FTSE 350 Look Ahead: Compass, Johnson Matthey, United Utilities

Q3 2021 hedge fund letters, conferences and more

Compass Group, Full Year Results, Tuesday 23 November

Matthew Britzman , Equity Analyst

“Considering catering companies were acutely hit by lockdowns, Compass’ recovery efforts can’t be knocked. Margins have been improving over the course of the year, as it tightened the screws on costs. The group’s targeting a return to margins above 7% before volumes fully recover. That won’t happen overnight, but it will be important to see if it’s heading in the right direction. Compass is targeting underlying operating margins of 4.4% for the full year. The group’s debt position is on our radar. Last we heard, net debt was equivalent to 3 times cash profits, considerably above the target of 1-1.5 times. That said, Compass has made progress reducing the absolute debt level and if profits pick up the ratio will naturally come down. Compass’ valuation is above its longer-term average. The market has high expectations for the group’s continued recovery. Any unexpected bumps in the road, or a less-than-perfect outlook statement could cause some short-term volatility.”

Johnson Matthey, Half Year Results, Wednesday 24 November

Nicholas Hyett, Equity Analyst

“Having recently announced it’s abandoning its Battery Materials business, Johnson Matthey really needs to deliver some good news next week. Not least because there could be significant impairments associated with the move, which negatively affect profit.

The numbers themselves are unlikely to provide what the group is looking for, having already said half year results are set to be “in-line with market expectations”. And full year is even weaker, at “the lower end of market expectations” as the pandemic disrupts automotive manufacturing – the group’s key end market.

Instead, it’s commentary around future investment opportunities that will be closely watched. The group hinted at growth areas like “hydrogen technologies” and “decarbonisation of chemicals” in its trading statement earlier this month. The group has history in both, but relying on them to take the strain of falling combustion engine vehicle sales is a big ask. We were disappointed at the lack of detail about opportunities and financial cost in the group’s initial announcements and hope for more detail next week.”

United Utilities, Half Year Results, Wednesday 24 November

Laura Hoy, Equity Analyst

“Post-pandemic life should be a good thing for United Utilities. Businesses reopening should boost consumption, but some of the added household demand should also stick around as working from home continues. At the half year results we’ll get some idea of how the two are balancing out and whether the group can expect elevated overall demand from here on out. Management forecast a 4% revenue increase, despite lower prices due to regulatory caps. Those regulatory price caps keep the group from passing inflationary pressures to customers until next year. At the half year we’ll get a sense of how much these factors impacted profits—at last check the group was still expecting operating profit growth, with cost-saving initiatives offsetting the inflationary issues. Finally, debt will be one to watch as the group continues to make necessary infrastructure investments. As long as profit growth is also on the up this isn’t overly concerning, but it’s something to keep an eye on, particularly if inflationary pressure was stronger than anticipated.”

FTSE 100, FTSE 250 And Selected Other Companies Scheduled To Report Next Week__

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22-Nov

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26-Nov

No Reporters

*Events on which we will be updating investors.

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