Companies Reporting: Direct Line, Rentokil and Savills

Our regular look at the FTSE 350 and a selection of other companies reporting from 13-17 March.

• Direct Line looks to steady the ship
• Close Brothers struggles with drab performance
• Can Inditex finish the year in style?
• Will Keywords move things up a level?
• Savills expect fresh notes of caution
• Rentokil sales keep killing it

Direct Line LON:DLG, Full Year Results, Monday 13 March

Matt Britzman, equity analyst, Hargreaves Lansdown:
“It’s been a rocky year so far for Direct Line and its investors, with the shares down over 20% year to date. January’s trading statement was bleak, as we heard fourth-quarter claims were significantly higher due to cold weather over December. Add the impact of rising costs to cover insurance claims, and lower profits are the result. An insurer’s combined operating ratio measures the percentage of premiums that are paid out as claims or expenses. We’re now expecting a ratio over 100% for the year, into loss-making territory. This was the final domino to fall, and the full-year dividend’s been given the chop.

The second piece of troubling news came from the now-former CEO, Penny James, who stepped away from the business with immediate effect toward the end of January. Quick-fire changes at the helm are rarely good news, after all, if there’s one thing markets dislike it’s uncertainty – we’re hoping to hear an update on a long-term successor next week.”

Close Brothers Group LON:CBG, Half Year Results, Tuesday 14  March

Steve Clayton, head of equity funds, Hargreaves Lansdown:
“There could be a lot of moving parts with these results. The group has been struggling to contain losses within its former Novitas division, which provided financing to the legal sector. The group’s market making business, Winterfloods, has been suffering from depressed trading volumes for some time and analysts will be looking for signs that this is beginning to turn the corner.

The core banking division has been the bright spot of late, but with the economy facing higher interest rates than for many years, the level of bad debts emerging will be critical. The shares have been drab of late and now offer a yield of over 6%.”

Inditex LON:ITX, Quarter 4 Results, Wednesday 15 March

Aarin Chiekrie, equity analyst, Hargreaves Lansdown:
“Zara parent, Inditex, will be looking to cap off the year in style. The group’s enjoyed a stellar year so far, with sales over the first nine months up 20% to €23.1bn, ignoring exchange rates. In the face of continued supply chain disruption, Inditex built up higher than usual inventory. Initial signs showed the extra inventory was getting picked up by consumers, but we’re eager to see whether it’s been brought back down to more normal levels when Inditex reports next week.

Digital investment, as well as closing smaller stores and focusing on bigger ones in prime locations, has been helping the group to maintain its impressive margins. But since Inditex last reported, a dispute over worker’s pay has now been resolved. The agreement will see the average salary in its Spanish stores rise by 20%, with further increases over the next three years in line with inflation. Given that a third of the group’s employees work in Spain, this will have a material impact on the group’s costs. We’re keen to hear how management expect to maintain margins with this extra expense.”

Keywords Studios LON:KWS, Full Year Results, Wednesday 15 March

Derren Nathan, head of equity research, Hargreaves Lansdown:
“We’re expecting a strong set of results from the video game service provider, following two consecutive upgrades in its latest trading updates. Revenue for 2022 is expected to be up over 30% and underlying pre-tax profits should come in at about €112m. With such explicit guidance already in place, our focus will be on the 2023 outlook, where organic revenue growth is already anticipated to moderate. Just by how much remains to be seen.

We’ll also be keen to hear how well recent acquisitions are doing. The company completed five in 2022, and last month announced it had bought 47 Communications LLC, a leading US-based PR and communications agency with expertise in the video game, technology, entertainment and digital lifestyle sectors. Given Keywords’ history of snapping up complementary bolt-on companies, we wouldn’t be surprised to hear of more deals on the table.“

Savills LON:SVS, Full Year Results, Thursday 16 March

Susannah Streeter, head of money and markets, Hargreaves Lansdown:
“Although Savills has proved super-resilient despite the difficult economic backdrop, we are likely to hear fresh notes of caution in this update. Demand for high-end residential property has been relatively strong, but as higher interest rates feed in and comparisons with high volumes during the post lockdown boom become apparent, there is likely to be a significant slowdown in volumes, particularly outside London.

Commercial transaction activity is also expected to continue to be more subdued given potential recessions on the horizon. However, a lack of supply of prime residential stock may stem significant declines in portfolio valuations. The outlook for the short term may be rocky but, over the longer term, as the overall market stabilises, Savill’s growth prospects should be steadier.’’

Rentokil Initial LON:RTO, Full Year Results, Thursday 16 March

Susannah Streeter, head of money and markets, Hargreaves Lansdown:
“Rentokil has been killing it in terms of sales, posting double digit growth in revenues year on year in the third quarter, and investors will be keen to see that momentum continue.  The acquisition of Terminix in the US, which completed in October, has put Rentokil Initial in a commanding position in the world’s largest pest control market, offering a really solid revenue stream and huge opportunities to consolidate a fragmented industry.

The risk remains though that combined benefits won’t emerge as quickly as hoped, or that other stumbling blocks could emerge. Even though recessions are looming on the horizon, the need to deal with problem mice, rats, moths and bugs isn’t going to go away. These are not discretionary but seen as essential services, which are likely to be protected in a downturn, particularly given such problems tend to escalate in cost if not addressed immediately. Investors will have sharp eyes trained on cost controls at the pest controller and will be assessing if the company still has the capacity to increase prices to offset inflationary pressures as too many hikes risk denting customer loyalty.”

This article has been brought to you in association with Hargreaves Lansdown. All opinions expressed in this article are from the analysts and do not necessarily represent the opinions of The Armchair Trader.

FTSE 100, FTSE 250 and selected other companies scheduled to report