The FTSE 100 shares grabbing headlines right now

by from interactive investor |

Blue-chips DS Smith, Morrisons, Direct Line, Imperial Brands, Associated British Foods and Weir are under Graeme Evans' microscope.

After the October rollercoaster, today's flurry of updates from FTSE 100 index companies including DS Smith, AB Foods and WM Morrison come at the perfect time for investors keen to test the water on valuations.

Nowhere is this more relevant than at packaging firm DS Smith, whose share price slumped by a quarter last month on fears about consumer confidence and the impact of higher pulp and paper costs.

This performance probably wasn't what CEO Miles Roberts had in mind when he sat down with analysts on October 4 for a Capital Markets Day that covered industry growth drivers and the reasons why DS Smith is different.

Rather than inspiring confidence, the Amazon packaging supplier instead found itself in the sights of Odey Asset Management as the hedge fund took a reported £30 million bet against the stock.

Roberts, however, fired the perfect response today by revealing that sales and adjusted operating profits for the first half to October 31 will be "materially ahead" of a year earlier.

Significantly, DS Smith has been able to recover increased input costs from earlier in the year, as well as achieve good volume growth from its "highly resilient" fast-moving consumer goods division.

The company, which originally listed on the London stock exchange in the 1950s, offers a dividend yield just below 4%. Today, it said it anticipated cash flow from operations to be significantly ahead of a year earlier.

This was enough to lift shares by 2% to 386.90p, although that's still a long way short of the 524p seen in the summer. Rival Smurfit Kappa, which also endured a brutal October, was 20p higher at 2,510p today.

Source: interactive investor (*)      Past performance is not a guide to future performance

WM Morrison is another company on the radar of short-sellers, with about 4% of stock currently out on loan. This compares with 5% for Sainsbury's.

Third quarter sales figures from Morrisons offered a boost to the hedgies after like-for-like growth of 1.3% in the supermarket estate came in below consensus at 1.8%. Expectations had been lifted by recent Kantar industry data.

Despite this setback, respected CEO David Potts has now overseen three years of positive like-for-like growth, alongside a continued strong performance in the wholesale business following sales growth of 4.3% in the third quarter.

Shares fell 6% after today's retail miss, leaving Morrisons where it was in April. Analysts at Bernstein and Jefferies still have target prices of 280p, with the latter describing the company as an "attractive safe haven".

This is underpinned by a free cash flow yield above 6%, which Jefferies believes can be increasingly shared with shareholders in light of the net debt to earnings ratio dropping below 2 times.

Source: interactive investor (*)      Past performance is not a guide to future performance

Elsewhere in the FTSE 100 today, Associated British Foods continues to impress with the resilience of fashion chain Primark.  The retail-to-ingredients conglomerate posted a 6% rise in earnings per share (EPS) to 134.9p, which was stronger than the 131.9p forecast by UBS.

Lower EU prices meant profits in the sugar division halved to £123 million, but this was offset by a 15% rise for Primark, driven by a jump in margins to 11.3% from 10.4% in 2017.

The Primark margin is likely to be similar this year, with the company currently guiding towards little change in its group EPS figure. Despite the flat profits outlook, UBS has a 'buy' recommendation and 3150p target price.

The bank is also positive on oil and gas engineering business Weir Group, whose share price has been buffeted by recent uncertain geopolitical conditions.

Confidence returned today, with shares up 6% to 1606p after strong order momentum in its minerals division helped to offset a temporary slowdown in activity in North American onshore oil and gas markets.

UBS cut its operating profits and EPS forecasts by 7% to reflect the new guidance, but it still holds a 'buy' rating and 2,250p price target.

Meanwhile, a robust third quarter performance in a competitive marketplace from Green Flag insurance company Direct Line helped shares edge higher today, while Imperial Brands was up nearly 2% after annual results showed a 2% rise in net revenues alongside a 5% improvement in adjusted EPS.

*Horizontal lines on charts represent levels of previous technical support and resistance. Red line on DS Smith chart represents the uptrend since June 2012. Red line on Morrisons chart represents uptrend since December 2015. 

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