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Housebuilders to be in focus as Autumn kicks off with a welter of sector updates

Last updated: 15:00 03 Sep 2018 AEST, First published: 21:45 31 Aug 2018 AEST

Builder

Housebuilders will be front and centre in the coming week as Autumn kicks off with updates from a welter of companies in the sector in the wake of another dull report on UK house prices.

According to the latest Nationwide house price index - published on Friday - UK house prices grew at their joint slowest annual pace in more than five years in August, on average 2% higher than in August last year but down 0.5% compared with July 2018.

Despite any worries over the market picture, shareholders have been promised a “significant step-up in profitability” when Bovis Homes Group PLC (LON:BVS) reports its half-year results on Thursday.

The company has been the runt of the house-building litter during the recent housing boom but it appears to be getting its act together on the quality control front, albeit just as interest rate rises are set to make things cloudy for the sector.

We already know that total completions stood at 1,580 in the six months ended June 30, up 4% from 1,512 the same period a year ago.

The recent spell of good weather might have enabled the company to accelerate completions but management has been careful of late to ensure that quality is given priority over quantity, given the reputational damage the company suffered when its standards slipped.

Shareholders will be hoping for more details on margins, which management had previously said are up year-on-year, without specifying to what extent.

Barratt Developments seen in-line

Deutsche Bank is expecting Barratt Developments PLC (LON:BDEV) to announce full-year profit before tax of £837mln on Wednesday, in-line with the house-builder’s recent guidance of around £835mln.

The company has suggested net cash will be around £790mln, but the German bank is expecting it to be a little better than this, at £793mln.

As with all the house-builders, much of the rear-view window stuff has already been released so the focus will be on current trading, particularly in London, where Barratt has seen an improvement in the centre of the capital.

Forward guidance key for Redrow

When Redrow plc (LON:RDW) releases its prelims on Tuesday, all eyes will be on forward guidance, according to Deutsche Bank.

Completions are expected to be up 6.2% to 5,650 units and the average selling price up 5% at £325,000, resulting in revenue of £1.86bn, up 12% year-on-year. The dividend is tipped to be 25.3p.

“Markets will keenly follow comments on current trading and order books to gauge market stability. We expect broadly stable trading performance with H2 private sales rate down c.1% implying FY18 private sales rate of 0.67, c.2% below last year's level. Given the healthy order book position, we believe FY19 assumptions should be well supported with the group nearly 50% forward sold for FY19 private sales,” Deutsche’s analysts said in their preview.

London focus eyed at Berkeley Group

More than its house-building peers, Berkeley Group Holdings PLC (LON:BKG) is focused on London and the South-East, and while this has been a double-edged sword of late, the stock still trades at a premium to the sector, largely because of that southern bias.

The builder’s June trading update hinted of tougher times ahead so investors will be interested to see if the trading update (covering the period from May) – also due on Wednesday - contains more hints of that nature.

“Looking forward, we remain concerned that the impact of recognised skills gap in the UK construction workforce may become more pronounced as the UK exits the European Union. While this is hard to predict, it is a fact that over half of London's site labour comes from the EU.

“This needs to be addressed by a combination of continued access to EU labour, skills training and innovation in construction if the industry is to achieve its medium-term production aspirations,” said Rob Perrins, Berkeley’s chief executive.

Investors eager for new CEO news from McCarthy & Stone

A slightly different building angle will come from retirement homes firm McCarthy & Stone PLC (LON:MCS).

The FTSE 250-listed group’s chief executive Clive Fenton has retired so investors are waiting to hear who will take his place and help lead the group’s turnaround. 

Fenton officially stepped down on Friday and chief operating officer John Tonkiss has assumed the role of interim chief executive until a permanent replacement is found.

The next man in charge will be tasked with reviving the business following a profit warning in June.

The company expects full-year operating profits of £65mln to £80mln in the year to August, down from £96mln last year and well below analyst expectations of £105.5mln.

It expects to complete between 2,100 to 2,300 homes in 2018, compared to 2,302 legal completions in 2017.

McCarthy & Stone has seen a slackening off of reservation rates amid uncertainty caused by Brexit and weaker property prices. The group also expects to take a hit from the government’s decision to force developers to cut controversial ground rents to zero for new homes.

But Fenton won’t be hanging around to implement the new strategy so the focus is on who will take over the reins.

New boss the main focus for WPP

Away from the builders, FTSE 100-listed advertising giant WPP PLC (LON:WPP) is widely expected to name its former digital boss Mark Read as its new chief executive, in the wake of Martin Sorrell’s departure earlier this year, according to media reports, possibly with its second-quarter numbers due on Tuesday.

