Mindful Money’s weekly shares watch: G4S, Morrison & Home Retail Group

9th March 2015

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British multinational security services group G4S, infamous for bungling its 2012 Olympics contract, reports its full year results on Tuesday and investors will be eager to hear about its continuing recovery.

The firm has enjoyed a 26% share price rise over the past 12 months and looking to the market update, management at the firm may underline its focused strategy, selling underperforming businesses, as it attempts to confine the Olympics fiasco to the past.

Hargreaves Lansdown Stockbrokers equity analyst Keith Bowman expects that emerging markets and North America are likely to have led performance, while contract retention may have stayed at historical levels of slightly above 90%.

Sheridan Admans, investment research manager at The Share Centre agrees that investors will be hoping that the recovery in the group’s fortunes, as a result of the strategic review, has continued and that developing market performance will be important, “as it has helped offset weakness in other markets such as Europe and the US”.

Admans, who rates the shares a ‘buy’ says: “Management are also addressing the financial situation of the company in order to cut debt. Furthermore, any news on new or potential contracts will also be of interest.”

Ahead of the announcement, and with governments and private organisations alike under pressure to cut costs, often through outsourcing, Bowman highlights that the analyst consensus opinion currently points towards a ‘buy’.

The UK’s troubled supermarket sector will be back in the spotlight again this week as Morrison unveils its own set of full-year numbers on Thursday. While its stock over one year has tumbled by 13% over the past six months it has bounced back with a 19% gain.

Supported by recent industry data from research group Kantar and given ongoing product pricing cuts, a solid improvement in declining like-for-like sales year-over-year is anticipated notes Bowman.

Admans expects that investors will be seeking a view from the firm on its plans for turning the business around. “Morrison’s is the least diversified business model of the large food and drug retails and is likely to have found the fourth quarter a struggle,” he says.

Bowman adds that the group’s relatively new online offering and roll-out of convenience stores may again be underlined, along with both a falling net debt position and the pending commencement on 16 March of new chief executive David Potts.

He adds: “Nonetheless, management guidance points to 2014/15 underlying profit before tax in the range £335m-£365m, down from £785m in the prior year.”

But Admans, who has the business on his ‘hold’ list notes that speculation of a dividend cut in the press will be watched closely by investors.

Given these concerns over shareholder payouts, the overall analyst consensus denotes a ‘sell’.

Argos and Homebase owner Home Retail Group, down 1% over 12 months and up by 10% over six, also reports its fourth quarter trading update on Thursday. Third quarter like-for-like sales at the group fell short of forecast, with ‘Black Friday’ promotional events impacting at Argos.

Looking forward, Bowman says reassurance in relation to full year profits heads the agenda, potentially aided by an increase in the profit margin at Argos during the important third quarter Christmas period.

He says: “Pre-tax profit is currently forecast to rise by around 6.5% to just under £123m year-over-year. In all, and with group profits seen as geared towards a burgeoning consumer recovery, consensus opinion currently signifies a ‘strong hold’.”

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