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FTSE 100 results season: five themes to look out for

Joanna Faith
Written By:
Joanna Faith

Almost half of the FTSE 100 will report results in the next two weeks, including giants from the oil and gas, pharmaceutical and banking sectors.

The performance of these companies clearly has a bearing on the UK economy, but also has a big impact on the value of pensions, ISAs and investments, which are typically invested in the shares of these firms.

Here Hargreaves Lansdown takes a look at five key themes which its thinks are likely to surface in the forthcoming results season.

1. Oil companies – will dividends be cut?

All the UK’s leading oil stocks will release their second quarter results this month. With oil prices having taken another lurch downwards, below $60 a barrel, investors will be keen to hear what BP and Shell have to say on the dividend front.

Both have seen their share price suffer in the last year, meaning they now yield over 6%. These yields are hugely attractive, particularly in light of the low interest rate environment, but only if they can be sustained. Both companies have said that shareholder dividends are a key financial priority, but low oil prices are placing big pressure on cash flows.

BP recently reiterated its dividend stance when it announced a deal with US authorities over the 2010 Gulf of Mexico disaster. Shell for its part needs to keep investors onside to push through its takeover of BG.

So for now, maintained dividends look the most likely outcome.

Laith Khalaf, senior analyst atHargreaves Lansdown, says:
“Big oil needs to decide whether to keep paying big dividends. Both Shell and BP have prioritised dividends, but the pressure gauge will keep rising if there is further weakness in the oil price. Both companies report in dollars, so while a maintenance of the dividend in cents looks likely, there may yet be a sting in the tail for UK investors.”

2. Utilities –out of the woods?

Khalaf says: “From the electoral hokey cokey on the energy price cap through to a competition investigation which largely exonerated the industry, it’s been a tumultuous year for UK energy companies. Focus will now turn to the level of dividends these companies can churn out, particularly given the sector is seen as a “bond proxy” in a world where the interest rate cycle looks like it might finally start to take off.”

SSE will issue a trading statement on 23 July, where investors will be looking for the group to reiterate its aim to grow the full year dividend at least in line with RPI inflation.

A week later Centrica reports its half year results and the outcome of its Strategic Review. This should tell us whether further cuts to the cost base and/or capital raising measures are required in the wake of February’s profit warning. Investors should also gain more clarity on the future level of dividends, after the final payment was cut by 30%.

Both SSE and Centrica will have been encouraged by the recent Competition and Markets Authority ruling that the big integrated energy providers were not harmful to the domestic energy markets and that the wholesale energy market was working well.

3. Consumer stocks – shining a light on UK and emerging market economies

B&Q-owner Kingfisher and Next report half year results on 23 and 28 July, respectively. This should provide insight into the health of the UK consumer, and to what extent cheaper fuel prices and rising disposable incomes are starting to feed through into retail sales.

The global consumer goods giants – Unilever, Reckitt Benckiser, Diageo, and SABMiller – also report over the next couple of weeks. A key takeaway will be how sales in emerging markets are holding up, especially in light of the recent turmoil in the Chinese stock market.

Khalaf says: “Given widespread scepticism over the official reading of economic growth in China, the sales achieved by these companies may shed some light on what’s actually happening on the ground.”

4. Pharmaceuticals – good things come to those who wait?

Don’t expect first half results from GlaxoSmithKline (GSK) or AstraZeneca to be pretty. Patent expiries and on-going pricing pressures continue to weigh heavily, with analysts forecasting a decline in earnings per share (EPS) for both companies this year. Investors will be hoping the declines are no worse than expected and will be looking for further reaffirmation of medium and long term growth targets.

Shire isn’t facing the same pricing pressures as GSK or Astra as more of its products are still patent-protected. The company has guided for diluted EPS growth in the mid-single digits in 2015 and investors will be looking for this guidance to at least be maintained. Shire has not been shy of doing deals so any update on the merger and acquisition pipeline will be eagerly scrutinised.

5. Telecoms/media – battle of the giants

Sky and BT will continue to slug it out as they both ramp up efforts to corner the ‘quad-play’ market (TV, broadband, mobile and fixed line).

For BT this has meant an attempt to re-enter the mobile phone space with its proposed acquisition of EE. Investors will be looking for an update on the takeover, which is still subject to regulatory approval, when the company reports Q1 results on 30th July. Comments around the broadband market and the performance of the pay TV business will also be a focus.

On 29th July Sky will report full year numbers, where investors will be hoping to see a continuation of the positive momentum reported at the Q3 stage. Any update on cost-cutting initiatives will be eagerly scrutinised following Sky’s £4bn+ premier league football rights deal, as will news on the integration of Sky Deutschland and Sky Italia.