Stock Watch: 5 Feb - 9 Feb 2018

Emma-Lou Montgomery
Emma-Lou Montgomery
Fidelity Personal Investing2 February 2018

On Thursday when we get a Q1 update from Thomas Cook Group (TCG) the travel company’s beleaguered shareholders will no doubt be hoping they get a break this time around.

So too, no doubt, will Thomas Cook’s boss, Peter Fankhauser.

Having most-recently announced operating losses of £49 million and warned on the outlook for the rest of the year, unsurprisingly his shareholders weren’t best pleased by his share incentive plan, which could score him an extra 225% (worth £1.6 million) simply if his board tweaks some performance criteria. He has since lost the support of a third of his shareholders over his plans to boost his £703,800 base salary.

Just over six months ago things were looking decidedly sunnier for both Fankhauser and his irritated shareholders. The 2017 summer season was a near-sellout and a third of holidays for the then-upcoming winter season had already sold. The future was looking bright. But within less than two months the company’s shares were down 13% after full-year results which showed that Thomas Cook - just like many of its peers - was at the mercy of margins.

The UK business reported its first downturn in margins after four years of growth as price-conscious Brits heading to the Costas turned up the heat on Thomas Cook. The need to cut prices to pull in the punters sent UK operating profits down 34% on a like-for-like basis to £52 million, meaning operating profits for overall tour operations were flat.  

However, Thomas Cook has said demand for cheap holidays is strong and bookings and pricing for the 2018 summer season are ahead of last year, thanks to a recovery in sentiment towards Turkey and Egypt.

Another travel company, even more familiar with controversy, is Ryanair (RYA) which gives us a trading update on Monday. Having seen off Monarch and Air Berlin and now with Wizz Air (WIZZ) snapping at its heels, as reported in last week’s Stock Watch, its Q3 figures will be of note.

Having just reached its first union deal in its 33-year history, after agreeing to recognise Britain’s pilot group as it attempts to resolve a long-running battle with cockpit crews over wages and conditions, Ryanair’s shareholders will be hoping for less turbulence in the months and year ahead.

On Thursday, new chief executive Dominic Blakemore will give a trading update on Compass Group (CPG), which is still coming to terms with the tragic death of its late-chief exective Richard Cousins, who was killed in a helicopter accident in Australia at the start of the year.

At the time of the full year results, in November, the catering giant said it continued to make good progress in its North American operations, although the offshore division remained weak. The market will be focusing on those two areas as well as the order pipeline. It has already said it expects its tax rate to fall from 26.5% to 24% as a result of the corporate tax changes in the US, so an outlook for the full year will be closely watched.

Talking of tax reforms, they were less welcomed by those in the oil sector, but they didn’t unnecessarily worry Royal Dutch Shell (RDSA) last week, so all eyes will be on whether concern BP (BP.) can pull off a similar tax-defying feat.

Last week Shell reported Q4 and full year 2017 results which both showed increases in excess of 100% compared to the previous year. All the more impressive because they were achieved despite a $2 billion hit from charges related to those US tax reforms.

For BP, the steady rise in the oil price, coupled with deep restructuring and cost cutting programmes that the big oil groups are all engaging in, plus the last of the additional charges made for the Gulf of Mexico disaster, should see BP back to making the huge profits that we have seen in the past.

You might not be immediately familiar with new kid on the block EI Group (EIG) but it’s actually Enterprise Inns, in a new guise. The group said it was changing its name to better reflect it as a more - ahem - enterprising business.

The new strategy which the company says will set it up as “a portfolio of businesses comprising a variety of operating models and trading styles designed to optimise the value derived from the asset base.” What that means, in plain English, is that by 2020 it will own around 1,000 other commercial properties, in addition to the 2,400 inns it already has in its portfolio on a leased and tenanted basis. Enterprising indeed.

Analysts at Numis expect pre-tax profits of £121million for the year to September 2018, giving earnings per share of 21.8p.

Key company announcements in the week ahead 

Monday

Ryanair (RYA)

Electrocomponents (ECM)

Tuesday

BP (BP.)

Ocado Group (OCDO)

TalkTalk Telecom Group (TALK)

Wednesday

GlaxoSmithKline (GSK)

Rio Tinto (RIO)

Smurfit Kappa group (SKG)

Tullow Oil (TLW)

Redrow (RDW)

Thursday

Thomas Cook Group (TCG)

AA (AA.)

Bellway (BWY)

Compass Group (CPG)

DFS Furniture (DFS)


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