Our regular look at the FTSE 350 and a selection of other companies reporting from 30 January to 3 February 2023.
- Can Severn Trent’s fortunes remain buoyant?
- Will earnings momentum continue for GlaxoSmithKline?
- Amazon Retail margins will be front of mind
- Apple battles disruption in China
- Sparse profits on the horizon for Shell
- Alphabet are keen to rein in costs
- Cranswick faces a number of upcoming challenges
Severn Trent, Q3 Trading Statement, Wednesday 1 February
Derren Nathan, head of equity research, Hargreaves Lansdown: “Next week, Severn Trent’s LON:SVT trading statement is unlikely to reveal any major spanners in the works. The UK-based water utility company saw revenues rise 10.8% in the first half of the year and is expecting full year revenues to come in at around £2bn. Its strong market position, coupled with a regulatory pricing framework, provides a level of stability to revenues – a great quality to possess when times get tough.
But these robust revenues come with a caveat. The prices Severn Trent can charge for its services are restricted by the current regulatory regime, which runs to 2025. This limits financial returns and sets challenging performance targets for earning additional rewards.
While current investments could pave the way to make more profit in the future, they’re likely to put pressure on near-term margins. That’s why we’re keen to hear how well costs are being controlled, and next week’s update should shed some light on that situation.”
GlaxoSmithKline, Q4 Results, Wednesday 1 February
Derren Nathan, head of equity research, Hargreaves Lansdown: “In next week’s fourth quarter results we’ll be looking to see if GlaxoSmithKline LON:GSK can continue its recent run of beating analyst estimates. As a whole, underlying profit for the year is expected to outpace the group’s own goal of 10% annual growth out to 2026. We’ll be looking out to see how confident GSK is of making that same target in 2023.
In the clinic, the final quarter of 2022 was a mixed bag for GSK’s pipeline. Following disappointing trial results, GSK pulled its multiple myeloma therapy Blenrep from the US market, but it’s too early to write the drug off just yet, with two differently designed trials still ongoing. Elsewhere, progress towards regulatory approval for momelotinib, for the treatment of the rare blood cancer myelofibrosis continues. Decisions from both the US and European authorities are expected this year.
Vaccines, in particularly the Shingrix vaccine for Shingles, have been a strong growth driver of late and we hope to see that momentum continue. The Board have high hopes for its respiratory syncytial virus (RSV) older adult vaccine, which is pending regulatory approval. But GSK is not the only contender here, with Moderna the latest to release compelling data for its candidate.
The market responded favourably to a December ruling in GSK’s favour in the Zantac litigation and we will be looking out for any assurance the company can give on other claims.”
Amazon, Q4 Results, Thursday 2 February
Sophie Lund-Yates, equity analyst, Hargreaves Lansdown: “Amazon NASDAQ:AMZN is dealing with plenty of unhelpful headwinds. High inflation and a shaky economic outlook mean retail sales were lower than we’d hoped for last quarter. Slowing retail sales are a problem because Amazon’s costs are too high, after gargantuan expansion efforts after the pandemic accelerated demand. While volumes are dropping, the net effect is poor profit performance. Despite double digit rises in revenue last quarter, profits almost halved to $2.5bn. It will be important to keep an eye on the outlook statement where demand is concerned. With inklings that interest rate hikes could start to slow, there’s a chance of some positivity coming through.
News of UK strikes can’t be ignored. This isn’t the first time Amazon’s been under the spotlight where labour is concerned, but it may be forced to factor in new pay rises, which could spell further trouble for margins.
As ever, it will be equally crucial to see how the cloud business, AWS, is holding up. Microsoft has reported a beat in its cloud division, as companies look for ways to unlock long-term efficiencies. This should have a positive read-across for Amazon, which should help to stem losses elsewhere, thanks to the cash generative nature of running a cloud business.”
Apple, Q1 Results, Thursday 2 February
Matt Britzman, equity analyst, Hargreaves Lansdown: “Apple NASDAQ:AAPL is expected to see revenue drop for the first time in 15 quarters when it reports first quarter earnings. Having held up relatively well over the last earnings season, we’re cautiously optimistic about the coming results.
A weaker US dollar and price hikes pushed through toward the end of last year should both act as tailwinds. But significant production disruptions in China due to Covid restrictions, riots and walkouts were a challenge. The main concern is that short term disruptions may be compounded by weakening hardware demand, iPhone sales were already a little weaker than expected back in October.
The Christmas period will be a crucial barometer for the health of the consumer.
There’s also a concern that upward pressure on costs is likely to be a lingering bugbear, especially as Apple looks to accelerate production diversification away from China. It’s thought to be the right move for long term production stability and investors will look out for updates on this.”
