Next week on the stock market

Among those currently scheduled to release results next week:

• Compass looks to capitalise on the easing of restrictions
• Johnson Matthey looks to reassure the market after its surprise Battery Materials announcement earlier this month
• We’ll see whether elevated demand was enough to offset inflationary pressure at United Utilities

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

*Events on which we will be updating investors.

Compass Group – Sophie Lund-Yates, Equity Analyst

Considering catering companies were acutely hit by lockdowns, Compass’ recovery efforts can’t be knocked. Margins have been improving over the course of the year, as it tightened the screws on costs. The group’s targeting a return to margins above 7% before volumes fully recover. That won’t happen overnight, but it will be important to see if it’s heading in the right direction. Compass is targeting underlying operating margins of 4.4% for the full year.

The group’s debt position is on our radar. Last we heard, net debt was equivalent to 3 times cash profits, considerably above the target of 1-1.5 times. That said, Compass has made progress reducing the absolute debt level and if profits pick up the ratio will naturally come down.

Compass’ valuation is above its longer-term average. The market has high expectations for the group’s continued recovery. But any unexpected bumps in the road, or a less-than-perfect outlook statement could cause some short-term volatility.

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Johnson Matthey – Nicholas Hyett, Equity Analyst

Having recently announced it’s abandoning its Battery Materials business, Johnson Matthey really needs to deliver some good news next week. Not least because there could be significant impairments associated with the move, which could negatively affect profits.

The numbers themselves are unlikely to provide what the group is looking for, having already said half year results are set to be “in-line with market expectations”. And full year is even weaker, at “the lower end of market expectations” as the pandemic disrupts automotive manufacturing – the group’s key end market.

Instead it’s commentary around future investment opportunities that will be closely watched.

The group hinted at growth areas like “hydrogen technologies” and “decarbonisation of chemicals” in its trading statement earlier this month. The group has history in both, but relying on them to take the strain of falling combustion engine vehicle sales is a big ask. We were disappointed at the lack of detail about opportunities and financial cost in the group’s initial announcements and hope for more detail next week.

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United Utilities – Sophie Lund-Yates, Equity Analyst

Post-pandemic life should be a good thing for United Utilities. Businesses reopening should boost consumption, but some of the added household demand should also stick around as working from home continues. At the half year results we’ll get some idea of how the two are balancing out and whether the group can expect elevated overall demand from here on out. Management forecast a 4% revenue increase, despite lower prices due to regulatory caps.

Those regulatory price caps keep the group from passing inflationary pressures to customers until next year. At the half year we’ll get a sense of how much these factors impacted profits - at last check the group was still expecting operating profit growth, with cost-saving initiatives offsetting the inflationary issues.

Finally, debt will be one to watch as the group continues to make necessary infrastructure investments. As long as profit growth is also on the up this isn’t overly concerning, but it’s something to keep an eye on, particularly if inflationary pressure was stronger than anticipated

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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.

Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss.

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