Monday 22 June 2015

Mindful Money’s weekly shares watch: Telecom Plus, Debenhams & Tesco

Otmane El Rhazi from Mindful Money » Shares.

Despite hitting the market with a profit warning earlier this year brokers are remaining upbeat on utility services provider Telecom Plus, with the shares currently rated a ‘strong buy’.

The FTSE 250 listed firm owns and operates the Utility Warehouse brand, which supplies homes and small businesses throughout Britain with telecommunications as well as gas and electricity services delivered its shock back in April.

As a result its shares are now down by some 41% over the past year and by 37% over six months and Tuesday sees it delivers its preliminary fourth quarter earnings.

Sheridan Admans, investment research manager at The Share Centre is expecting a rebound and has the business on his ‘buy’ list. Looking ahead to this week’s update, he says: “Investors will be hoping that there is not any more bad news relating to weather, energy prices and theft of its gas. As always, average revenue per user will be a closely followed number, along with the number of new customers the group has signed.”

Thursday sees UK high street stalwart Debenhams report its third quarter trading update. The past 12 months has been kind to investors with the FTSE 250’s stock up by 25%.

But this week’s update follows cautious first-half comments from its management. Keith Bowman, equity analyst, at Hargreaves Lansdown Stockbrokers notes that like-for-like sales growth is expected to remain modest near to medium term.

He says: “Ongoing initiatives to increase online sales, push own-label higher margin products and reduce stock inventories may be further underlined, whilst an update on the opening of five new stores this autumn and ahead of its peak Christmas trading period could also feature.”

But prior to the announcement and with management initiatives set against a similar recovery push at rival mid-market clothing retailer Marks & Spencer, Bowman highlights that right now the analyst consensus opinion is pointing to a ‘hold’.

The UK’s embattled supermarket sector will be hitting the headlines again this week, when Tesco reports its first quarter trading update on Friday.

With its shares off by 14% over the past three months, food deflation and a highly competitive pricing backdrop continue to impact the firm. Admans, who has the group down as a ‘hold’ asserts that the new CEO has “a huge task in restoring confidence in the group, which will not be helped by the growth of Aldi and Lidl”.

In terms of what he anticipates from this week’s announcement, he says: “The ongoing problems and restructuring of the group has been well documented. Investors will be hoping that the majority of bad news is now in the public domain. An update on the long-term aims and strategy will be the areas that most sector followers will concentrate on.”

However UK like-for-like sales excluding fuel at Tesco are expected to fall by around 2%, broadly in line with that recently reported at Sainsbury, which was down by 2.1%.

But Bowman says sales for the group’s European operations could surprise to the upside, with recent data from market researcher Kantar suggesting that Tesco had regained its position as Ireland’s biggest grocer.

He adds: “In all, and with further market share losses weighed against corrective action being taken by still relatively new Chief Executive Dave Lewis, analyst consensus opinion currently points towards a ‘strong hold’.”

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