Mindful Money’s weekly share watch: Royal Mail, GlaxoSmithKline, Kingfisher & Unilever

21st July 2014


Given that Royal Mail’s shares have come somewhat back down to earth in recent months investors will be eager to hear about the group’s future strategy when it updates the market on Tuesday.

The business which was sold-off for 330p per share last October, is still sufficiently above water, given it is trading at the 470p per share mark but it has fallen some way since its 615p high.

In fact the past six months have witnessed some 22% wiped off the value of the stock on the back of a tougher trading environment. Such has been the controversy around its sale that business secretary, Vince Cable has succumbed to pressure following an abundance of criticism and ordered a review into Government IPOs.

Ahead of the delivery firm’s interim management statement, the market consensus towards the stock is pointing to a ‘hold’ with analysts at Deutsche and The Share Centre taking this view.

Sheridan Admans, investment research manager at latter firm said: “The share price has been under pressure of late as investors concentrated on margin pressures and the growing threat of competition. Commentary on cost cutting measures and the group’s request for help from the regulator as a result of the competition will be welcomed by investors.”

Wednesday sees pharmaceutical giant GlaxoSmithKline, off 5% in the past six months – and currently in the midst of some controversy in China – publish its second quarter results.

Last week brokers at Panmure Gordon and UBS respectively reiterated ‘hold’ and ‘neutral’ views on the business, in line with the overall market sentiment. Glaxo’s update will be the first update since the M&A activity in the sector peaked during the second quarter so investors will welcome commentary on the transactions that happened.

Admans, who against the consensus is calling the shares a ‘buy’, said: “Updates on the progress of R&D assets will also be of interest and we expect to hear whether its guidance of 4-8% earnings-per-share growth will be maintained. Additionally, the company has been in the news regarding the bribery allegations in China. Although Chinese revenues only account for less than 5% of the global total, negative press coverage will not be welcomed and investors may want to hear from management on the matter.”

B&Q and Screwfix owner, Kingfisher is scheduled to report its second quarter trading update on Thursday and following its disappointing first quarter results, and its shares down 13% over six months, investors will be hoping for some positive news.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers said that in a reversal of the first quarter, a tough second quarter comparative for the group’s UK B&Q subsidiary is expected to see it reporting flat like-for-like sales. French businesses, Castorama and Brico, are similarly expected to report flat same store sales, given the tough economic backdrop, whilst strength in the pound is likely to generate currency translation weakness he added.

“Nonetheless, with Screwfix sales predicted to continue growing, given exposure to the smaller tradesmen market, group cash being returned to shareholders and the company’s move to acquire French DIY retailer Mr Bricolage appearing to signal management’s longer term faith in French prospects, analyst opinion currently points towards a ‘cautious buy’,” said Bowman

Admans added: “Recent data out of China, which has seen economic growth accelerate for the first time in three quarters, might have had a positive impact on Kingfisher’s second quarter results. However it is suspected to be more pronounced in the third quarter.”

Also scheduled to report its second quarter results on Thursday is Unilever. It is expected that currency headwinds, difficulties in Russia and slower growth in the emerging markets are all likely to again drag on the Dove soap and Liptons Tea parent’s performance. Prior to the announcement, analyst consensus opinion on the stock, up 9% over six months, currently points towards a ‘hold’.

Bowman said: “Single digit sales growth similar to that achieved in the first quarter is forecast. Management initiatives in order to refocus the group’s North American product portfolio, largely towards higher margin personal care products, continue. Its pasta sauce brands, Ragú and Bertolli, and its Slim-Fast brand have in recent months been sold.”

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