Weekly outlook: British American Tobacco and Whizz Air report

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02 June 2023

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Monday 5 June

Full-year results from Sirius Real Estate
Services industry purchasing managers’ indices from Asia, Europe, the UK and US
US factory orders

Tuesday 6 June

Full-year results from Speedy Hire and N Brown
First-half results from Chemring, Paragon Banking and Gooch & Housego
First-half trading update from British American Tobacco

Shares in British American Tobacco (BAT) have gone from the top left of the chart to the bottom right with barely a break over the past year, losing a quarter of their value over that period.

AJ Bell’s Russ Mould and Danni Hewson said the ongoing regulatory pushback against smoking, and menthol and flavoured alternatives, is a longstanding issue for the company, as well as its need to create new income streams with its Next Generation Products (NGPs).

In addition, Mould and Hewson pointed out that the company has just been fined $635m (£507m) by the US Department of Justice for sanctions busting, because it sold to and traded with North Korea between 2007 and 2017.

The pair said some have suggested the sudden departure of chief executive Jack Bowles may have been linked to the fine, given that he had been the head of Asian operations at BAT for some of the period under scrutiny – although neither the firm nor the former boss have made any comment to that effect and, again, no-one has been accused of wrongdoing.

New chief executive Tadeu Marroco must now put the North Korean fiasco behind the company, improve momentum in NGPs and entrench BAT’s competitive position in tobacco so it can keep generating cash, pay fat dividends, decrease borrowings and, in time, perhaps restart share buybacks, Mould and Hewson said.

Matt Britzman, an equity analyst at Hargreaves Lansdown, said the new CEO will oversee a continuing shift away from traditional combustibles, and the full-year results back in February pointed to continued growth in the new categories division, which houses heated tobacco and vape products.

Britzman said: “As it becomes harder to squeeze growth from the traditional tobacco portfolio, focus on the performance of the new categories division will continue to heat up. Profitability in this area is the next major milestone, now expected in 2024, earlier than initially expected.”

Japanese wage growth and household spending
Interest rate decision from the Reserve Bank of Australia
German factory orders
UK construction industry purchasing managers’ index
In Asia, monthly sales figures from semiconductor foundry UMC
In the US, quarterly results from Ferguson, JM Smucker and Ciena

Wednesday 7 June

First-half results from Ramsdens
First-quarter results from Inditex

Zara’s parent company Inditex seemed to do everything right last year, according to HL’s Aarin Chiekrie, with sales and profits growing at double-digit rates. Chiekrie said this underlined the success of the group’s strategy, which prioritises closing smaller stores and focusing on bigger ones in prime locations. As a result, store sales grew 23% despite stores falling by 10%, contributing to the group’s improved operating margins.

Chiekrie said: “[These] results will give investors some steer as to how the latest Spring/Summer collections have been received by customers. The group’s relatively high price point compared to other high street fashion chains raises some concerns, given the rising demands on consumers’ cash right now.

“If key brands like Zara, Pull & Bear or Bershka end up falling out of fashion, investors could see margins come under pressure.”

Halifax UK house price index
Interest rate decision from the Bank of Canada
US oil inventories
In the US, quarterly results from Soitec, Brown-Forman and Campbell Soup

Thursday 8 June

Full-year results from Wizz Air

Wizz Air delivered some promising results last time out, according to Chiekrie, with ticket pricing and demand remaining strong across its routes. Investors saw passenger numbers jump nearly 60% to 12.4 million in the third quarter, which led to revenue more than doubling to around €912m (£784m), Chiekrie said.

He added: “Last analysts heard, Wizz Air are still on the hook for around £5m-worth of unpaid refunds as a result of delays and cancellations. It’ll be interesting to see if low costs continue to trump poor service, especially as consumers’ disposable incomes remain stretched by the cost-of-living crisis.

“Operational adjustments have led to fewer flight disruption costs recently. A strengthening Euro has also offered some relief to inflating fuel costs, but these still rose by north of 60% last quarter, leading the group to expect an overall net loss in next week’s results.”