Mindful Money’s weekly shares watch: ARM Holdings, Reckitt Benckiser, QinetiQ & Imperial Tobacco

9th February 2015

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Given Apple’s recent record quarterly profit, investors in ARM Holdings the US tech giant’s parts maker of choice, will be hoping the group has enjoyed a boost in its own numbers when it updates the market this week.

In January the iPhone maker posted a net profit of $18bn (£11.86bn), on the back of revenues hitting $74.6bn for its first quarter ended 27 December. Its results marked the biggest quarterly profit ever recorded by a listed company.

ARM, which delivers its fourth quarter results on Wednesday, has already enjoyed a 24% rise in its share price over the past three months and ahead of the update the broker consensus has the stock labelled a ‘buy’.

Looking ahead to the update, Sheridan Admans, investment research manager at The Share Centre says investors will also be looking out for new licensing awards, along with the prospect for royalties down the line. Admans, who has the stock on his ‘hold’ list, says: “There has been a lot of excitement about the group’s latest set of chips that are supposed to be much faster and more energy efficient, so investors will look out for commentary from management on this.”

Wednesday also sees Nurofen, Vanish and Finish owner Reckitt Benckiser reports its own fourth quarter/full year results. Its shares are ahead by 8% over the past three months.

Keith Bowman equity analyst at Hargreaves Lansdown believes the group Reckitt’s Health business, including brands such as Scholl and Nurofen Express is again likely to lead sales performance.

He says: “Cost savings generated by past acquisitions should once more contribute. Less favourably, increasingly mixed performances across its geographical arenas may again feature, with the third quarter impacted by weak growth in both South East Asia and Latin America.

“In all, and with some analysts recently expressing valuation concerns – the share price is up over 20% during the last year – consensus opinion currently points towards a ‘strong hold’.”

Defense and aerospace firm QinetiQ Group also reports its third quarter update on Wednesday. Its shares are down 6% over three months, and the company recently confirmed the appointment of defence executive Steve Wadey as its new chief executive come late April this year.

Bowman expects that the group’s European, Middle Eastern and Australian Services business is again likely to head performance – as orders grew by 13% as of the half year.

“More negatively, management could again point to the upcoming UK General Election and associated uncertainty while also reiterating the wide range of possible performance outcomes for its Global Products business, given its historic lumpy revenue profile. Prior to the announcement, analyst consensus opinion signifies a ‘strong hold’,” he adds.

Imperial Tobacco, which publishes its first quarter trading update on Thursday, has witnessed a good period of outperformance since full year results were released in early November. Over the past three months alone its stock has firmed by some 9% while over one-year its shares are ahead by a substantial 37%.

On the back of the rally, the broker consensus has moved from a ‘sell’ towards a ‘hold’ during the last three months. But Admans is bullish and rates the firm a ‘buy’. Looking to the update he anticipates that investors will be keen to hear how sales of the growth brands are going, especially in key emerging markets in Europe and Asia

He says: “The market will also be interested in the plans the company has for assets recently acquired from US group Reynolds, following its merger with Lorillard. The $7bn deal received approval from Imperial’s shareholders last week, but still requires the go-ahead from the US Federal Trade Commission.”

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