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Stocks to watch this week: Ashtead, Telecom Plus and DS Smith

Plus, UK interest rates

Spring flowers bloom in front of the Bank of England building, in London, Britain, March 21, 2024. REUTERS/Toby Melville
Bank of England expected to leave interest rates unchanged at 5.25%. (REUTERS / Reuters)

Earnings season is all but over but trading updates from key companies across the globe are providing insights into how certain markets are performing.

Investors this week will see updates from Ashtead, as the company mulls leaving London for an US listing, in what could be yet another blow to the FTSE 100 (^FTSE). Underdog Telecom Plus will show markets how it is performing against the sector's blue chips and DS Smith could provide analysts with an update on the triangle it is currently entangled in.

Another update that all traders will be eager to hear is the Bank of England's announcement on interest rates on Thursday.

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Here's what to look out for:

The company has been under the spotlight after reports that it was mulling switching its stock market listing from London to New York. Investors should hear more about it when the company delivers its annual results on Tuesday.

The firm, which rents heavy machinery to the construction industry, is understood to have instructed City advisers to examine the possible benefits of moving its listing to the US.

“Ashtead gets around 85% of its sales and more than 90% of its profits from its American Sunbelt operation, with the bulk of the rest coming from Canada and the A-Plant business in the UK,” Russ Mould, investment director, Danni Hewson, head of financial analysis, and Dan Coatsworth, investment analyst, all of AJ Bell, wrote.

“This could make the company a good litmus test of the US economy, even as it continues to take market share and supplement organic growth with acquisitions, although a lot attention may also go to rumours that the FTSE 100 member is considering a switch in its stock market listing to New York from London, as well as the launch of the firm’s Sunbelt 4.0 strategic plan,” they added.

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Ashtead is the 25th-biggest stock on London's blue-chip index with a market capitalisation of £24.3bn ($30.9bn).

Matt Britzman, equity analyst, Hargreaves Lansdown, said: “Ashtead reports full-year results hot on the heels of rumours it may be looking to move its listing to the US. It’s partly because the bulk of its sales are made in the US, but hefty Wall Street valuations are also likely to be a draw.

“Softer performance of late has fuelled concerns that the recent boom in rental demand and strong pricing for Ashtead’s construction equipment is starting to ease. Mega projects in the US, while being a strong demand driver, are causing some operational headaches. But Ashtead’s scale gives it an edge over competitors and guidance out of the recent capital markets day was encouraging.”

Analysts currently expect total sales growth for the full year of 12% to $10.8bn, up from $9.7bn in fiscal 2023. If chief executive Brendan Horgan gives any guidance for the year to April 2025, the current consensus is for 6% growth to $11.4bn.

Investors will also be looking at the dividend. “The firm increased its first-half payment by 5% and the same growth rate is expected for the whole year, to 83.3p per share ($1.05) compared to 79.35p ($1.00) a share in fiscal 2023. Note that the firm is also running a $500m share buyback and has a current capital expenditure budget for fiscal 2024 of around $4.2bn, compared to $3.8bn last year. Generally speaking, the more optimistic Ashtead’s managers feel, the more kit they will buy so that they can hire it out, making Horgan’s initial guidance for 2025 of $3 to $3.3bn intriguing,” AJ Bell said.

Investors are keen to confirm previous guidance that full-year adjusted pre-tax profit at the telecoms company hit the upper end of market expectations after a record year.

In an update for the year to the end of March, the British supplier of broadband and mobile services said adjusted pre-tax profit will be at the top end of the range of £110.1m to £116.3m. The consensus estimate is £113.6m.

The London-based FTSE 250 (^FTMC) company grew its customer base by 14%, surpassing 1 million customers in the fourth quarter. It is now scaling the business towards 2 million customers.

Since launch, Telecom Plus shares are up 700%, while the FTSE 250 index has gained 190%.

Earnings should be about the figures but the DS Smith's bid triangle is set to overshadow numbers when the paper and packing company presents its full-year results on Thursday.

“Any comment on the International Paper-Suzano-DS Smith love triangle may dominate how the market sees DS Smith’s full-year results, although chief executive Miles Roberts and team will no doubt be looking to reassure existing shareholders and would-be bidders that the business is very much on track,” AJ Bell said.

International Paper (IP) has agreed to buy British rival DS Smith in a £7.8bn all-share deal, but a takeover by Suzano (SUZ) would almost certainly thwart that deal.

Suzano, the world’s largest pulp producer, is working on a revised offer for International Paper, after the US company rejected an earlier informal proposal valuing the company at almost $15bn.

Coming back to DS Smith, sales for the year are forecast to be around £7bn, down 15% with a small improvement to £7.3bn expected for the current year.

Consensus numbers suggest a headline pre-tax profit of around £600m down by around 10%, with a modest increase in fiscal 2025.

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“It’s been quite the ride for DS Smith investors over the past few months as the takeover target for two of its key rivals. The board ultimately landed on an all-share offer from International Paper Company. But the drama doesn’t end there, International Paper Company itself is now subject to takeover talk, raising question marks about the implications on the DS Smith deal,” HL’s Britzman said.

But underneath the takeover talk, lies a strong business. April’s statement suggested trading was in line with expectations so don’t expect too many surprises from full-year results. Price hikes and volume improvements are expected to help support earnings in the coming year. Longer-term, demand shifts like the move from plastic to paper should hold DS Smith in good stead,” he added.

AJ Bell said that an operating profit of £700m would equate to a margin of 10%, at the low end of the company’s 10% to 12% target range.

Obviously not a stock but a policy decision with the power to affect the entire UK market, Threadneedle Street will announce its decision on interest rates on Thursday.

Financial markets see just a 10% chance of a rate cut from 5.25% to 5% on 20 June, with most bets on a September cut. The second cut is now seen coming in February 2025 with further reductions down to 4.25% by late 2025.

Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: “There are high hopes that one of the darling buds of May unfurling last month was inflation finally hitting its target. After a disappointing reading in April, which saw the CPI index frustratingly hover elusively above 2%, disinflationary pressures are expected to have helped push prices down further.

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“But it doesn’t look like the Bank of England will join the celebratory party immediately and cut interest rates. Policymakers still have their eye on hot wage inflation, with earnings including bonuses still running at 6%, at the last count. However, a cut in August is still a very real possibility.’’

Overall UK inflation eased to 2.3% in April, close to the central bank's 2% target, from a peak of 11.1% in October 2022.

The tally of global interest rate cuts in 2024 stands at 70, according to website CBRates, after the reductions from the Bank of Canada and the European Central Bank this month.

“Although the Bank of England is now expected to follow the ECB’s example and move before the US Federal Reserve, the degree to which UK rates can diverge from those in America could still limit the MPC’s room for manoeuvre. Too big a gap between the UK base rate and the Fed funds rate could suck capital out of sterling and into dollars, weakening the British currency, at the risk of boosting inflation thanks to how the UK buys and imports more than it sells and exports,” AJ Bell said.

Other companies reporting this week include:

H&M (HM-B.ST)

Lennar (LEN)

Whitbread (WTB.L)

SThree (STEM.L)

Berkeley Group (BKG.L)

NextEnergy Solar Fund (NESF.L)

Syncona (SYNC.L)

Urban Logistics REIT (SHED.L)

Accenture (ACN)

Kroger (KR)

Darden Restaurants (DRI)

Jabil (JBL)

Winnebago (WGO)

CarMax (KMX)

Jlen Environmental Assets Group (JLEN.L)

You can read Yahoo Finance's full calendar here.

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