Interactive Investor

Shares round-up: Marks & Spencer, Capita, Wood Group

18th August 2020 15:33

Graeme Evans from interactive investor

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Three former FTSE 100 stocks lay out their battle plans to overcome the Covid-19 slump.

The battles of three former FTSE 100 index stocks were in focus today after Marks & Spencer (LSE:MKS) set out plans to cut 7,000 jobs and Wood Group (LSE:WG.) and Capita (LSE:CPI) posted contrasting results.

Out of this trio, the energy services and engineering business Wood was the biggest riser in the FTSE 250 index after its shares surged 7% on the back of better-than-expected half-year results and further signs that it is reducing exposure to volatile oil prices.

Congestion charging firm Capita, in contrast, slumped 11% after disruption caused by Covid-19 wrecked its long-awaited plans to return to revenues growth this year. Profits were down by a bigger-than-expected 74% to £30 million in the first half of the year.

The streamlining at M&S follows sharply reduced footfall at town centre stores and some shopping centres in the eight weeks since Covid-19 lockdown restrictions were eased.

Store sales of clothing and home ranges slumped 47.9% over the period, with the closure of workplaces and lack of social gatherings having a major impact on sales patterns.

Some of the weakness has been offset by stronger online trading, while M&S is also encouraged by improved trading at newer out-of-town outlets and more robust trends seen in recent weeks.

At M&S Food, like-for-like sales excluding the impact of the closure of hospitality and travel franchise units were up 10.6% in the last 13 weeks. Its new online supply agreement with Ocado Retail remains on track for next month.

M&S hopes that a significant proportion of the 7,000 job cuts it expects to make over the next three months will be achieved through voluntary departures and early retirement.

The company added:

“It is clear that there has been a material shift in trade and whilst it is too early to predict with precision where a new post-Covid sales mix will settle, we must act now to reflect this change.”

The cost savings plan initially led shares higher before investors took fright at the latest trading figures to send shares 4% lower at 108.8p. The company is now worth just over £2 billion, having recently been relegated from the FTSE 100 index.

Capita's stock market struggles also show no sign of easing after its promise of a return to organic revenues growth for the first time in five years was hit by Covid-19.

Chief executive Jon Lewis says:

“Instead, we have had to focus on managing our way through the crisis, while accelerating some strategic decisions including our plan for the disposal of Education Software Solutions.”

He expects to make further disposals as part of wider efforts to strengthen the balance sheet and build a “more focused, sustainable” Capita for the long term. Lewis still expects to increase revenues in 2021 and beyond, at higher margins.

Shares fell back to 32p, having rallied to almost 40p last week on the back of the company winning £355 million of contracts for London traffic charging schemes.

Capita's restructuring efforts date back to January 2018, when a ‘kitchen sink’ job by Lewis included a profits downgrade, rights issue and dividend suspension. In March, he disappointed investors by admitting that the turnaround will cost more than originally thought.

Half-year results at the upper end of its previous guidance ensured that Wood Group emerged from a challenging first half of the year with its reputation enhanced.

Operating profits slid by more than half to £66 million, but with two-thirds of revenues now coming from the chemicals, downstream, renewables and built environment markets Wood was able to protect margins against the more volatile conditions in oil and gas services.

It currently expects that it will be able to double revenues from renewables in 2020, driven by plans to generate $500 million (£377.8 million) of business from its US solar operations.

Overall, Wood booked new orders of $3.3 billion in the half year, including $1.7 billion since early March:

“Our success in diversifying our end market exposure is evident in the breadth of work secured in the first half and highlights the enduring relevance of our market positioning.”

No dividend was declared for the half year, with the company focused on building on its 31% reduction in net debt to $1.2 billion over the first six months of 2020.

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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Related Categories

    UK shares
    Commodities
    Consumer goods and services
    Industrials

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