5 stocks to watch this September

FROM food to property, prices have been a talking point for some time now. As the cost-of-living crisis continues, how are companies faring? For some the economic concerns are proving to be highly profitable, while for others it’s a waiting game for consumer confidence to return.

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.

Read on or jump to the relevant company below.

• Associate British Foods
• Barratt Developments
• Berkeley Group
• Spire Healthcare
• PZ Cussons

Associated British Foods(ABF)

Two months ago, Associated British Foods, the owner of Primark raised its profit outlook for the year as sales at the discount chain were lifted by higher prices and strong demand for summer clothes.

The mini conglomerate, with its arguably odd mix of fast fashion and food staples, appears to have the cost-of-living crisis playing into hands. On the fashion front, its low-cost Primark chain saw like-for-like sales up 7% at Primark in the three months to 27 May. But it also has a food business, which owns a raft of household name brands, from Ovaltine to Twining Tea. And here, thanks to food price inflation, it saw sales rise even more, by 13%.

Inflationary pressures have been especially acute for food, although the latest British Retail Consortium data shows food inflation decelerated to 11.5% in August, down from 13.4% the previous month. It is now at its lowest level since September last year and a much-welcomed fall from the 45-year high of 19.2% that official data showed it had reached in March.

Little surprise then that AB Foods’ sugar business has benefitted. It reported a 51% year-on-year rise in quarterly sales to £665m and that was after it was forced to secure alternative sources of supply due to a production shortfall.

AB Foods gives its next trading update on 12 September.

Barratt Developments

Housing is, in theory, more affordable than it was a year ago, according to Halifax, the UK's biggest mortgage lender. As, it says, house prices have fallen and earnings have risen.

But the lending ratios show that current high mortgage rates still make property a stretch for many potential buyers. Halifax said a typical home in the UK currently costs 6.7 times the average annual earnings of a full-time worker. And that is down from 7.3 times a year ago, when it was at a record high.

The big question housebuilders will want to know, is whether this means would-be buyers can and will start actively property-hunting again? Both Barratt Developments and Berkeley Group will be hoping so. 

Barratt said it has seen the impact first-hand of the back-to-back hikes in interest rates. Home completions fell 13% in the second half of the year, Barratt said, while reservations for new homes slowed by “more than normal seasonal trends” from mid-May to the end of June. 

Demand for new homes has dropped by almost a third overall in the past year, sending shares in the UK’s biggest housebuilder lower. Net reservations for new homes dropped 32% in the year to end-June, the group said. It reported a “significant deterioration” in demand and said reservations had slowed in recent months, when mortgage rates soared following successive interest rate rises by the Bank of England.

But it’s not down to mortgage rates alone. More than half the decline, it said, was the result of a 49% fall in demand from first-time buyers as they face higher borrowing costs as well as the winding down of the government’s Help to Buy scheme. It has also faced higher costs itself. However, Barratt said that it anticipates inflation linked to building costs will halve in the next financial year - from roughly 10% in the year to end-June to 5%, primarily due to falling energy and raw material costs.

Barratt, which said it expects its pre-tax profits for the full year to remain in line with market expectations, is due to release those figures on 6 September.

Berkeley Group

Housebuilder Berkeley Group is likely to demonstrate much of the same rise in costs and fall in demand as Barratt Developments.  Back in June, Berkeley warned its sales would fall another 20% over the coming year if stubbornly high inflation and rising mortgage rates kept the housing market on an uncertain footing. Home sales would not recover until there was clarity on when interest rates would peak, it said.

The FTSE 100 group, one of London’s largest housebuilders, said that sales of new properties fell 15% on a like-for-like basis in the year to the end of April, compared with the year before, and flagged a further slowdown if current market conditions persisted.  It reported that while cash buyers and those who had to move because of life circumstances had remained active, other potential buyers were holding back. 

