Mindful Money’s Monday stock watch: Centrica, BAE Systems & BHP Billiton

16th February 2014

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Investors will be keen to here the how British Gas owner Centrica is dealing with the political pressure currently engulfing the firm when it updates the market this week, while BAE Systems and InterContinental Hotels Group also publish their latest numbers writes Philip Scott.

Tuesday sees miner BHP Billiton deliver its second quarter results. The group has already provided a production update for the last six months, which was relatively positive with some key commodities seeing rising production levels.

While the group’s shares are off by 15% over the past year, they are up 5% over the last month on the back of improving sentiment towards the sector.

According to share data hub, Digital Look, the overall broker consensus rates the group’s stock a ‘buy’, and analysts at both Deutsche and Jeffries have recently reiterated their own ‘buy’ recommendations.

Sheridan Admans, investment research manager, The Share Centre says: “As commodity prices in general have held up over recent months, with some even seeing small increases, we would expect investors to see a moderate uplift in BHP Billiton’s financial numbers. Asset write-downs still remain a possibility and management are likely to remain cautious on large scale investment projects. We currently list BHP Billiton as a ‘buy’.”

InterContinental Hotels Group’s fourth quarter/full year results also arrive on Tuesday.

Goldman Sachs re-affirmed a ‘buy’ on the firm’s shares, up 3% over 12 months, earlier this month while both JP Morgan Cazenove and HSBC reiterated ‘neutral’ positions.

As in the third quarter, the group’s Americas and Asia, Middle East and Africa divisions are expected to lead growth in RevPAR (Revenue Per Available Room) says Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers. He adds; “While its European division is again expected to lag, a recent rival update suggests a possible uptick in Southern Europe. The pending sale completion of its New York Barclay hotel is also expected to see management announcing a further share buy-back, estimated to be in the region of $300 million. Adjusted earnings for both the fourth quarter and full year are forecast to expand by around 6%, with analyst opinion prior to the release pointing towards a ‘strong hold’.”

For Admans, the shares are a ‘hold’. He says: “With a slowdown across emerging markets investors will be keen to see how Intercontinental Hotels Group (IHG) has managed its operations in those regions, in particular its China operation, where revenue growth was impacted by a series of natural disasters early last year.

“Investors will also be looking to see the group continue to project a robust forward bookings outlook, particularly after it expects 2014 to be a strong year for the company as it expands its operation in Australia.”

Centrica, down 8% over the past 12 months, reports its own set of full year results on Thursday. Along with a threat from the Labour opposition party to freeze consumer prices if elected, the energy minister has now asked regulators to pay particular attention to the company within a current review of competition in the retail energy arena.

Bowman, says: “Centrica under its British Gas brand is currently the largest retailer of household gas. Management outlook comments will be closely scrutinised, whilst the relatively mild, if wet, winter weather is likely to have dampened energy use for the reported full year 2013. Ahead of the announcement, analyst opinion currently denotes a ‘hold’.”

Admans believes that the mild weather in the UK will almost certainly have lead to a fall in demand and its US operations have also been under pressure. He says: “Analysts have concerns over earnings growth, along with increasing costs and falling margins so investors will be keen to hear an update on this. We currently list Centrica as a ‘hold’.

Thursday sees BAE Systems, one of the world’s biggest weapons and aviation groups, update the market with its fourth quarter numbers. Over the past year the group’s shares have rocketed by 31% but the full year results for 2013 are expected to be dampened by the failure of the firm to complete a deal with the UAE for fighter jets and the Salam price negotiations with Saudi Arabia.

Ahead of the update the market consensus appears to be taking a ‘neutral’ position towards the group. Admans, who for his part, rates the stock a ‘hold’ says: “Hopefully management will comment on the likelihood of a successful completion in the first quarter of 2014. Investors will want to see orders picking up from other regions such as the Middle East and Asia Pacific as demand last year from the US and UK was relatively weaker, due to budget constraints. However, investors will still expect to see the order backlog pickup further and the rather large pension deficit to come down a little.”

 

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