Today I am looking at four London-listed headline makers in midweek business.
Tesco
Shares in British grocery goliath Tesco (LSE: TSCO) have enjoyed a solid spurt higher in Wednesday trade and were last 6.7% higher on the day. Like fellow mid-tier operator Morrisons, the firm has been boosted by the latest update from Sainsbury’s, which declared that full-year pre-tax profits will be “moderately ahead” of analysts’ forecasts of £548m. The market has subsequently driven the stock 14% higher.
I for one am not becoming giddy over this latest statement, however — Sainsbury’s profits for the year ending March 2016 are sure to come in well under £681m in fiscal 2015. And figures for June-September again underlined the competitive pressures facing the established chains, with like-for-like sales dipping 1.1% during the period.
And with the key online sector also becoming more fragmented — Amazon announced plans to begin selling groceries in London and Birmingham this week, while Aldi is set to start selling wine via the internet — the outlook is still getting tougher for Tesco et al. Indeed, earnings at Tesco are anticipated to slide a further 6% for the period to February 2016, resulting in a P/E multiple of 19 times. This is much too expensive given the firm’s murky earnings prospects, in my opinion.
QinetiQ Group
Defence giant QinetiQ (LSE: QQ) has failed to move despite releasing a decent set of results, and the stock was last flat from Tuesday’s close. The Farnborough firm advised that it was “maintaining its expectations” for the full-year, with revenues under contract for the period registering as anticipated so far.
QinetiQ did warn that its EMEA Services division had seen some contract award decisions deferred thanks to uncertainties in the British market, or delayed by requirements for additional approvals. Still, in the long-term I believe the sales outlook remains strong as improving economic conditions in the US and UK is likely to bolster defence budget improvements in the years ahead.
With the number and scale of conflicts involving the West increasing once again, I believe demand for QinetiQ’s air, land and sea services and products should keep on rising, too. This view is shared by the City, and the business is expected to see earnings steadily rise once again — predicted growth of 1% and 2% for the years ending March 2016 and 2017 respectively leave the arms play dealing on decent P/E multiples of 14.6 times and 14.3 times for these periods.
Topps Tiles
Retailer Topps Tiles (LSE: TPT) also failed to ignite the market in Wednesday business despite releasing blockbuster results, and was last changing hands 2% lower on the day. The company advised that it expects total revenues for the year ending September 2015 to clock in at a record £212m, up from £195.2m in the prior period. And on a like-for-like basis sales are anticipated to advance 5.3%.
This may represent a slowdown from the 8.1% rise in underlying sales seen last year, but such numbers are still not to be sniffed at. Indeed, Topps Tiles is benefitting from a steady rise in consumer spending power and a robust housing market, factors that look set to carry on well into the future.
Accordingly the City has pencilled in earnings expansion of 30% for the outgoing 12-month period, resulting in a P/E ratio of 18.1 times. And this figure slips to just 15.8 times for 2016 amid expectations of a further 12% bottom-line lift. With Topps Tiles also improving its ranges and increasing the number of stores it operates — the retailer currently operates 348 outlets — I reckon the DIY specialist is in great shape to deliver brilliant long-term earnings growth.
