Nicholas Hyett 9 August 2018
By the end of next week we’ll have a much better idea of what’s going on in a UK economy that feels, to us at least, like it’s under pressure. UK unemployment numbers, inflation and retail sales are all expected to follow this Friday’s GDP figures within the next 7 days.
Against that busy background investors will probably be relieved to hear stock market reporting is relatively low key. Among those that are due to update the market:
- More in-force policies and further improvements in underwriting performance are the order of the day at esure.
- Balfour Beatty's done a lot of the hard work on margins, but now it’s time to prove it can make those margins stick on new projects.
- It could be a game of two halves in Kingfisher's second quarter results.
FTSE 350 stocks reporting next week
|Clarkson||Half Year Results|
|Antofagasta||Half Year Results|
|esure Group*||Half Year Results|
|Admiral Group||Half Year Results|
|Balfour Beatty*||Half Year Results|
|Hikma Pharmaceuticals||Half Year Results|
|Hochschild Mining||Half Year Results|
|CLS Holdings||Half Year Results|
|KAZ Minerals||Half Year Results|
|Kingfisher||Second Quarter Results|
|Marshalls||Half Year Results|
|Rank Group||Full Year Results|
|No FTSE 350 reporters|
*Companies on which HL offers research
In recent years esure has been dependent on 'Non-underwritten additional services' for most of its profits. That includes providing third party services to esure customers, such as breakdown assistance, motoring legal protection, and interest on instalment payments.
Given the importance of these ancillary services, insurance itself has been something of a loss leader. But significant progress in underwriting last year means that could be about to change.
The company’s combined operating ratio, a key measure of underwriting performance, improved by 2.1 percentage points to 96.7% last year, and we’d be delighted to see more progress there.
Given the importance of cross-selling to esure, the other key metric to watch out for is policy numbers. More policies mean more opportunities to cross- and up-sell.
Balfour Beatty's challenge in recent times has been getting margins back to something like the industry norm after a painful turnaround and several disposals.
Progress has been good across most of the business, although UK Construction is a bit of a laggard – only managing an operating margin of 0.8% compared to a target of 2-3%. It would be nice if that’s sorted out sooner rather than later.
With margins heading back in the right direction, the next challenge is to get revenues moving too. We’ve seen the order book shrink steadily in recent results as the group has focused on bidding for business it can execute profitably. That’s all well and good, but making great margins on little business isn’t all that different from poor margins on loads of business.
In the past Balfour have said the pipeline looks strong, so hopefully it will start delivering from here.
The warm weather may well have whetted the appetite for barbeques and garden furniture sales, so we expect these categories to perform strongly at B&Q owner Kingfisher.
However, the home front might be more difficult. DIY markets have been tough on both sides of the channel for some time, and we’ve not seen a catalyst for this to change. While investors will hope for a recovery, we think it might be fanciful to expect one.
Elsewhere, Sunday trading rules have tightened up in Poland, a market that’s delivered impressive growth in recent years. Tesco’s been among the UK retailers to have felt that impact. After a resilient Q1 update, it would be encouraging to see another quarter of growth.
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