.

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