Shell, Q4 Results, Thursday 2 February
Susannah Streeter, senior investments & markets analyst, Hargreaves Lansdown: “Oil prices are hovering around $86 a barrel, well down from the spikes to above $120 dollars last summer, Shell’s LON:SHEL profits won’t be pouring in at quite the same bumper rate. However, energy prices are still elevated by historical standards and so these are still buoyant times for the energy giant. Operational hiccups have also been eradicated in the integrated gas division so, although wholesale prices have retreated to October 2021 lows, profits here are expected to be significantly higher quarter on quarter.
Shell has already warned that it’s going to shoulder a big windfall tax burden of $2 billion in the quarter due to UK and EU levies. It would appear to be the first time in five years that Shell has paid tax on its UK operations given that it’s been able to benefit from decommissioning incentives and off-set investments in the North Sea.
There will be interest in whether the arrival of Wael Sawan as the new CEO, who was previously head of renewables, will see Shell start to make more inroads into cleaner greener energy. Investors will also be keen to see the renewables arm of the business taking on more muscle, but it’s still a puny part of the revenues and profits have been non-existent in the last quarter. A bright spot for its cleaner energy credentials has been the group’s retail network which saw a 4% rise in underlying cash profits due to the increased use of the group’s EV charging stations. There is untapped demand here as while EV sales have surged, some motorists still show some signs of holding back from joining the e-car revolution due to worries about charging infrastructure. It’s still only a tiny part of the plan though and Shell needs to concentrate on reducing the group’s overall emissions. as well as focusing on new low- carbon products sold to hit net zero targets and that will keep requiring big pools of new investment.”
Alphabet, Q4 Results, Thursday 2 February
Susannah Streeter, senior investments & markets analyst, Hargreaves Lansdown: ‘’Alphabet NASDAQ:GOOGL has been far from immune from the tough economic backdrop, with worries about a US recession growing. As with other tech giants, costs have grown as the company expanded to meet demand during the pandemic, but revenue has slowed. Re-sizing the business is clearly a priority and reducing headcount by 6% is a big step in the right direction, but it’s clear some investors’ concerns still aren’t satisfied and they will be keen for more detail on how costs can be reined in.
Already, CEO Sundar Pichai has said top executive bonuses will be cut this year, and there is an argument to say that overall salaries should be brought down, given that the wave of tech lay-offs will increase the available talent in a wide pool. There will still be a fight for specialist skills, particularly in advanced AI, so ring-fencing bigger remuneration packages may be considered vital in some areas. Regulatory issues are still a big headache, with the company now hit with another lawsuit, this time from the US Justice Department alleging that that Google violated anti-trust laws by abusing its monopoly in ad technology. However, Alphabet has a lot of wriggle room with one of the best balance sheets in the sector to deal with the current ups and downs of regulatory and economic uncertainty.”
Cranswick, Q3 Trading Statement, Thursday 2 February
Steve Clayton, head of equity funds, Hargreaves Lansdown: “In the near term, Cranswick LON:CWK faces many of the challenges facing other UK consumer facing businesses, including labour shortages, exacerbated by a “busy flu season” ahead of Christmas last year which saw staff absences soar in many businesses. Cost pressures are an everyday challenge in the post-pandemic economy. Cranswick recently gained permission to hire a large team of butchery staff from the Philippines, suggesting that they have innovated to deliver solutions to staffing shortages in the years ahead, but that does not mean the last quarter will have been easy.
Cranswick, though, is a long-term business, investing along the food chain from farm to fork. They are almost uniquely well positioned to supply into both retail and catering end markets with an increasingly value-added product range. “
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
| 30-Jan | |
| Computacenter | Pre-Close Trading Statement |
| 31-Jan | |
| McDonalds | Q4 Results |
| Spotify | Q4 Results |
| Standard Life Private Equity Trust | Full Year Results |
| 01-Feb | |
| Entain | Full Year Trading Statement |
| Glencore | Full Year Production Report |
| GSK | Q4 Results |
| Meta Platforms | Q4 Results |
| Novo Nordisk | Q4 Results |
| Severn Trent | Q3 Trading Statement |
| UK Commercial Property REIT | Q4 Net Asset Value Update |
| Virgin Money | Q1 Trading Statement |
| Vodafone | Q3 Trading Statement |
| 02-Feb | |
| Airtel Africa | Q3 Results |
| Alphabet | Q4 Results |
| Amazon | Q4 Results |
| Anglo American | Q4 Production Report |
| Apple | Q1 Results |
| BT Group | Q3 Trading Statement |
| Cranswick | Q3 Trading Statement |
| Renishaw | Half Year Results |
| Shell | Q4 Results |
| 03-Feb | |
| No FTSE 350 reporters | |
