5 stocks to watch in May and why

HERE is a round-up of a handful of 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.

ASOS

When it comes to the pace of change, ASOS the online fast fashion retailer is no sluggard - either in the fashion stakes or on the stock market. It’s a stock that investors have to run to keep up with at times.

Having seen its shares gain 35% over the year to date, it was all change when a short seller nicknamed “The Dark Destroyer” warned that the fashion brand could soon be tapping its shareholders for cash, and the share price promptly fell.

ShadowFall, an investment firm led by Matthew Earl, has bet against the FTSE 250 company and built up a short position of around £4 million, so he stands to make money if the share price falls.

Recent data published by the Financial Conduct Authority (FCA) showed that the ASOS share price is the third most-shorted on the London Stock Exchange, with 5.7% of ASOS shares sold short, which means a significant numbers of investors are betting on an ASOS share price fall in the shorter-term.

It comes amid growing concerns that Jose Antonio Ramos, who was appointed chief executive of ASOS in June last year, won’t be able to do enough to cut costs and slash inventory. Although analysts following the company have forecast that ASOS will return to profit in the next year.

In its January trading update, ASOS reported that it expects to move into profitability in the second half of the year, though concerns were raised about its Christmas performance after “weak consumer sentiment” was blamed for an 8% slump in sales, year-on-year over the four months to 31 December.

Having already announced the loss of 10% of its workforce, with more than 100 jobs going, after it reported an operating loss of almost £10 million in its year to 31 August, investors will no doubt be keen to hear more about the results of its plans to cut costs by £300 million. This was expected to include the winding down of three storage facilities, including one in the UK, in the second half of this year, after having “rationalised” office space and removed 35 unprofitable brands from the ASOS platform by the end of the first half.

Despite the external pressures, ASOS said it was “confident” it would see “significant improvement in profitability” in the second half of the year.

ASOS is due to post its first-half results on 10 May.

Read more about ASOS

Burberry

Famed for its checked pattern, which is especially popular with Asian luxury goods buyers, Burberry had a hard time of it when the pandemic disrupted sales in its key market of China. Third-quarter sales grew by only 1% to £756m in the three months to end-December, compared with a rise of 7% a year earlier and against a forecast increase of 2%.

Notable by their absence, Chinese buyers, who usually generate 40% of Burberry’s revenue, equated to only 25% in 2022, due to lockdowns.

Excluding Mainland China though, where revenue was down 23%, comparable store sales grew 11%, driven by a strong performance in Europe over the Christmas period.

Despite just missing analysts’ estimates in its most recent trading update, there were plenty of positive takeaways from luxury goods group, Burberry; most notably the return of Asian buyers.

No doubt the pressure will be on chief creative director, Bradford-born Daniel Lee, to up the ante when it comes to the “Britishness” of the brand. Burberry says it has seen a distinct rise in higher-priced items in its iconic British checks and styles; with its trademark chequered scarf alone generating 60% of soft accessory sales.

Burberry has reiterated its outlook of single-digit revenue growth and 70% gross margin for the full-year and maintains its medium-term guidance of £4bn in revenue.

Burberry’s full year results are due out on 18 May. 

Read more about Burberry

BT

Telecoms giant BT has been one of the best-performing stocks of 2023, so far, which will have come as welcome relief to its beleaguered shareholders who have stuck with it through at least five years of turmoil.

Its dividend pay-outs have been equally disappointing too, with the forecast dividend of 7.79p per share for the current year still only roughly half what it was in 2017. But the company has been making moves to improve the efficiency of its operations and boost profits.

He has also embarked on a big cost-cutting drive. In November, BT raised its savings target from £2.5 billion to £3 billion by the end of 2025 to counter surging inflation.

As of 1 April, BT began reporting its former enterprise and global business units as a single entity.  The new enlarged unit is known as BT Business and the directors expect the move to enhance value for its business-to-business customers; delivering around £100m of gross annualised savings by the end of the trading year to March 2025.