Read has been seen as the leading internal candidate to become CEO, having stepped up to become WPP’s joint chief operating officer – together with Andrew Scott - in April after the group’s founder Sorrell quit after 33 years in charge following a complaint of personal misconduct against him, which he denied.

In a preview of WPP’s numbers, analysts at Deutsche Bank said: “Coming at the end of a quarter where the ad agency sector has delivered volatile organic growth, we think WPP will report a solid, unspectacular set of results, with broadly flat organic growth. If anything, the risk is to the upside with comps easing 250 bps vs. 1Q.”

“More fundamentally,” the analysts continued, “we expect WPP to announce its new CEO along with its results. As widely reported in the press, internal candidate Mark Read is likely to be appointed and should provide more stability than an outside appointment.”

They concluded: “We don’t expect any modifications to guidance or a marked change of strategy. Although we think WPP’s valuation is low, the process of integration and simplification will be lengthy.”

Dixons tackles tough retail market and higher costs

There is also a new man at FTSE 250-listed electricals retailer Dixons Carphone Plc (LON:DC.) and he has already warned that its profits this year will be weighed by higher costs as it undergoes a major restructuring.

Alex Baldock, who took over as chief executive from Sebastian James in April, has said his turnaround plan for the retailer would take time so the company is unlikely to show much progress in its first quarter update on Thursday. 

The restructuring includes shutting down 92 stores this year in response to an increase in consumers opting to shop online. 

In June, the company posted a sharp fall in profits to £382mln in the year to 28 April 2018 from £500mln last year and said it profits to fall to £300mln in the current year, largely due to higher minimum wage requirements and IT depreciation.

The group is also having to tackle sector-wide problems, with phone upgrades lessening and consumer confidence weakening in the UK.

Given the challenges the company is facing in the early stages of its restructuring, the first quarter update will probably not bring too much joy to investors.

The focus will be on its sales performance and any changes to full year guidance.

Govia in focus at Go-Ahead

Keeping with the management change theme, transport operator Go-Ahead Group PLC (LON:GOG) will report its full-year results on Thursday, just two weeks after chief financial officer Patrick Butcher announced he will be leaving in a “few months” to join Capita PLC (LON:CPI).

At the start of summer, the FTSE 250 transport group said it expected to deliver annual profits “slightly ahead of its previous expectations”.

Analysts reckon Go-Ahead’s bus business will take a £1mln hit from the ‘Beast from the East’ as people stayed inside, while the sector’s challenging trading conditions persist.

Things should be a little brighter on the train side of things, with revenue growth at Southeastern set to recover now the renovation works at London Bridge are largely complete.

That said, Govia Thameslink Railway – which operates the troubled Southern franchise – has endured another tricky spell, with timetable changes brought in to improve performance earlier this year having the complete opposite effect.

Transformed Melrose Industries to update

Elsewhere, eyes will most certainly be on the integration of the acquired GKN assets as Melrose Industries PLC (LON:MRO) reports on Thursday, after the corporate arm-wrestle concluded earlier this year.

“It may say Melrose on the wrapper, but it’s GKN in the tin,” said Laith Khalaf, analyst at stockbroker Hargreaves Lansdown.

“Having emerged the winner from one of the biggest hostile takeovers in recent British history, all eyes will be on what Melrose has been up to with its first four months in charge of the aerospace and automotive engineer.

Khalaf added: “At the time of the bid, Melrose committed to substantially improving margins and profits, while investing in the business going forwards.

“Thursday’s half year results will be an early chance for the turnaround specialist to demonstrate how that’s going to be achieved.”

Meanwhile, recent reports have suggested Melrose may be looking for possible buyers of GKN’s powder metallurgy division and investors will also be keen to hear any developments regarding the Nortek business and the restructuring of the Brush which unit.

Spanish deal integration eyed at DS Smith

Blue chip packaging group DS Smith PLC (LON:SMDS) forked out €1.9bn to acquire Spanish rival Europac earlier this year and the market will be looking for an update on how that is progressing with a trading update on Tuesday

Graham Spooner, Investment Research Analyst at The Share Centre: “The company announced good full-year results in June saying that volume growth momentum had continued into the new financial year.

“It has also scaled back some expansion plans due to Brexit and investors will be interested to hear if that caution remains.”

He added: “Any news on the review of the plastics business will also be of interest, not just to investors in this company but others in the same sector.”

Haynes set to continue recent recovery

Among other readings, Haynes Publishing Group PLC (LON:HYNS) will report its full-year results on Wednesday.

The company, which publishes manuals on everything from cars to famous trains to Death Stars, has seen demand for its products fall in recent years.

In response, Haynes made a few changes, including shutting down its printing presses in Nashville and pulling out of Sweden, moves which seem to have worked.

