Monday shares outlook for GlaxoSmithKline, BSkyB, Kingfisher and more

22nd July 2013

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Updating the market this week are B&Q owner Kingfisher and Aquafresh parent GlaxoSmithKline while James Murdoch’s British Sky Broadcasting reports on its full year results writes Philip Scott.

A return to better weather is expected to have driven a rebound in sales from what was a difficult first quarter for Kingfisher, which publishes its second quarter trading update on Wednesday. Over the past 12 months its stock is up 44 per cent  and by 36 per cent over just three months.

Easy comparatives and a recent rapid recovery in the UK housing market – aided by the government’s ‘Help to Buy’ scheme – are also forecast to play their part in the stock’s success, which also owns Superdrug.  Keith Bowman, equities analyst at Hargreaves Lansdown, says: “The group’s generation of free cash flow continues to underpin hopes of shareholder returns, although more negatively, the economic outlook for the DIY retailer’s major French market, 39.6 per cent of sales, remains a concern.”

Sheridan Admans, investment research manager at The Share Centre, agrees. He says: “Considering Europe’s economic climate, Kingfisher is likely to need strong results from its UK operations to offset its continental business. Some 60 per cent of sales and profits come from outside the UK. However, investors should be comfortable Kingfisher is addressing these challenges by squeezing costs and selling higher margin products. It also has reasonable cash flow, and there is speculation that it may not refinance the debt that matures next year.”

However with its robust share price performance over the past quarter alone, analyst opinion currently points towards a ‘strong hold’ says Bowman, while broker sentiment on share data hub Digital Look has it moving towards a ‘strong buy’. For its part, The Share Centre rates it as a ‘hold’.

Despite increased media scrutiny, GlaxoSmithKline’s shares have held steady as investors focus on more important sales and its product pipeline. The shares of the international healthcare firm, which owns Lucozade and Panadol, have risen by 4 per cent over the past three months and by 15% over 12% respectively. It delivers its second quarter results on Wednesday. Admans says: “Investors will be expecting updates of new drugs coming through from the R&D department; previously they were very optimistic about their prospects. The sector has been hit in recent years by lapsing patents and competition from the generic manufacturers so further comments regarding these issues are welcome. We currently list GlaxoSmithKline as a ‘buy’.” Broker sentiment on Digital Look is pointing towards ‘neutral’.

The share price of business information and media group Reed Elsevier is trading at a five year high, up 44 per cent over the period, investors will be hoping for and expecting no signs of slowing in the steady growth seen across all of its divisions when it announces its second quarter update on Thursday. Shares have risen by 7 per cent over the past three months. Admans says: “Comments on margins and its emerging market exposure will also be of interest to investors, as will any news on the effects of US budget cuts. We currently list Reed Elsevier as a ‘hold’.” Digital Look’s broker survey has it moving to a ‘buy’ rating.

BSkyB reports its full year results on Friday. Recent moves by BT Group and TalkTalk to compete with its pay-tv product offerings are likely to head the agenda for investors. Nonetheless, Bowman believes the group’s market dominance to date and tactical promotions are expected to see a still solid fourth quarter sales performance generated, with management comments, as always, closely scrutinised. He says: “Pre-tax profit for the full year is forecast to rise by 9 per cent to £1.25bn, with analyst opinion given increased competition currently denoting a strong hold, down from a strong buy this time last year.”

Admans says: “It is probably too early for the group to comment on the challenge that is currently coming from BT for sport. The market, although getting a little nervous over where future growth can come from, will be keen to hear about how new initiatives are progressing. As usual, the average revenue per user figure will be important, along with new customer numbers and the ability to retain them.” The Share Centre currently lists BskyB as a ‘buy’ while Digital Outlook’s research has it edging towards a ‘buy’.

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