Next week on the stock market

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

• ASOS could show significant improvement in operating margins thanks to lower returns
• Barratt Developments will give us another update on the health of the housing market
• Domino’s focusses on rebuilding bridges with franchisees, but long term growth plans are still unclear

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

12-Oct
XP Power	Q3 Trading Update

13-Oct
Sabre	Trading Update

14-Oct
ASOS*	Full Year Results
Barratt Developments*	Trading Statement
Page	Q3 Trading Statement

15-Oct
Domino's	Q3 Trading Statement
Dunelm	Q1 Trading Statement
Hays	Q1 Trading Statement
Mediclinic	Half Year Trading Statement
Mondi	Q3 Trading Statement
Rathbones	Q3 Interim Management Statement

16-Oct
J D Wetherspoon	Full Year Results
Jupiter Fund Management	Trading Statement

*Companies on which we will be writing research.

ASOS– Sophie Lund-Yates, Equity Analyst

ASOS surprised the market back in August, after it upgraded full year expectations. Lower return rates and strong post-lockdown trading means pre-tax profit should be £130-£150m.

However, margins continue to trouble us. Operating margins have really struggled in recent years, but fewer returns in lockdown and beyond means we could see some significant improvement here. On top of this, we’re encouraged by the reduced promotional activity, which should also be good news on the margin front. The question though is whether these trends will continue in more ‘normal’ market conditions. A jittery economic outlook means it’s possible the sales stickers have been brought out of hibernation.

Net debt stood at around 1.8 times cash profits at the last count – more than we’d like. However, the group continues to target being net cash by the end of the year. We’ll be pretty impressed if that’s delivered.

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Barratt Developments – Nicholas Hyett, Equity Analyst

The housebuilders have done surprisingly well this year, all things considered. In its full year results Barratt said trading in the early part of the year had been “encouraging”, with a higher sales rate than last year. Management attributed this to pent up demand created during lockdown, the Stamp Duty holiday and buyers pre-empting the upcoming changes to Help to Buy. We expect most of the pent up demand to have unwound by now, but the other two factors should still be in play.

However, there are some reasons to worry. The Furlough Scheme is being replaced by a much less generous Job Support Scheme, coronavirus cases are on the rise and the economy hasn’t fully recovered. The UK’s housing market has been resilient so far, but we’re not out of the woods yet.

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Domino’s Pizza Group – Nicholas Hyett, Equity Analyst

Domino’s has weathered the lockdown storm rather well. Overall sales rose 5.5% in the second quarter, as 22% growth in deliveries more than offset the steep decline in collected orders.

However, some longer running issues are still unresolved.

For several years now the group has had a stormy relationship with the franchisees who actually run its stores. The dissatisfaction centres around the decision to split existing franchise territories into smaller units. That boosts overall sales, but at the expense of existing stores. Together with higher labour costs and higher prices for food inputs that’s negatively impacted franchisee profitability.

Resolving that tension is job number one for Domino’s new management team.

With territory splits having clearly proved unpopular, and disposals of several of the group’s international businesses also complete, the big question is how the group can drive growth from here. That’s a question management have yet to answer.

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