The clocks have gone back, October’s turned to November, and the UK’s ‘cost of living crisis’ rumbles on.
Last week, over the first two days of November, no fewer than 20 FTSE 350 companies issued trading updates.
What struck me about them was the number of firms that said they now anticipate delivering full-year results ahead of expectations.
Remarkably, a full half of the 20 increased their previous guidance.
Upgrades galore
Here’s the roll-call of upgraders:
- BT Group: Strong first-half strategic execution, and “free cash flow now expected towards the top end of the guidance range.”
- Empiric Student Property: Stronger-than-expected rental growth and occupancy levels, and “sufficient confidence exists to increase the full year [dividend] target.”
- Hikma Pharmaceuticals: Continuing good momentum, “enabling us to upgrade full year guidance in two of our three businesses.”
- J Sainsbury: Volume gains, and now expecting profit in “the upper half of our previous guidance range,” and free cash flow ” higher than our previous guidance.”
- OSB Group (OneSavings Bank): Strong lending performance, and now expects loan book growth ahead of previous guidance.
- Smith & Nephew: Action plan driving strong revenue growth, “currently expected to be towards the higher end of guided range.”
- Trainline: Strong first-half growth, and “tightening group guidance towards upper end of range.”
The other three companies that issued upgrades were GSK (formerly GlaxoSmithKline), Helios Towers, and Next. I’ll look at these a little more closely.
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GSK
GlaxoSmithKline rebranded itself GSK after demerging its consumer healthcare business last year. The latter became Haleon, a FTSE 100 company in its own right, while GSK is now a pure-play biopharma firm.
The rationale for separating the businesses was to allow each to focus on its own growth. GSK is delivering. Management had already lifted expectations at the half-year stage. Its recent upgrade represents a further increase in what was already strong growth guidance:
| New guidance | Previous guidance | |
| Revenue growth | 12%-13% | 8%-10% |
| Underlying operating profit growth | 13%-15% | 11%-13% |
| Underlying EPS* growth | 17%-20% | 14%-17% |
As a pure-play biopharma firm, GSK is somewhat riskier than the former more diversified group. However, the potential reward is higher growth. A dividend yield of 4% looks pretty attractive too.
Helios Towers
Helios is a telecommunications infrastructure company and member of the FTSE 250.
It currently owns and operates over 14,000 telecommunication tower sites. These are located in nine countries (giving some diversification against geopolitical risk) across Africa and the Middle East. The markets have low mobile penetration today, with substantial growth expected in coming years. Helios is targeting 22,000 towers by 2026.
In its half-year results, the company tightened its full-year guidance to the top end of its previously announced range. The recent update increases the guidance:
| New guidance | Previous guidance | |
| Tenancy additions | 2.2k-2.4k | 1.9k-2.1k |
| Underlying EBITDA* | $365m-$370m | $355m-$365m |
| Free cash flow | $260m-$265m | $235m-$245m |
In the near term, Helios’s priority is to allocate capital for growth. In the medium term, it expects to reach a scale where cash generation can deliver not only its growth ambitions, but also shareholder dividends.
Next
Finally, clothing and homeware retailer Next needs little introduction. It’s a superbly managed business, and has consistently been ahead of the game in its evolution.
Since the pandemic, it’s invested in — or bought outright — a stack of brands, including Cath Kidston, FatFace, Made and Reiss. Its move towards becoming a kind of e-commerce, multi-label fashion department store is a bold one.
Like GSK and Helios, management had already increased its guidance earlier this year, before the recent further upgrade:
| New guidance | Previous guidance | |
| Full price sales | £4.74bn | £4.72bn |
| Underlying pre-tax profit | £885m | £875m |
| Underlying pre-tax EPS | 730.2p | 723.9p |
There’s some risk with Next’s acquisition strategy. However, if the move is as astute as management’s previous strategic shifts, the company could reward shareholders for many years to come. Including through increasing dividends (current yield 3%).
First green shoots
The 20 companies that issued trading updates on the first two days of November represent less than 6% of the FTSE 350’s constituents. Still, the upgraded guidance from a large proportion of them — and across a range of sectors — is encouraging.
Dozens more firms have trading statements due this month. And it’ll be interesting to see whether the early trend of upgrades continues. I’m optimistic it will.
We might just be seeing the first green shoots of a new bull market amidst the depths of the domestic cost-of-living crisis and the sadly heavy beat of war drums on parts of the global stage.
