Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
Company results tend to dry up in December, especially in the latter half of the month, and few household names are reporting between now and the new year. Among those that are, we cover Currys and Frasers, the retailers, the housebuilder Berkeley Group, the plumbing supplies business Ferguson and the paper firm DS Smith.
This article is not a recommendation to buy or sell these investments; it is purely insight into some of the companies that announce results in December.
Interim results 12 Dec 2024
Artificial intelligence hasn’t been a boon only for the likes of Nvidia – even the venerable British retail chain Currys says it has benefited from interest in AI. Alex Baldock, its chief executive, said in September: ‘New AI-enabled computers are bringing excitement and innovation to customers, who are coming to our stores to learn more about the technology, helping us take almost 50% share of the total laptop market.’
Writing in Currys’ first-quarter update, Mr Baldock added that AI product launches had contributed to an encouraging start to the year in Britain and Ireland, where sales rose by 5% on a ‘like-for-like’ basis, in other words when the effects of store openings and closures are excluded. Sales in the Nordic region, however, fell by 2% so that for the group as a whole sales rose by 2%.
Mr Baldock said trading was ‘going well, strengthening our confidence in growing profit and free cash flow again this year’. He said the company was ‘continuing to target growth in high-margin, recurring revenue services and solutions’ and was ‘well set for our important peak trading period [before Christmas] and beyond’. The company did not publish any profit numbers at that stage.
Berenberg, the bank said in May, with the shares at 71p: ‘Currys trades at a significant discount to its peers across all key valuation metrics for both 2024 and 2025, which we expect to reduce.’ The bank said it saw the key reason for the gulf in valuation to be ‘the extent of Currys’ indebtedness, which the group has made considerable progress in reducing’.
More on Currys
Interim results 5 Dec 2024
The choice of Frasers as the new name for the former Sports Direct speaks volumes about the evolution of the company since its listing in 2007. Sports Direct was a cheap-and-cheerful discounter but that very focus on price caused it to run into trouble with its key suppliers, Nike and Adidas, which wanted to maintain a premium feel. Faced with the loss of support from those critical suppliers, Sports Direct embarked on what its management called a ‘180-degree repositioning’ of the business: its new goal was to become, in the words of its founder, Mike Ashley, the ‘Selfridges of sports retail’. Part of that was the rechristening of the group as Frasers following its purchase of the upmarket House of Fraser department store chain in 2019.
Although it has spent money on some high-profile acquisitions, such as House of Fraser and Evans Cycles, it has actually spent far more on upgrading its shops. In the words of analysts at Jefferies, the investment bank, the stores have been transformed from ‘cluttered, densely stocked, promotion-led and own-brand focused’ to ‘a more premium feel and a focus on third-party brands’.
The dip in the company’s fortunes before its transformation and its subsequent recovery are visible in its profit figures: from more than £200m a year between 2015 and 2017, net income fell to £20m in 2018 and failed to exceed £120m in the next three years, but since then it has bounced back to £250m in 2022, £492m in 2023 and £381m this year. Between 2017 and 2024, pre-tax profits grew at an average rate of 25% a year.
Jefferies said: ‘Over the course of seven years, Frasers has completely re-imagined and reset its business model, investing time, capital and capability in its store estate and key brand relationships. We see this as one of the most notable business turnarounds we have encountered.’ The bank added that in its view Frasers had a ‘sizeable moat’ – in other words, defences against rivals – around its key operations, ‘underpinning a superior growth and profit profile’, partly thanks to its global partner status with key sports brands.
This gave the company a ‘significant growth runway’, Jefferies said: ‘In core UK Sports, we see further benefits to come from the elevation [going upmarket] strategy in a growing sports market. Overseas, roll-out and acquisitions should support double-digit top-line [ie sales] growth, while we estimate margin has scope to double. The premium/luxury operations have scope for margin recovery when the luxury market improves and acquisitions are fully integrated. And the Frasers Plus credit offering, possibly the group’s most exciting opportunity, could deliver £100m of incremental contribution in the long run. Reflecting these drivers, we model [annual] growth in profits before tax of 10% through our forecast period.’
The bank said it did not believe ‘the quality of the business or its growth opportunities are close to being recognised by the market.’
More on Frasers
Interim results 6 Dec 2024
Berkeley’s founder, the real estate magnate Tony Pidgley, may have died in 2020 but it seems that the skill and nous with which he ran the company lives on. Analysts from Berenberg, the bank, writing in June after its annual results, praised Berkeley’s ‘long-term value creation’ and said the company ‘boasts some of the best operating metrics in the sector’. They added that ‘its skilful negotiation of the pre-crash boom and the ensuing downturn has earned it the reputation of being able to manage its exposure to the housing cycle’. Pidgley was famous for anticipating the turns in that same cycle.
