5 stocks to watch in June and why

FROM a budget-friendly, low-cost airline to a top-notch, high-end luxury goods brand, here's a round-up of five stocks to keep an eye on this month as these companies issue their latest results or trading updates. This is not a recommendation to buy or sell these investments and is purely insight into some of the companies that will be announcing results or releasing trading updates in the weeks ahead.

FirstGroup

When transport operator FirstGroup was stripped of its Transpennine Express contract, commuters travelling in and out of Manchester, Leeds and Liverpool, who had experienced months of misery would at least have cheered. Investors maybe not so much.

Just before the government announced that it wouldn’t be renewing the contract, FirstGroup had said that profits for the year were set to surpass previous targets after a pick up in bus and train demand. It also said adjusted operating profits for the 2023 financial year would be above previous guidance, after seeing increased passenger volumes on its buses since September, and driver staffing pressures ease. Analysts had previously forecast an adjusted operating profit of £137.4m for 2023.

After the announcement on Transpennine, FirstGroup said it was “disappointed” to lose the contract, but said it didn’t expect to incur material costs when transferring the operation to the operator of last resort. The management and performance fees for the period April 2022 to May 2023 had yet to be settled, but it’s worth noting that the Transpennine contract contributed £416m to the £4.59bn revenue generated in FirstGroup’s 2022 full year.

The UK government now controls four out of six of FirstGroup’s train companies - Avanti West Coast, Great Western Railway, South Western Railway and Transpennine Express. The two remaining train operators FirstGroup still has financial responsibility for are Lumo and Hull Trains and it says that here passengers have returned more quickly than forecast.

It says bus passenger volumes have also risen, getting back to 83% of 2020 levels, which FirstGroup said has been driven partly by government initiatives, including a £2 fare cap in England and also free bus travel for under-22s in Scotland.

First Group’s full-year results are out on 8 June

Read more about FirstGroup

Wizz Air

With the all-important summer holiday season on the horizon, all eyes will be on whether the cost-of-living crisis is prompting travellers to trade down. If that’s the case, Wizz Air, as one of Europe’s largest budget carriers, could be in for a bumper summer season.

It’s fair to say that despite the spending squeeze, travel has remained pretty resilient so far. British Airways-owner IAG has said that its full-year profits would now be at the upper end of forecasts, thanks to a take-off in demand. Tui is also reporting a surge in customers and higher average prices for trips. Wizz Air has already revealed it had 97.1% more passengers in February 2023 than February 2021, so the sun does indeed seem to be shining on the travel sector so far.

Rival easyJet, which recently reported numbers was quick to point out that the £415m pre-tax losses in the first-half is something of a distraction; with what’s to come far more encouraging. It said bookings have returned to “normalised” levels and revenue per seat is set to rise by 20% in the third quarter, with costs per seat expected to be flat. Second-half capacity will also increase by 9% and is expected to reach pre-pandemic levels by easyJet’s September year-end. 

It’s not all plain sailing for Wizz Air though. While it is due to start flying from Abu Dhabi this summer, the decision to suspend its Moldovan operations due to security concerns surrounding Russia’s invasion of Ukraine, will be a blow.

And another less-than-positive note is its record on complaints and the time it takes to process refunds. Having outranked rivals Easyjet and Ryanair when it comes to the number of ‘escalated’ complaints, the Civil Aviation Authority - and no doubt investors - will be keeping a close eye on how this plays out.

Wizz Air’s full-year results on due out on 8 June.

Read more about Wizz Air

Tesco

Tricky times for consumers are also making for tricky times for the big supermarkets, which have been accused, by some, of profiteering. Tesco, the UK’s largest supermarket group saw a 7% drop in adjusted retail operating profits to £2.3bn in the UK and Ireland at the full-year stage. It predicts a “broadly flat” year ahead.

At times of economic uncertainty, the food retail sector is typically seen as a relative ‘safe haven’ for investors. And when it comes to its sheer size, Tesco is a big step ahead. The size of its online business means it rakes in more online revenue than any of its competitors. It recorded an astonishing 1.1m online orders in the year to March 2023, far ahead of its nearest rival Sainsbury’s.

Food inflation is still a huge issue. The British Retail Consortium said food price inflation has started to slow, to 15.4% from 15.7%, for the first time in almost two years.

And Tesco, like every other retailer, has a battle on its hands to grow earnings in the current climate. The focus on value and the conflicting demands brought about by inflated prices, make it tough even for this giant in the grocery world.

Price-matching campaigns, like its ’Aldi Price Match’ and ‘Clubcard Prices’, while essential weapons in its arsenal, have hit retail margins, which came in more than half a percent lower last year, at 3.8%. Adjusted operating profits dropped 6.9% year-on-year to £2.6bn. Tesco has its work cut out.

Tesco’s Q1 trading update is due out on 16 June.

Read more about Tesco.

Mulberry Group

The luxury goods sector has become highly dependent on affluent Asian buyers - as became even more evident when the pandemic struck and borders closed - and Mulberry is no exception. The company, known for its luxury handbags, saw sales improve in the second half of its financial year, thanks in no small part to booming luxury goods demand when the Chinese economy reopened.

The group, which is known for its luxury handbags, slumped to a loss in the first half the year, but in an update ahead of its results for the year to 1 April it said that profitability had been “weighted to the second half” with revenue “slightly ahead of last year”.

Mulberry said it had been able to maintain gross margins due to a focus on full price sales, while it had also made further investments in 'sustainable innovation' and new stores in Australia. It also invested further in the Asia Pacific and Greater China regions in the second half. Net cash was around £800,000 as of 1 April, “with further headroom available” under the group's borrowing facilities, it said.

Mulberry’s full-year results are due to be released on 22 June.

Read more about Mulberry.

Associated British Foods

For its customers, Primark’s key attraction is undeniably cost. The cost-of-living crisis is a time when even those who eschew low-cost fast-fashion brands could probably be tempted, or possibly even left with no choice but to take another look at Primark.

The near cult-like devotion of Primark’s customers, who were prepared to queue around the block whenever the stubbornly-offline retailer escaped the forced pandemic store closures, has sustained investors in Primark-owner Associated British Foods for the past few years.

Primark sales rose 19% in the last 6 months but profits fell 16% as higher costs hit home. Revenue was 21% higher than last year, but pre-tax profit was up just 1%.

But AB Foods is not a one trick pony. Separate to its fast-fashion business, as its name suggests, it also has a food business, producing sugar, making ingredients and marketing household brands like Twinings and Kingsmill.

As a food producer, Associated British Foods benefited from a 62% increase in operating profits at its ingredients division. But it is also having to absorb higher energy and material costs and price rises are likely to be on the cards, after the company flagged up “inflation recovery” as a key priority in the second-half.

It has also raised concerns about consumer spending and said it expects Primark sales growth to be lower than in the first half. It now has an online presence, but the rollout of click and collect in the UK has been slow and patchy, with the service available at 25 stores across the north-west of England, Yorkshire and North Wales so far. The lack of a full online shopping portal could yet prove to be a drag on its bottom line.

Associated British Foods is due to give a trading update on 26 June.

Read more about Associated British Foods

Five-year share price performance table

Past performance is not a reliable indicator of future returns

Source: FE, as at 31.5.23 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. Overseas investments will be affected by movements in currency exchange rates. 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.