Next week on the stock market

Netflix kicks things off for the tech sector next week, as well as offering investors some insight on how well the stay-at-home stocks held up through the back-half of the year.

Retail will also take the stage once again. Burberry’s results are a litmus test for luxury goods. With a potential economic downturn on the cards, we’ll see whether consumers splashed out during the festive period. By comparison Pets at Home could be a dark horse in the sector if it’s able to take advantage of the lockdown puppy boom.

• We’ll be looking for evidence that Pets at Home can translate its lockdown boom into online growth and higher margin sales
• EMIS could see revenue and profits remain stable
• Ibstock will tell us how much the second wave has disrupted demand

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

*Companies on which we will be writing research.

Ibstock – Nicholas Hyett, Equity Analyst

In October Ibstock was expecting full year cash profits (EBITDA) of around £50m, compared to £122m last year. Since the year-end was 31 December, the most recent national lockdown shouldn’t have affected results.

The group has primarily been hurt by lower demand for construction materials due to disruption to building activity, especially during the first lockdown. However, by September volumes had recovered to 90% of 2019 levels. The November lockdown and Christmas disruption may have hurt results but, as building sites kept running, we doubt the effect will be significant. Margins were also improving in October thanks to the group’s cost control measures and improving volumes.

Net debt has increased over the year, but in October Ibstock was expecting a reduction from the £103m reported at the half year. Management plans to reduce debt quickly in 2021, although this will rely on construction demand remaining stable.

In the medium term we expect government support for housebuilding and investment in infrastructure to help the group, but if lockdown measures tighten it could cause disruption in the months ahead.

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EMIS – Nicholas Hyett, Equity Analyst

As the UK’s leading provider of practice management software to GP’s surgeries, EMIS has been able to navigate the pandemic without too many problems.

Sales fell just 2% in the first half of 2020, largely down to coronavirus related disruption to new implementations, with recurring revenues improving. The group has seen sales of some of its remote working products, such as EMIS Mobile and Anywhere Consult, rise as doctors seek to reduce face-to-face contact. Meanwhile direct to patient services have added millions of new users as digital delivery of healthcare services increased.

We’d expect those recent trends to have continued over the last quarter. Given the very strong cash conversion in the first half that’s likely to leave the company with plenty of cash in the bank. Analysts are forecasting a 3% yield over the next 12 months, but we think that will still leave the company with extra cash. How that gets used is something to watch – acquisitions, increased investment or bonus shareholders returns are all possibilities.

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Pets at Home, Sophie Lund Yates, Equity Analyst

We already know things are going well at Pets at Home. The group upgraded full year profit expectations at the start of January. Underlying pre-tax profit is now expected to be ahead of previous guidance, at £77m. (This includes the repayment of business rate relief).

Pet ownership increased massively in the pandemic, helping group sales rise over 5% at the half year. But that doesn’t mean there aren’t things to watch out for. Lower margin items like cat litter have been flying off the shelves. Eventually Pets will want customers to snap up more profitable items. We’d like to know if there was any evidence of a spending shift in Q3. Stricter lockdowns are also likely to impact performance, any update on more recent trading would be good.

Momentum has accelerated both in store and online, with high-teens like-for-like growth overall in December. It will be worth paying particular attention to how fast the online business is growing. There is huge competition online, and Pets has invested heavily in new infrastructure. In order to be profitable this division needs to continue growing at an impressive rate. At the half year, online sales were up 65.8%.

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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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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