Back in June, the firm revealed pre-tax profits would be 10% better than what it generated last year and 7% ahead of what analysts had been expecting at the time.

US jobs to be economic focus

As always at the start of a new month, the main economic focus will be on the latest US jobs report.

Non-farm payrolls growth in July dropped to 157,000, nonetheless that was still an impressive figure given the number of months that has seen job creation in the US.

Economists expect a small pick-up for August to 186,000 with the unemployment rate possibly falling further to 3.8%.

However, if the rate of wage growth fails to live up to expectations of 2.8%, then it will be the case that more investors begin to question whether the US economy is getting closer to the peak of the current long and protracted cycle.

Significant announcements expected this week:

Monday September 3:

US LABOUR DAY HOLIDAY

Finals: Dechra Pharmaceuticals PLC (LON:DPH)

Interims: ADES International Holding PLC (LON:ADES), Biome Technologies PLC (LON:BIOM), Gamma Communications PLC (LON:GAMA), Glenveagh Properties PLC (LON:GLV), Microsaic Systems plc (LON:MSYS), Tissue Regenix Group PLC (LON:TRX)

Economic data: UK manufacturing PMI index

Tuesday September 4

Finals: Redrow plc (LON:RDW), Craneware PLC (LON:CRW), A&J Mucklow Group PLC (LON:MKLW), Mattioli Woods plc (LON:MTW)

Interims: WPP PLC (LON:WPP), Alfa Financial Software Holdings PLC (LON:ALFA), Boku Inc (LON:BOKU), Cairn Homes PLC (LON:CRN), Dalata Hotel Group Plc (LON:DAL), European Wealth Group Limited (LON:EWG), Filta Group Holdings PLC (LON:FLTA), Gulf Marine Services PLC (LON:GMS), Inspired Energy plc (LON:INSE), Johnson Service Group plc (LON:JSG), Lighthouse Group PLC (LON:LGT), Michelmersh Brick Holdings Plc (LON:MBH), Porta Communications PLC (LON:PTCM), Taptica International PLC (LON:TAP), Telit Communications Plc (LON:TCM)

Trading update: DS Smith PLC (LON:SMDS)

Traffic numbers: Wizz Air PLC (LON:WIZZ)

Economic data: UK construction PMI index; US ISM manufacturing report; US manufacturing PMI index; US construction spending index

Wednesday September 5:

Trading update: Berkeley Group Holdings PLC (LON:BKG)

Finals: Barratt Developments PLC (LON:BDEV), Haynes Publishing Group PLC (LON:HYNS), Frontier Developments PLC (LON:FDEV)

Interims: Anpario Plc (LON:ANP), Everyman Media Group PLC (LON:EMAN), Frenkel Topping Group PLC (LON:FEN), Gem Diamonds PLC (LON:GEMD), Location Sciences Group PLC (LON:LSAI), Somero Enterprises Inc (LON:SOM)

Traffic numbers: International Airlines Group PLC (LON:IAG)

Economic data: BRC UK shop price index; UK services PMI index; US balance of trade

Thursday September 6:

Trading updates: Dixons Carphone Plc (LON:DC.), McCarthy & Stone PLC (LON:MCS)

Interims: Bovis Homes PLC (LON:BVS), Melrose Industries PLC (LON:MRO), Curtis Banks Group PLC (LON:CBP), Deepmatter Group PLC (LON:DMTR), Hunters Property PLC (LON:HUNT), International Public Partnerships Ltd (LON:IMPP), Just Group PLC (LON:JUST), MPAC Group PLC (LON:MPAC), PPHE Hotel Group PLC (LON:PPH)

Finals: Go-Ahead Group PLC (LON:GOG), Mcbride PLC (LON:MCB), Avation PLC (LON:AVAP)

Traffic numbers: easyJet PLC (LON:EZJ)

Ex-dividends to knock 9.24 points off FTSE 100 index: Admiral Group PLC (LON:ADM), Antofagasta PLC (LON:ANTO), BHP Billiton plc (LON:BLT), CRH PLC (LON:CRH), Glencore PLC (LON:GLEN), Land Securities PLC (LON:LAND), RSA Insurance Group PLC (LON:RSA), Shire Plc (LON:SHP)

Economic data: US weekly jobless; US Challenger job cuts; US services PMI index; US factory orders; US non-manufacturing ISM

Friday September 7:

Trading update: Greene King PLC (LON:GNK)

Finals: Ashmore group PLC (LON:ASHM)

Interims: Secure Income REIT PLC (LON:SIR)

Economic data: Halifax UK house prices; RICS UK house prices; US non-farm payrolls

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