Next week on the stock market

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

• Inditex should shed some light on the effects of coronavirus on the optimisation programme
• All eyes will be on margins at Dixons Carphone
• How much has a partial oil price recovery helped Petrofac?

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

*Companies on which we will be writing research.

Inditex - Sophie Lund Yates, Equity Analyst

According to Inditex, “performance saw a turning point during the second quarter 2020 laying the foundation for a return to normal trading conditions". Next week we’ll find out if that prediction rang true (albeit briefly), as we also want to know what the second round of lockdowns in Autumn meant for revenue and profits.

More specifically we’ll be looking for details on the optimisation programme. This includes having online sales account for 25% of the total by 2022, and the current climate should have accelerated this stage of the programme. The turnaround also involves closing smaller stores and integrating the digital and physical shopping experience. We’re wondering if the latest round of restrictions has caused a delay to these efforts.

The Zara owner has a notoriously slick operating model – its online and shop inventory is integrated – which helps working capital (short term assets minus short term debts). That means that even throughout this year’s disruption, inventory levels actually fell. That’s important because too much excess stock can lead to discounting, or impairment charges, which hurt profits. It will be important to see that Inditex’s smooth modus operandi is still intact.

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Dixons Carphone – Sophie Lund-Yates, Equity Analyst

Dixons had a pretty impressive start to the year, and is in the rare position of being able to say the pandemic has boosted sales. Its focus on electrical equipment (everything from laptops to noise cancelling headphones), helped sales, excluding the mobile business, rise 42% in the first 17 weeks of the financial year.

There’s a chance this trend will have started to temper, but we think it’s reasonable to think sales will still be higher than this time last year. Remember there are no guarantees though. Given the structural tailwind our new working from home culture has provided, it’s important to keep an eye on Dixons’ specific issues.

The biggest is margins. The group’s boosted digital sales massively so far this year, but these transactions are less profitable for now. While we wait for the digital business to build scale and become higher margin, it would be good to see margins elsewhere improve and carry some of the load. We’re mindful that the second round of lockdowns and subsequent store closures is likely to make this a difficult task.

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Petrofac – Sophie Lund Yates, Equity Analyst

It’s not been a good year so far for Petrofac. The oil price fell heavily in the spring, hitting revenues and profits. The price has since recovered to a more comfortable level, but is still down significantly on the start of the year. Some parts of the group are more insulated from the oil price than you might imagine, but general COVID related disruption still put many engineering projects on ice.

The sale of Petrofac’s Mexican operations has finally completed, which should have further strengthened the balance sheet. There could still be more money to come depending on how things shake out from here, but the programme to sell off non-core assets is now mostly complete.

Next week’s results will tell us how Petrofac is recovering after a pretty torrid second quarter. We certainly expect improvement, but the question is really one of degree.

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