Nicholas Hyett, Equity Analyst 23 August 2019
The summer silly season never really got started this year, with M&A announcements and profit warnings salted throughout August to supplement the thinner reporting schedule. The week ahead of the bank holiday has plenty in the diary to keep investors interested, and given recent trends we wouldn’t be surprised to see an unscheduled announcement or two as well.
Among the companies we’ll be covering:
- A growing order book remains our main metric of success for Petrofac, recent trends have been weak so we’ll be looking closely at the outlook statement
- Travel remains WH Smith’s focus over the summer season
- Growth in private sector clients and margin improvements are the order of the day at EMIS
FTSE 350 and selected other stocks reporting next week:
|No FTSE 350 reporters.|
|Bunzl||Half year results|
|Polymetal||Half year results|
|Diploma||Q3 trading statement|
|James Fisher and Sons||Half year results|
|Petrofac*||Half year results|
|WH Smith||Pre-close trading statement|
|Amigo||Half year results|
|Hunting||Half year results|
|Hays||Full year results|
|BBGI SICAV SA||Half year results|
|Grafton Group||Half year results|
|EMIS*||Half year results|
*Companies on which we will be writing research.
We’ve had a half year trading statement from Petrofac, but we’re hoping half year results can fill in some of the blanks.
Firstly, we’d like to know if there’s any more information on the outlook for Petrofac’s order book. That follows concerns reputational damage from the Serious Fraud Office (SFO) investigation, is limiting new contract wins. Petrofac finished the half with an order book worth $8.9bn, compared to $9.6bn at the end of 2018.
Otherwise the main focus will be the group’s efforts to reduce costs and protect margins. As the order book shrinks, revenues will eventually follow suit, and that means Petrofac needs to slim-down its cost bases if it’s to protect margins. So far we’ve seen some significant headcount reductions, and that’s a trend we would expect to continue.
Shoppers might think of WH Smith as a high street stalwart, but it’s the strong travel business that holds the attraction for investors.
As we edge towards the anniversary of Smith’s £155m acquisition of US airport retailer, InMotion, investors should focus on the international airport business in particular. It’s a key segment within the group’s lucrative and growing travel retail business that most Brits are more familiar with from train stations. Of the 867 travel outlets, 286 are international, and mostly in airports. This trading statement should show if the division is still moving in the right direction.
Tough trading conditions mean we think it’s likely sales are still in decline in the high street business – total revenue and repeat sales performance dipped 1% and 2% respectively at the half year. Moderating the impact of falling high street sales on profits has been one of the group’s key achievements in recent years, unfortunately that means store closures are likely to have continued.
Following the disposal of the non-core Specialist and Care business, EMIS is a streamlined and cash richer business.
Shedding excess weight in the form of disposals is only one part of CEO Andy Thorburn’s plan though. EMIS remains highly dependent on the NHS as a customer, and while it’s good to have such a giant punter on the books – it does leave EMIS vulnerable to ups and downs of government spending. Investors will therefore want to know how progress is going in the private sector. The goal here is for private care to make up half of revenues in the future.
Trading at the half year point is in line with Board expectations, and revenue is expected to increase ahead of last year’s 7% growth. Beyond the top line though, EMIS traditionally has excellent cash conversion – and net cash improved last year, despite extra investment. We suspect this is a pattern we could see again.
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