A bunch of well-known companies have published results today, and despite a poor session for the wider market, analysts believe there’s reason to be optimistic about prospects.
Market share gains by Halfords Group (LSE:HFD), a profits upgrade at Restaurant Group (The) (LSE:RTN) and stronger guidance from food supplier Bakkavor (LSE:BAKK) offered some cheer for small and mid-cap investors today.
The trio’s well-received updates came in a downbeat session for the wider London market, with another bout of interest rate jitters caused by oil’s ascent to over $90 a barrel blamed for the FTSE All-Share’s retreat towards where it was in March.
The selling reflected new free cash flow guidance caused by a change in the timing of commission cost recognition. Commissions used to be paid 50% in the quarter they were earned, then 50% after 12 months depending on performance conditions.
To align with peers and better attract and retain talent, commission will now be 100% up front. Shares fell 13.5p to 355.7p, which compares with 250p when Darktrace priced its shares for the company’s much-anticipated IPO in April 2021.
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Davy analyst James Musker has a target price of 400p, noting that the short-term hit to free cash flow had more than offset an otherwise strong set of 2023 results as the company benefits from a watershed year for artificial intelligence.
One of the best performances in the FTSE 250 index came from Bakkavor after the supermarket prepared foods supplier served up a profits upgrade.
It now expects an operating surplus of at least £89.4 million, some £4 million higher than City forecasts due to restructuring savings, a strong performance in the UK and a post-Covid volume recovery for its China business. Shares rose 3p to 102p.
Broker Peel Hunt has a price target of 115p, noting the benefit of improved trading visibility as cost inflation pressures begin to ease.
In the FTSE All-Share, Halfords has weathered the spending downturn in discretionary areas such as cycling and car cleaning through a focus on essential maintenance and servicing.
The standout performance in the 20 weeks to 18 August came from Autocentres achieving like-for-like sales growth of 16.6%, while needs-based products and services in the retail segment drove a strong motoring figure of 7.5%. Cycling, which now only represents 25% of total revenue, was down 2.7% on a like-for-like basis.
Trading in the year-to-date is in line with expectations, with a stronger second half performance set to mean pre-tax profits in the range of £48 million and £58 million. That compares with the previous year’s £51.5 million.
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Peel Hunt said it was hard to predict too rosy a short-term picture but that the company's market share gains should bear fruit in time given a strategy that’s “bang on point”.
The broker has a price target of 275p, which compares with 190p after today’s 3.15p improvement. It said: “The shares reflect mostly bad news ahead, and that is just too harsh.”
Restaurant Group also reported robust trading as the Wagamama and Brunning & Price business upgraded guidance for the second time in this financial year.
The move followed a strong start to the third quarter, as well as today’s interim results showing a 10% rise in revenues to £467.4 million and 15% higher earnings at £36.3 million.
The company, which has faced break-up calls from an activist investor, added that it continues to explore strategic options to accelerate margins and reduce its debt ratio.
Shares got off to a strong start but later settled 1.2p lower at 42.5p. Investec Securities regards the company as “hugely undervalued” as it highlighted a 77p target price.
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