Stock results to watch this week: 29 Oct – 02 Nov

Updated : Oct 26, 2019 in Articles

Stock results to watch this week: 29 Oct – 02 Nov


Hello, and welcome to Stock Watch
Live, looking forward to week beginning 29th of October. All eyes will be on Chancellor Philip
Hammond’s Budget on Monday – the first to have been presented on that day of the week
since 1962. Investors’ primary concern will be
whether or not the usual rumours about a raid on pension tax relief finally come to
anything more than idle speculation. Higher earners have already paid the price
via a lower lifetime pensions allowance and a tapering away of their annual
contribution allowance to as little as £10,000. One possibility is that the Chancellor looks
to capture more and more people in that net, banking on the fact that no-one will
shed a tear for those earning more than, say, £100,000 a year. We shall see. Once Mr Hammond has sat down,
however, there’s no shortage of reports on the companies that are likely to be held
in many of our pensions. It’s a big week for company
results, and in particular for the big blue-chip companies that many investors are
counting on for a comfortable retirement. We’ve got pharmaceuticals, in the form of
GlaxoSmithKline, banks, with both HSBC and Standard Chartered reporting,
and hotels via Millennium & Copthorne. Meanwhile retailers, including
Carpetright, get their moment in the sun while household products is represented by
Reckitt Benckiser. But the companies I want to focus on today
are two former privatisation favourites, British Petroleum, aka
BP, and British Telecommunications, now just plain BT. I’ll also look at High Street bellwether
Next and tech investor favourite Scottish Mortgage Investment Trust. BP’s dividend came back into focus three
months ago after the quarterly payout to shareholders was increased by 2.5% to 10.25
cents a share, the first rise since the third quarter of 2014. BP was always a fixture of equity income
funds before the Gulf of Mexico oil spill knocked a hole in the company’s balance sheet. Last quarter chief executive Bob Dudley made
a clear commitment to growing distributions to shareholders in future. Thanks to the rising oil price, BP is back
on track. That was reflected in a four-fold increase
in underlying profits in the second quarter of 2018 and there is no reason to think that
BP won’t get another strong boost again in the third quarter, with the cost of Brent
crude rising as high as $86 a barrel recently. With President Trump determined to squeeze
Iran by extending sanctions to the energy sector from next weekend, the direction of
travel for the oil price is probably up for the time being. The longer-term question for BP and its
rivals in the fossil fuels business is what comes next after oil. BP is placing bets in electric vehicle
charging and advanced battery technology but the race is on to reinvent itself while
we remain addicted to the black stuff. In the meantime, the company is a steady
income stock. With a forecast pay-out of just over 30p
a share this year and next, the shares yield more than 5%. In a low interest-rate environment that will
continue to look interesting to yield hunters. The High Street has been a killing field
this year. Brexit uncertainty and our determination to
do more and more of our shopping online has seen a string of high-profile casualties. Debenhams this week joined the list of
companies planning mass closures and job losses. Not so Next, which has embraced e-commerce
to the extent that it now sells more online than it does on the High Street. Expect some commentary in Tuesday’s third
quarter update on Brexit. Next’s boss Simon Wolfson is a prominent
Leave supporter and he devoted a full ten pages of the interim results announcement
three months ago to detailing the real costs of a no-deal departure from the EU next March. His comments that the biggest risk to
the business was ports not coping with the additional volume of customs work they
would be required to undertake in that eventuality were a kind of preview of this
week’s National Audit Office report warning of the potential chaos of a no-deal outcome. Next has been a pretty volatile investment
in the ten years since the financial crisis. Between 2008 and 2016, the shares rose
10-fold from around £8 to £80 but they have struggled since in line with
the generally grim outlook for British retailers. Another share which has struggled recently
is BT. Like the retailers just
discussed, BT is fighting on multiple fronts as its telecoms, broadband
and entertainment businesses compete in fast-changing markets. Having reported three years of declining
earnings, and with more bad news expected on that front, BT’s appointment this week
of a new chief executive could not come a moment too soon. Former Worldpay boss Philip Jansen has
a tough job ahead of him to turn the company’s fortunes around. The business has struggled to please its
regulator, which dislikes its quasi monopoly position, its customers, who are fed up with
poor service and high prices, and its staff, who feel badly managed. Most miffed of all are shareholders (among
whom I count myself) who have seen their holdings roughly halve in value over
the past three years. The big question now is whether
the dividend is sustainable. BT pays out about three quarters of its
after-tax earnings to its shareholders. That would be OK if the company were a dull
utility but it ought to be a growth company with plenty of competing demands for that
cash in the form of investments in the future. The new boss may well feel that he has one
opportunity to reduce the dividend to give him a war chest for rebuilding
the business. Which brings me to my last share focus this week. This one is actually an investment trust
with a thoroughly misleading name, Scottish Mortgage. Despite its rather dull sounding
moniker, this is actually an extremely racy investment vehicle, as a quick glance at its
top ten holdings will confirm. These include Amazon, China’s internet
giants Tencent, Baidu and Alibaba, Tesla and Netflix. As if all this technology wasn’t enough to
get the pulse racing, car maker Ferrari is in the mix too. It’s quite some portfolio. When tech was ruling the roost, so too was
the Scottish Mortgage trust. Since the financial crisis, Scottish
Mortgage’s shares had risen from well under 100p to 563p at their peak a few weeks back. Unsurprisingly the last few weeks have been
extremely painful for manager James Anderson. They have since fallen back to 461p
a share. So, at the very least next Mr Anderson will
need to explain whether he plans to stick to his strongly-held tech-stock convictions.
He is not alone in backing tech but he has certainly done it in a more uncompromising way than most global
investors. Well that’s all for this week. For more on the companies reporting in the week ahead,
go to the Markets & Insights section at fidelity.co.uk. Thanks for watching.

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