Next week on the stock market

Among FTSE 100, FTSE 250 and selected other companies scheduled to report next week:

• Ryanair may give further capacity guidance for the winter
• Gross margins and restructuring costs will be the focus at Marks & Spencer Group
• AstraZeneca has a small pharmacy’s worth of newly approved drugs to boost sales in the third quarter

FTSE 100, FTSE 250 and selected other stocks scheduled to report next week

*Companies on which we will be writing research.

Ryanair – Nicholas Hyett, Equity Analyst

When the first wave of coronavirus infections subsided and travel restrictions were lifted it looked like the airlines had made it. Holidaymakers, sick of being stuck at home, rushed to catch the last of the summer sun abroad. Unfortunately a second wave is looking like it’s breaking, and it brings fresh travel restrictions and unpredictable quarantine requirements.

The second wave is unlikely to be as bad as the first for Ryanair. The group isn’t planning to ground the fleet this time, but still cut projected winter capacity from 60% of 2019 levels to 40% – “although this guidance could be further revised downwards if EU Govts continue to mismanage air travel and impose more lockdowns this winter.”

That last line comes from the capacity announcement on October 15, and gives you an idea of what Ryanair’s management thinks of the restrictions. We suspect next week’s update will be equally ill-tempered.

We’re starting to worry that this second wave may not be the last though. The airlines need a big summer in 2021, and if that’s prevented by a third wave some names in the sector will struggle to survive.

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Marks & Spencer – Sophie Lund-Yates, Equity Analyst

We haven’t heard from Marks & Spencer Group since a surprise trading statement in August. It said performance had been better than the scenario outlined in May’s full year results, although huge uncertainty remains.

The first port of call next week will be gross margins. M&S has been grappling with gross margin pressure as discounting in clothing and home weighed on performance. The closure of physical selling space for much of the “full price” season in lockdown means there’s a very real chance this has got worse. Higher margin food items like sandwiches won’t have been flying off the shelves either as many people continue to work from home, so overall the gross margin story is likely to be a downwards one.

The beat on trading in August has been driven by food, while Clothing and Home has really struggled. This dynamic was true before the pandemic, but a lacklustre online presence means this fault line has been exacerbated. Sales had fallen 49.5% by August and we suspect this trend hasn’t reversed.

Profit wise, we already know M&S will be inserting a “significant” charge in the half-year income statement. This is to pay for expedited restructuring and streamlining efforts. We’ll be looking to see exactly what the grand total of this will be.

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AstraZeneca – Nicholas Hyett, Equity Analyst

Updates on AstraZeneca’s Covid-19 vaccine candidate will attract headlines in third quarter results. However, sales of the vaccine are still some way off and AstraZeneca has pledged not to turn a profit on the treatment “during the pandemic”.

While the exact meaning of that last phrase is open to some debate, it’s clear vaccine sales aren’t going to drive revenue or profit growth in the near term.

Instead it’s the steady stream of approvals for Astra’s new oncology, respiratory and kidney disease treatments that will be the key to growth for now. Together with improved sales performances of more mature drugs in emerging markets, new approvals should mean steady sales growth in the third quarter, and still stronger progress in profits though of course there are no guarantees.

That increased strength has been widely recognised though – with the shares trading on a PE ratio of 21.5, compared to 14.6 back at the start of 2017. That puts pressure on the group to continue delivering from here.

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Unless otherwise stated estimates are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments and income they produce can rise and fall in value so investors could make a loss.

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