Buy, sell or hold? Mindful Money’s weekly shares watch: Burberry, Vodafone, M&S & Royal Mail

18th May 2015


Vodafone shareholders are likely to have their fingers crossed in anticipation of hearing improved sales numbers when the group updates the market with its fourth quarter numbers on Tuesday.

During the past year, the telecommunications giant has seen its shares rise by 8% and in the last three months broker sentiment has heated up with the consensus now pointing to a ‘buy’.

Looking to this week’s results, Sheridan Admans, investment research manager at The Share Centre who also has the FTSE 100 member on his ‘buy’ list said that specifically investors will want to hear that there has been a moderation in the slowdown in sales in key European countries – as was in the case during the third quarter.

He added: “The UK still seems to be the only major European country where it is experiencing growth. Analysts expect global revenues to grow by 8%, with a similar increase in operating profits led by growth in the emerging markets and increased demand for data services. Investors will be looking out for commentary on possible acquisitions as the telecoms industry consolidates and offers ‘quadplay’ services.”

Wednesday sees high street stalwart Marks & Spencer reports its own full year results.

With the group’s shares up 23% over the past year, Keith Bowman, equity analyst, at Hargreaves Lansdown Stockbrokers said the “clear positive in the fourth quarter” was a return to growth for clothing sales, made without the sacrifice of profit margin.

He noted that food sales again grew, whilst prior difficulties for its online operations appeared to have been largely tackled. However less favourably, international sales arguably remained unconvincing, hindered most recently by challenges in Russia and the Ukraine.

Bowman said: “Current full year profit predictions look for a 4% increase in underlying or adjusted pre-tax profit to £648m on a consensus basis and a 2.5% rise for the final dividend to just over 11 pence. Furthermore, and given the improved sales performance, hopes that management may announce additional shareholder returns, potentially via a special dividend, now persist.”

Admans, who currently lists Marks & Spencer as a ‘buy’, noted that since its positive trading update, rival Next has also reported good growth in clothing sales so many investors will expect some reassuring news.

He said: “The performance of the food business has been excellent in recent times, but the market will be keen to see if there has been any impact from a rise in petrol prices and deflationary pressures elsewhere in the food retailing sector.”

Overall with the group’s focus on improving sales, particularly for General Merchandise, showing tentative delivery, analyst consensus opinion currently points towards a ‘cautious buy’.

Luxury fashion house Burberry also reports its final results on Wednesday. Having already reported second half sales, profits and the outlook head the agenda.

Bowman highlighted that challenges in Hong Kong and changes in the price mix are expected to see adjusted pre-tax profit falling by just over 3% to £446m, whilst currency headwinds and fragrance launch costs also play their part.

The new CEO, Christopher Bailey, has had a bit more time to bed in and the investors so far seem to be happy, with the stock up by 15% over the past year.

Admans, who is calling the shares a ‘buy’ said: “Despite the weak global economic backdrop, trading updates over the last year have been optimistic. Markets expect the sales to increase by 8% over the financial year but restructuring of parts of the business and investment into new retail space to dampen profitability. There is also likely to be a significant currency impact on sales as sterling appreciates. Investors will look out for the sales indicators in key regions such as China.”

But prior to this week’s update, and with the share price having outperformed the wider FTSE-100 index by some 15% during the last year the overall analyst opinion currently points towards a ‘strong hold’.

Royal Mail Group reports its full year results on Thursday. Despite the firm’s shares being down by 15% over the past 12 months, the decision by Dutch-owned Whistl, formerly TNT, to suspend its UK letter delivery service has aided recent Royal Mail share price performance, as highlighted by the 8% jump over the last month.

Bowman said: “Against the backdrop of inline nine month trading, accompanying management comments are expected to provide little near term inspiration. Hindered by a pay increase for frontline employees, consensus operating profit year-over-year is expected to decline by 30% to £466m, while the potential threat of Amazon’s own delivery network looms in the background.”

In all, and ahead of the announcement, analyst consensus opinion signifies a ‘sell’.

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