Berkeley cut its long-term earnings guidance and slowed development plans late last year after the fallout from the autumn mini Budget hit the property sector. In its annual results, the company reported pre-tax profits up 9.5% to £604m in the year to April and stuck to its forecasts. 

The latest news, that housebuilders can now build on sites that had been banned under EU law, is positive for the sector. Housebuilders can now fully utilise land they have bought to build on, but until buyers regain confidence and start snapping up the properties on that land, that expanded build capacity won’t add anything positive to the housebuilders’ bottom-lines.

Berkeley Group’s trading update is due out on 8 September.

Spire Healthcare

The number of people waiting for hip, knee and other routine operations on the NHS, has hit a record high of 7.6m, according to the latest data. With 383,083 people having been waiting for more than a year, the official data to the end of June makes for grim reading for anyone waiting for an op.

And it shows the numbers are stacking up. 7,177 people have been waiting for more than 18 months, 97,275 more than 15 months and 314 poor souls have been stuck on a waiting list for more than two years now.

The situation is undoubtedly dire and the government knows that. It has said private companies are to be given a bigger role in running and funding diagnostic centres for the NHS, in a bid to ease pressure on the NHS. However, many patients have already taken matters into their own hands and started treatment through private healthcare providers.

The most recent figures released by the independent Private Healthcare Information Network show 820,000 UK private inpatient and day-case admissions in 2022, the highest number since the organisation that tracks treatment data began collecting these records in 2016. More than 200,000 people went private in the fourth quarter of 2022, which also marked a record high for any individual quarter.

Back in March Spire Healthcare, a London-listed independent healthcare group, reported an 8% rise in revenue in its full-year results for the year to 31 December 2022. It said the increase was driven by increased private treatment, with private revenue up by 14.5%.  Its chief executive Justin Ash said at the time that “last year saw continued change in UK healthcare, with even more people seeking prompt and safe private care”. Spire’s outlook added that inquiries from private patients were ahead of the previous year.

That is something that clearly hasn’t gone unnoticed by private equity firms, looking to cash in on the shift to private care. According to consultancy LaingBuisson they have bought up dozens of UK healthcare companies, from eye-care clinics to diagnostics businesses over the past two years.

Spire Healthcare’s half-year results are due out on 14 September.

PZ Cussons

For PZ Cussons, the healthcare and consumer goods maker, with brands ranging from Carex to St Tropez, the UK cost-of-living-crisis is probably the least of its worries.

The business is more concerned about the devaluation of the Nigerian currency. Every 10% devaluation in the Naira is estimated to result in a £23m reduction in revenue, £3m reduction in adjusted operating profit, and a 0.5p reduction in adjusted earnings per share.

In its last trading update it talked about a “one-off impact” to the company’s bottom-line in the near-term, as a result of the devaluation of the Naira amid economic reforms by the new government in Lagos. Although in the medium-to-longer term, it said prospects for its Nigerian business “will be much improved by the economic reform.” For the current financial year, to the end of May, the company is forecasting an adjusted pre-tax profit of at least £70m, reflecting a particularly strong fourth quarter performance in Africa.

Beyond its African business, investors will be looking for signs that the 2020 turnaround strategy is starting to pay off. Having established a focus on three core categories – hygiene, baby and beauty – in four countries (the UK, Australia, Indonesia and Nigeria) chief executive Jonathan Myers, has explained how he wants to shift the structure from that of a multinational to what he calls a multi-local.

PZ Cussons owns about 50 brands altogether, but Myers has identified nine ‘must wins’ that make up about half of sales, two-thirds of its profitability, and now receive three-quarters of its marketing budget.

It’s an ambitious plan, but with baby being one of its core categories and 12m babies a year born in Nigeria and Indonesia, two of its key markets, this looks set to be an area ripe for growth, and one in which PZ Cussons is already well positioned.   

PZ Cussons’ full-year results are due out on 26 September.

Five-year share price performance table

Past performance is not a reliable indicator of future returns

Source: FE, as at 31.8.23 Basis: Total returns in GBP. Excludes initial charge.

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