But BT needs cost savings too. Already feeling the impact of inflation and rising expenses, on top of that are the costs of rolling out its ultra-fast full fibre internet and 5G networks. 

And the FTSE 100 firm has found itself accused of strangling competition in the UK broadband market, where it dominates. In March, Ofcom delayed its decision to approve BT's plan to cut prices for internet providers to use its broadband network through an initiative known as Equinox 2. The watchdog highlighted concerns after chief executive Philip Jansen said BT's network had become an 'unstoppable machine' that would 'end in tears' for rivals.

It’s a blow for BT which owns Openreach, Britain's biggest fibre broadband network, as the rapid expansion of its fibre internet offering across the UK was a key plank of Mr Jansen's strategy. And it means the rollout - and also his tenure - are now potentially up in the air.

BT’s fourth quarter trading update is due on 18 May.

Read more about BT

Marks & Spencer 

May marks the month that more Marks & Spencer (M&S) stores close their doors for good. The retailer announced last year that it would be closing 67 larger stores as it looks to open more of its popular food halls in a push to save £300million - including reducing a £100m energy bill. 

The “store rotation programme” will see the number of stores across the UK go down from 247 to 180 by 2028. But M&S will, at the same time, be increasing its food stores from 316 to 420, adding 104 Simply Food stores to its stable over the next five years. 

Back in January, M&S posted a strong set of third-quarter trading figures for the 13 weeks to 31 December 2022. Overall sales rose by 9.7% compared to the prior year’s equivalent figure. And like-for-like sales were up by 7.2%. Food sales made up just over 64% of the total in the period, demonstrating how important the category is to the business. 

Chief executive Stuart Machin said in January the company is acting to reduce costs and reinforce its customer proposition, with the “M&S Reshaped” programme, aimed at driving growth and value in these cost-conscious times.

The switch from large department stores to smaller food shops is expected to save M&S more than £300m in rent alone; savings that will be welcomed in the current climate. In an update ahead of the half-year results, M&S told investors that its energy costs were already £40m higher than it had expected and could rise to more than £100m this year.

Certainly, with the cost-of-living crisis still in full swing, the impact is being felt acutely across the business, but cost-conscious shoppers have been an ongoing concern for investors for some time now. M&S shares almost halved in 2022, but they have been struggling since 2015. In 2019 M&S dropped out of the FTSE 100 for the first time in a clear sign of the retailer's fading fortunes.

M&S full year results are due out on 24 May.

Read more about Marks & Spencer

Great Portland Estates

Great Portland Estates is one of central London’s biggest listed landlords, so news that it has bucked the work from home trend and set a new record for leases over the past year, has to be good news for the sector and for investors. It says it signed £55.5million worth of new leases in the 12 months to the end of March, 44% higher than the previous period, at rents 3.3% higher than the estimated rental value at the beginning of the period. 

“The idea of a bifurcation between the best and the rest has been central to our strategy for a very long time, and it’s why we love the West End,” said Toby Courtauld, GPE’s chief executive, who said office space now needed to be “magnetic to the customer”. 

During its fourth quarter, Great Portland signed 11 new leases and renewals, generating annual rent of £4.4m. It also locked in its largest ever pre-let at 2 Aldermanbury Square, valued at £24.7m on a 20-year term, 17 fitted and fully managed leases at £181 per square foot, and 35 new retail leases bringing in rental income of £10.2m.

The group said the uncertain outlook in the near term will only serve to exacerbate the shortage of suitable property in central London, prop up rental values on desirable properties and provide it with opportunities. Having survived the 2008 credit crunch property slump, Great Portland Estates would appear to be well positioned to cope with the current climate too.

Great Portland Estates releases its full year results on 24 May.

Read more about Great Portland Estates

Five-year share price performance table

Past performance is not a reliable indicator of future returns

Source: FE, as at 2.5.23 Basis: Total returns in GBP. Excludes initial charge. 

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