Mindful Money’s weekly shares update: Marks & Spencer, Associated British Foods & Morrisons

2nd November 2015


Investors in Associated British Foods will be eager to hear how the group’s very first US Primark store, which only recently opened, is doing when the firm delivers its full year-results on Tuesday.

Over the past 12 months, the FTSE 100 constituent has enjoyed a 25% rise in its share price but Graham Spooner, investment research analyst at The Share Centre believes shareholders will be keen to hear what the plans the business has in place for expansion in world’s largest economy.

Spooner, who has the stock down as a ‘hold’ says: “The falling profitability of the sugar division has been a concern for some time so that will also be scrutinised by investors, as will the impact of the strong pound on profits. While earnings are expected to fall for the year to September, the market expects dividends to be maintained.”

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers agrees, noting that while its US arm is likely to head the agenda, he says that despite guided improvements in operating profit on a constant currency basis for the Retail, Grocery, Agriculture and Ingredients businesses, “declines in European sugar prices are again expected to impact profits at the business”.

Bowman adds: “Ahead of the news, and with expansion for Primark and some stabilisation for sugar prices, pitted against a valuation which is arguably up with events, analyst consensus opinion currently denotes a ‘strong hold’.”

Wednesday sees Marks & Spencer deliver its own set of half year results. Shares in the high-street stalwart have increased by 27% over the past year but are down by 7% over six months.

Looking at what to expect Spooner, who calls the group a ‘buy’ says: “Retail sales, and especially clothing, have been strong across the UK generally in recent times as wages have risen and inflation has remained subdued. The market will be focusing closely on the profit margin of M&S’ womenswear range as that has been flagged up by the company as one of its main targets for improvement.”

Bowman highlights that despite expected further double digit growth for its online proposition, second quarter like-for-like General Merchandise (GM) sales are again expected to be dragged lower given ongoing weak store sales.

“Food may again provide some counterbalance, although international operations are likely to have battled currency headwinds and tough macro-economic backdrops. Underlying pre-tax profit is forecast to edge higher year-over-year, up 1.65% to £272m following management’s push to reduce lower margin GM promotional sales and pursue direct product sourcing initiatives,” he adds.

On balance, and with management still focused on improving performance at its General Merchandise division, ahead of the update, Bowman says the analyst consensus opinion continues to point towards a ‘buy’.

Embattled supermarket Morrisons, up 8% over 12 months reports its third quarter trading update on Thursday. In the wake of recent data from market researcher Kantar and ongoing market share gains for discounters Aldi and Lidi, like-for-like sales are forecast to fall by around 1.25%.

Bowman expects that an underlining of the relatively new chief executive’s six point strategic priority plan detailed at the half year results could be made, “while a reiteration of guidance for underlying profit before tax to be higher in the second half of 2015/16 than the first would reassure”.

However, Bowman says that on balance against a backdrop of falling debt and the group’s comparatively solid balance sheet, the analyst consensus opinion has recently thawed from a ‘sell’ to a ‘weak hold’.

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