Mindful Money’s weekly shares watch: Tesco, GlaxoSmithKline & Unilever

20th October 2014

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Investors will be eagerly looking for some clarification on the troubles engulfing supermarket giant Tesco when it reports its first half results on Thursday.

Shares in the embattled firm have nosedived by some 20% since it revealed in September that it had wildly overestimated its half-year profits by £250m. Over 12 months the stock is now down by 53%.

Nicla Di Palma, equity analyst at Brewin Dolphin notes that judging by recent market share numbers like-for-like sales in the UK will be poor and the operating margin will have declined and more importantly, it will announce the results of its investigation into accounting irregularities.

She says: “The new CEO Dave Lewis might also announce his new strategy for the company, although he has only been in the job for a couple of months and may need more time.”

Hargreaves Lansdown equity analyst Keith Bowman believes that rumours with regards to a possible rights issue or a potential sale of its Club Card data business may also feature.

Trading profit is now forecast by management to come in at £850m, down from the previous £1.1bn and a fall of 46.5% compared to last year.

Bowman says: “More positively, the group’s two recent non-executive appointments could be reiterated, which included Richard Cousins, current CEO of Compass Group and who previously oversaw the takeover of British Plaster Boards (BPB).”

But with the retailer far from gaining investor confidence – where just last week, renowned investor Warren Buffett slashed his stake in the retailer – analyst consensus opinion continues to point towards a ‘sell’.

Thursday also sees consumer goods group and Persil owner Unilever publish its third quarter trading update. Back in September, it warned that the environment has deteriorated in the second half with total market growth around 2%.

The firm’s shares are just 2% up over 12 months and Sheridan Admans, investment research manager at The Share Centre asserts that given the recent bearish comments growth investors will be very interested in how sales in emerging market areas are performing. He adds: “There will also be a focus on how commodity prices have changed input costs and whether the strength of the pound is continuing to have an impact.”

Bowman adds: “First half underlying emerging market sales growth grew by 6.6%, down from 8.7% in the previous full year. Asia and Russia will again be of particular interest. More positively, management’s focus on cost reduction is likely to be underlined, while the recent weakening in the pound could provide some optimism to any accompanying management outlook comments.”

On Wednesday, pharmaceutical group GlaxoSmithKline unveils its third quarter numbers and following some poor Q2 data investors will be hoping for a more upbeat tone from GSK, which is currently sitting in ‘hold’ territory by broker consensus.

Admans, who rates the stock a ‘buy’, says: “We wait to see whether the company still believe 2014 will be flat in terms of revenue growth. However, Europe was the primary cause for its sales declines and the region has not improved any further. Investors will still expect a positive outlook for its R&D pipeline and an update on the integration and disposal of assets with Novartis will be welcome.”

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