He established the company’s approach of focusing on urban regeneration sites in London and the South-East, where the imbalance between supply and demand for housing is often most extreme.
Despite what Berenberg described as ‘an extremely challenging market in 2024’ for ‘all housebuilders, including Berkeley’, the company turned in a creditable performance in the year to April. Although the number of homes built fell by 13%, an increase in the average price at which they were sold resulted in a fall in sales of only 3%. Gross margins dipped slightly to 26.2% and profits before tax were a little below expectations at £557m. The return on equity was 16.2% and the company finished the year with net cash of more than half a billion pounds. Some of that cash was used to fund a special dividend of 174p a share but more intriguingly the company will also start to build homes that it will retain ownership of and let out (‘build to rent’).
City analysts welcomed this move at the time as a smart way to increase output without having to worry about selling the properties and investors will no doubt hope for more detail in the interims.
More on Berkeley Group
First-quarter results 10 Dec 2024
Ferguson, like Frasers, may be more familiar to readers under its previous name: Ferguson was once called Wolseley. The change of name reflects a wider transformation for the plumbing supplies group, which previously had large operations in the UK and Europe but for the past four years has focused exclusively on America and Canada.
In line with that shift it moved the primary listing for its shares from London to New York in May 2022 and then finally moved its legal domicile from Britain to the US in August this year. The shares retain a secondary listing in London.
Ferguson is the leading US plumbing distributor. It has a market share of 13%-22% in its largest customer segments and competes largely with small local and regional rivals. With its broad product range and nationwide scale it has consistently gained share organically, although it has also grown by taking over other businesses. It typically pays much less relative to profits for the companies it buys than investors pay for its own shares; this makes the acquisitions financially beneficial.
Also beneficial is the fact that Ferguson is large relative both to its suppliers (which number more than 34,000) and its customers, of whom there are more than a million. This gives it strong pricing power. Ferguson’s broad reach means it is exposed to trends in both new construction and repairs/remodeling in both residential and non-residential construction.
The company can boast an impressive long-term growth record. Over the past 20 years Ferguson has grown its US sales and operating income at annual rates of 8% and 12% respectively. Growth has been even faster over the past 10 years, with sales increasing at an average rate of 10% a year (about 8% from organic growth and about 2% from mergers and acquisitions) and operating income growing at a faster 14% annual rate as the business has gradually expanded margins.
Writing in May with the shares at $206, analysts at HSBC said Ferguson was trading at 20 times forecast earnings while American rivals were at 24 times on average. The analysts said: ‘We believe a discount made sense in the past, but Ferguson is now a North American pure play. Versus the US peers, we think there could be a further re-rating of Ferguson shares.’ Since then the share price has nudged up a little to $213.
More on Ferguson
Interim results 5 Dec 2024
At first glance the recent financial performance of DS Smith, the packaging company, may seem irrelevant to shareholders because the business is about to be taken over by an American rival, International Paper. However, even after the transaction takes place, which is expected to be early in the new year, DS Smith investors will still have a stake in its fortunes because they will receive shares in the acquirer, not cash, in exchange for their current holding.
For each DS Smith share they currently own they will receive 0.1285 shares in International Paper. At the latter’s current share price of $58.86 and the current sterling-dollar exchange rate of $1.26, one share in DS Smith is therefore worth about 598p, which is a little more than the current price on the London Stock Exchange.
Although International Paper’s shares currently trade on the New York Stock Exchange, the company plans to seek a secondary listing in London so that DS Smith shareholders who find themselves holding shares in International Paper after the merger can sell them easily.
Fidelity customers who currently own shares in DS Smith in an investment account or ISA can expect them to be swapped into shares in International Paper when the transaction completes, which is expected to be in the next few months. Those who hold them in a Fidelity SIPP will be notified nearer the time explaining the next steps.
More on DS Smith
Five-year share price performance table
(%) As at 28 November | 2019-2020 | 2020-2021 | 2021-2022 | 2022-2023 | 2023-2024 |
---|---|---|---|---|---|
Currys | -6.2 | 19.1 | -36.9 | -42.0 | 70.0 |
Frasers | 31.9 | 52.7 | 30.9 | -1.2 | -16.4 |
Berkeley Homes | 4.9 | -15.2 | -11.6 | 25.6 | -3.7 |
Ferguson | 25.3 | 42.5 | -12.9 | 38.3 | 29.0 |
DS Smith | -12.7 | 12.6 | -12.3 | -2.9 | 117.9 |
Past performance is not a reliable indicator of future returns.
Source: FE, 28.11.19 to 28.11.24 Basis: Total returns in GBP. Excludes initial charge.
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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