Week ahead for FTSE 100 and FTSE 250 shares

Among FTSE 100, FTSE 250 and selected other companies scheduled to report next week:

• Auto Trader’s outlook statement will be the most important part of next week’s full year results
• With the CEO gone and revenues low, the cost control is the order of the day at Royal Mail
• Tesco’s trading statement may tell us what it’s cost to keep up with demand

FTSE 100, FTSE 250 and selected other stocks scheduled to report next week

*Companies on which we will be writing research.

Auto Trader – Sophie Lund-Yates, Equity Analyst

The global car market ground to a halt thanks to lockdown. New UK car registrations were down almost 90% in May. That’s not the best news for car dealerships, or indeed the UK’s largest car shop which relies on their fees.

Dealerships in England were allowed to reopen on 1 June, and we’d like to know how early trading has looked. We’ve been told there were “healthy levels of demand” in the lead-up, but we’d like to see what that actually means for the numbers. Crucially Auto Trader has begun charging dealerships in England again (albeit at a discount), after a 2 month hiatus. Full year results will shed some light on what that break means for the income and cash flow statements.

While Auto Trader is the biggest player in its field, which gives it an advantage, it will be important to take a close look at the outlook statement. A key pillar of future growth is being able to squeeze extra money from existing customers. With so many of its dealers struggling at the moment – and this situation isn’t going to right itself for some time – we wonder how many of these clients will be convinced to upgrade their service from Auto Trader.

The group remains an indispensable resource to these dealerships, so a certain portion of the revenue stream will always be protected. The question is how meaningful growth is going to be found from here while conditions are so challenging.

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Royal Mail – Nicholas Hyett, Equity Analyst

Royal Mail’s full year results cover the period up to the end of March – and so will show little sign of the damage the coronavirus outbreak and accompanying lockdown has done to the business. Nonetheless we know the current conditions are hitting the company hard.

The CEO is gone and Chairman Keith Williams has temporarily stepped in at the top. With letter volumes collapsing and the larger number of parcels unable to make up the difference cost control will be key. Unfortunately staff absence, social distancing and PPE costs have had the opposite effect – with costs set to rise in the short term.

The less than positive position has led to speculation that Royal Mail may consider breaking itself up – splitting off the more successful international business – or indeed get bought out itself. Those are certainly possibilities. However, the more pressing question is what can be done to improve efficiency. Royal Mail had already committed to an expensive capital investment project which includes automating parcel sorting – although that will take time and poor relations with unions could also make it difficult to achieve. Williams may well feel he needs to do more quicker.

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Tesco – Sophie Lund-Yates, Equity Analyst

Tesco’s had a volatile start to its financial year. The first few weeks of the crisis saw a large surge in sales, although the group says sales are now returning to more normal levels. The upshot should be a rise in revenue for the first quarter.

However, costs have also increased in some areas as the group has had to hire extra staff to cover absences and deal with increased demand. Add the government’s support schemes to the mix and it’s difficult to say where everything shakes out. We won’t know whether the whole episode has been a net positive for the group for some time, although next week’s update will start to fill in some of the blanks.

Tesco has also upped its investment in online shopping services, with a focus on the more vulnerable members of society. Many of us have grown used to online grocery shopping in the past few months, and this may help accelerate the existing trend. We’ll be looking at any commentary around this in next week’s statement.

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Hargreaves Lansdown’s Non-Executive Chair is also a Non-Executive Director of Tesco plc.

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