Mindful Money’s weekly shares watch: Sainsbury, ITV & Rolls-Royce

10th November 2014

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Given the challenges presently facing Morrison, and especially Tesco, investors will be eager to hear how Sainsburys is performing when it updates the market with its half-year results on Wednesday.

The supermarket giant has not been immune to the headwinds – namely stiffer competition – in the sector and over the past year its shares are down by a hefty 34% and ahead of the update the consensus opinion currently denotes a ‘weak hold’.

On the day the strategic update from new chief executive, Mike Coupe will head the agenda and Keith Bowman equity analyst at Hargreaves Lansdown Stockbrokers highlights that intense competition is expected to underwrite a 10% plus decline in pre-tax profit to around £346m.

He says: “A focus on cost reduction is likely to be announced, while speculation that the company, like rival Tesco, could move to cut the dividend payment, also persists. An update with regards to its Netto discount stores partnership could also feature.”

Against the tide, Sheridan Admans, investment research manager at The Share Centre is more bullish and currently has the stock on his ‘buy’ list.

He says: “Any signs that the company is likely to participate in the growing price war in the sector will also be of interest. There is also concern that after growing dividends steadily for a number of years, the company may decide to cut its payout this year.”

Thursday sees ITV reports its third quarter trading update. The X-Factor and Downton Abbey broadcaster has enjoyed an 8% share price rise over the past six months and is expected to report further progress, with growth for both its advertising and studios business forecast.

Bowman says: “Underpinned by a focus on cash generation, potential for additional bolt-on acquisitions at its Studios business could be highlighted, whilst management’s focus on cost reduction may again be underlined.”

He adds: “For now, and aided by takeover hopes following Liberty Global’s (owner of Virgin Media) 6.4% share stake purchase from BSkyB, analyst opinion currently points towards a ‘buy’.”

Admans, in line with the consensus is calling the shares a ‘buy’ and notes that, as is usually the case, comments on the outlook for advertising rates will be important as will the control of its cost base.

Thursday also sees aero-engine maker Rolls-Royce publish its latest interim management statement. There has been a regular flow of news from the company recently, including a profit warning in October and restructuring in early November.

Brewin Dolphin equity analyst Iain Armstrong, says: “After a disappointing third quarter trading update and reduced medium term guidance for its civil aerospace business, Rolls-Royce found itself back in the public eye with the announcement that it was to cut 2, 600 posts from its 55,000 employees worldwide.”

Despite the troubles engulfing the company, and the general sentiment pointing to a ‘neutral’ stance on the shares, Cantor Fitzgerald and UBS have both re-issued ‘buy’ recommendations, as has Admans.  Looking ahead to the update, he says: “The market may think that the majority of significant news is already out. Investors may expect more comment on the group’s current situation and hope for some clarity regarding the future.”

Armstrong adds: “Management has already tried to justify the cuts by explaining the reduced need for development engineers given that key engine families are now at the production stage. In addition the simplification of the organisation from five divisions to two has reduced the number of management layers. However, getting rid of highly skilled engineers – who are already in short supply globally – suggests that the current malaise in Rolls-Royce’s orders may more than a short term concern.”

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