The week ahead: Rolls-Royce, TUI
10th February 2017 16:18
Monday 13 February
Trading Statement
Fidessa
Tuesday 14 February
2015 was one of the worst years in long history. Struggling to control costs at its vast commercial jet engines business and, with the impact of weak oil markets wrecking its marine division, a string of profit warnings halved the value of Britain's iconic engineer to multi-year lows.
However, after plunging below 500p last February for the first time since 2010, Rolls has made progress. Admittedly, it's been more a case of two steps forward, one step back, but it is looking more investible now than it has done for years.
Celine Fornaro at UBS certainly thinks so. She upgraded her view on the "unloved" shares at the beginning of this month, from 'neutral' to 'buy', and upped her price target from 800p to 835p. Profit estimates increase by an average of 10%.
Rolls shares are up since then, but that target still implies potential upside of 14%.
"We believe investors ascribe little value to cash improvement in 2019/2020," writes Fornaro. "Over 2017, we think investors will gain more comfort on management's "grip" on the business. 2016 was the first year without warnings since February 2014, and the 2016 outlook was raised slightly in Jan 2017."
We'll get a steer in full-year results Tuesday. According to UBS, look for further cost reductions in 2016, a 2% increase in revenue to £13.6 billion, giving underlying operating profit of £811 million, pre-tax profit of £709 million and a dividend worth 11.7p a share.
London's two major listed travel companies have had contrasting fortunes over the past six months.
Latching onto recovery credentials, investors chased the shares to a 10-month high. Growth at was more pedestrian, although it still trades near a one-year best.
However, Cook slumped 10% after this week's first-quarter results failed to impress. A seasonal underlying operating loss of £49 million was £1 million better than a year ago, but weak demand for Turkey and overcapacity to the Canaries swung Cook's German airline – Condor – to a £7 million loss. A year ago it made £6 million profit.
Cook shares had done a lot in the run up to results day, but while less appears baked into TUI's price, sentiment is mixed.
"We believe the market is underestimating a more challenging outlook for these companies, with growth vs. [free cash flow] vs. dividend tensions for TUI and easyJet," wrote broker Panmure Gordon recently, rating TUI and Cook a 'sell'.
Analysts at Barclays are more optimistic. They look for an improvement in first-quarter seasonal operating losses from €81 million (£69 million) a year ago to €77 million this time.
"We expect solid trading in the Northern and Western divisions offset by weakness in the central division," said the broker. "We expect hotels, Cruise (one new ship) and FX to be a positive tailwind in Q1 17."
Trading Statement
Acacia Mining, Spectris, Rolls-Royce, Mucklow (A&J), Pendragon, TUI Travel
AGM/EGM
Pressure Technologies
Wednesday 15 February
Trading Statement
Animalcare, Avingtrans, Hargreaves Services, RedxPharma, Surface Transforms
AGM/EGM
Titon Holdings
Thursday 16 February
Trading Statement
Primary Health Properties, Coca-Cola HBC, Romgaz, Drax, Shire, Lancashire Holdings, Avation
AGM/EGM
Zytronic
Friday 17 February
Trading Statement
Millennium & Copthorne Hotels, Essentra, Kingspan, Segro
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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