5 stocks to watch in September

Two of Britain’s most popular retailers, Next and Kingfisher, are among the companies to update investors on performance this month. Others include two of the UK’s largest housebuilders and a specialist engineer. Here are five stocks worth watching in September.

This article is not a recommendation to buy or sell these investments; it is purely insight into some of the companies that announce results this month.

Barratt Developments

Final results 4 September 2024

Barratt Developments, Britain’s biggest housebuilder by market value, announced its results for the year to June on Wednesday. Profits before tax fell by 75.8% to £171m on a ‘statutory’ basis. The ‘adjusted’ figure was £385m, a fall of 56.5% from last year’s £884m but £20m more than City analysts’ average forecast.

The ‘return on capital employed’, a measure of profitability that many professional investors pay great attention to, fell from 22.2% last year to 9.5%. The full-year dividend was cut by 51.9% from 33.7p to 16.2p. At Thursday morning’s share price of 507p, that equates to a yield of 3.2%.

David Thomas, Barratt’s chief executive, said: ‘While demand continues to be sensitive to mortgage affordability, and reduced land buying activity during the past two years has had a near-term impact on the number of outlets we are operating from, we are well positioned to meet the strong underlying demand for new homes.’

He added: ‘We welcome the Government’s proposed reforms of the planning system as one of the key levers to increase housebuilding, drive economic growth and tackle the chronic undersupply of high-quality, sustainable homes.’

City analysts’ average estimate of the current year’s pre-tax profits is £462m on a statutory basis, according to the London Stock Exchange’s Datastream service.

More on Barratt Developments

Vistry

Interim results 5 September 2024

This FTSE 100 housebuilder may be more familiar under its former name of Bovis, by which it was known until it took over Galliford Try’s housing business in 2019. It later acquired Countryside Partnerships. The company stands out from housebuilding rivals thanks to its newly adopted strategic focus on building for partners such as housing associations, to which it sells the homes it is building before completion. It says this gives it greater certainty and enables higher returns on capital. It has a long-term target of 40% for return on capital employed.

Like Barratt, Vistry says it welcomes the new Government’s drive to build more homes and says its partnership model is well suited to the Government’s plans.

In its interim results published on Thursday Vistry said it had built 7,792 new homes in the first half of its financial year, 9.1% more than in the same period last year. Sales rose by 9.4% to £1.7bn and profits before tax by 37.2% to £157m on a statutory basis, although by just 7% to £186m on an adjusted basis.

The company said it had benefited from lower year-on-year building material costs in the first half, a striking change from severe inflation during the cost-of-living crisis. Return on capital employed was some way short of target at 17.8%, although the company said it expected to achieve about 21% for the full year. In place of a dividend, Vistry said it would use surplus capital to buy back more of its shares (share buybacks are explained here).

More on Vistry

Kingfisher

Interim results 17 September 2024

Probably more familiar from its B&Q and Screwfix brands, Kingfisher also has operations in countries as varied as France, Poland, Turkey and Romania.

After a very strong run for the shares this year – a gain of about 20% in total return terms – investors who hope for more will be on the lookout for signs of success in the company’s plans to improve profitability in France and Poland.

More generally, hopes that falls in interest rates in Britain and Europe will boost the housing market and make people more willing to spend could, if realised, also help Kingfisher’s performance.

After their strong run the shares now trade at about 13 times the earnings forecast by analysts, which is about the multiple of earnings they reached in early 2021, when the company was enjoying a big boost from lockdown spending. The shares yield 4.4%.

Analysts at Barclays downgraded Kingfisher on Monday from a positive to a neutral rating. They acknowledged that the company offered ‘an intriguing investment case’ and added that, if macro-economic factors moved in Kingfisher’s favour and the company executed well, ‘there could be a very positive scenario in which the UK business remains robust and recovery in France and Poland drives significant profit growth over the medium term’. But they cautioned that ‘while management has laid out a sensible plan for the French business, we think it is too early to expect proof of success [and] the Polish consumer backdrop is also challenging’.

More on Kingfisher

Next

Interim results on 19 September 2024

Next is one of the London stock market’s genuine success stories. It can boast a long history of profitable growth, a stable management team – Lord Wolfson has been chief executive since 2001 – and a record of under-promising and over-delivering. It has evolved from a straightforward chain of shops into a sophisticated business with many strings to its bow, including large overseas and online operations and a fulfilment arm for the sale of other companies’ products.

Like Kingfisher, Next has enjoyed strong share price growth this year and the shares now trade close to a record high of around £100.

We already have some sense of Next’s interim results because last month it issued a trading statement for the second quarter of its financial year, following one for the first quarter in May. Both reported strong growth in sales and the second-quarter update included an increase in expectations for full-year pre-tax profits to £980m. What stood out was an increase in overseas online sales of 21.9% in the first half relative to the same period last year, which Next described as ‘much better than expected’.

As is normal, the quarterly updates did not contain detailed financial statements, which we will see in the interims.

Analysts at Jefferies, the investment bank, said Next’s two quarterly updates ‘confirmed the highly accretive [ie profitable] nature of Next’s international online growth’. They said Next was changing from a ‘proxy’ for the fortunes of the British economy into a ‘growth vehicle’ and increased their own estimate for full-year profits to £986m. The bank maintained its ‘buy’ rating on Next shares and increased its price target to £114.

More on Next

Smiths Group

Final results on 24 September 2024

Smiths is a diversified engineering business with global operations in four areas: mechanical seals and related systems for the energy and industrial sectors; screening technology used in aviation and other critical areas; components used in handling fluids and gases; and electronics for defence, space, aerospace and communications.

These businesses move to different cycles, which gives the combined group a measure of resilience. In recent years the company has simplified its structure and reduced debt. The three key board members – chief executive, chief financial officer and chairman – are all recent appointments.

In a note published two weeks ago analysts at Berenberg, the bank, summarised the company as follows: ‘The Smiths of old has gone and with it the perpetual restructuring, low innovation, no growth, and poor group structure and narrative. It has seemingly been replaced by an upgraded group narrative and execution put in place by the current management team, with ambition to build on Smiths’ engineering reputation and strong market positions.’

At the interim stage in March the chief executive said the company had got off to a ‘good start’ to the year thanks to 3.9% organic revenue growth and 16.5% growth in the order book the first half, achieved relative to record figures the previous year and marking the 11th consecutive quarter of revenue growth. Pre-tax profits on a statutory basis were £171m and the interim dividend rose from 12.9p the previous year to 13.55p. The return on capital employed was 15.7% and 89% of profits were converted into cash (for a discussion of cash conversion, read this article). City analysts forecast full-year pre-tax profits of £437m, compared with £360m for the previous year.

More on Smiths Group

Five-year share price performance table

Past performance is not a reliable indicator of future returns.
Source: FE, 4.9.19 to 4.9.24 Basis: Total returns in GBP. Excludes initial charge.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.