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Fears of a supermarket price war sparked by Asda knocked the share prices of Tesco and Sainsbury’s earlier this month and investors will hope to hear how the two listed retailers intend to respond when they announce annual results in April. We preview those results, along with those of two other retailers, WH Smith and Associated British Foods (the owner of Primark), and the banking giant HSBC.

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

Tesco  

Private investors who hold Tesco shares for their income are likely to smile on 10 April, when the company announces its results for the year to 22 February: City analysts expect the dividend to rise by more than 10%. On average they forecast that Tesco’s profits will increase on a per-share basis from 23.41p last time to 26.91p and they point out that the company has a policy of paying half its profits to shareholders as dividends.

That would suggest a full-year dividend of about 13.5p, which would be an 11.6% increase compared with the 12.1p paid last year. At the current share price of about 328p, a 13.5p dividend means a yield of 4.1% (yields vary with share price and are not guaranteed).

We can be reasonably sure that Tesco will indeed announce profits not far from the City’s forecasts because the grocery chain has already published trading updates for almost the entire year and in January reiterated earlier guidance for annual profits of just over £3bn.

Admittedly this was on an ‘EBIT’ basis (earnings before interest and tax) but analysts are able to make sensible assumptions about the likely interest bill to arrive at a prediction for profit before tax. Their average forecast is about £2.5bn on an ‘underlying’ basis, which means when certain ‘exceptional’ items are disregarded. Last year’s figure was about £2.3bn. The average forecast for sales is £70bn, against £68.2bn last year.

With such limited scope for surprises over the financial year recently ended, investors may focus more on any guidance the company gives about profits for the current year – especially in light of Asda’s announcement two weeks ago that it would cut prices in an attempt to boost sales. The news sent Tesco’s share price 13.5% lower over the following days, before a slight recovery.

Analysts at Barclays, writing before the Asda news, said any forecast for Tesco’s current year’s EBIT would ‘have to be something like “around/above £3.1bn” to keep the market happy’. This may strike investors as not much of an improvement on the £3bn forecast for the previous year, but those profits are likely to be divided up among a smaller number of shares thanks to Tesco’s policy of repurchasing its own stock. Barclays forecast that the retailer would spend £1.45bn over the current year on buying its own shares, or about 6.6% of its current market value of £21.2bn.

Writing after the news of Asda’s price-cutting initiative, the bank’s analysts said: ‘We certainly do not dismiss this news from Asda, but we also resist the idea that the UK grocery market must now plunge into an irrational price war. We tend to think that this moment may come to be seen as something of a buying opportunity for Tesco [and] Sainsbury.’

Barclays has an ‘overweight’ rating on Tesco shares and a price target of 415p.

Tesco’s annual results are on 10 April.

More on Tesco

J Sainsbury 

Sainsbury’s, which announces its annual results a week after Tesco, also suffered in the wake of Asda’s announcement of price cuts: its shares fell by 8.8% over the following days, although they have, like Tesco’s, recovered a little since. So far the company, like Tesco, has said nothing in response, so we may hear something when the results are published about how the two listed retailers intend to react.

Analysts at HSBC doubted that Asda’s move would severely dent profitability at Sainsbury’s and Tesco, even though they predicted that the latter two would match Asda’s price cuts. They said that such initiatives needed to be sustained for many years to drive recovery, as Tesco itself had proved between 2014 and 2020, and that execution would prove ‘tougher’ for Asda.

Sainsbury’s itself has not issued any guidance about overall profits for the year that ended on 1 March, although it has predicted ‘retail underlying operating profit’ of just over £1bn, on top of about £30m from financial services. City analysts’ average forecasts are for sales of £33.3bn and underlying profits before tax of £734m. These figures would represent increases of 1.8% and 4.8% respectively by comparison with last year. The City expects a full-year dividend of 13.4p, 2.3% more than last year’s 13.1p. That would make the yield 5.6% at the current share price.

Despite Asda’s price cuts HSBC upgraded Sainsbury to ‘buy’ last week and set a price target of 285p, compared with a current market price of about 238p.

Sainsbury’s annual results are on 17 April.

More on J Sainsbury

WH Smith

‘The global travel retailer’ is how WH Smith, once famous for its high street shops, now describes itself. This reflects its evolution over the past decade or so to a business focused on airports and railway stations alongside a slow withering away of its high street chain.

The travel arm now has more than 1,200 outlets, compared with about 500 in towns and cities around Britain, and accounts for three-quarters of the group’s sales and 85% of its trading profits. So it was no great surprise when on Friday the company confirmed that it was selling the high street arm to Modella Capital, a specialist investor in the retail sector, for £76m.

Analysts at Barclays said that, despite the near-term loss of the high street arm’s profits and cash flow, ‘we do not believe this is a decision that the company or its shareholders will regret’. They added: ‘Our forecasts suggest an ongoing decline in high street EBIT, and this alone makes it very hard for the group to achieve significant EBIT/EPS [earnings per share] growth.’

Before the announcement of the sale Barclays’ analysts had said they believed that ‘becoming a travel-focused operator would help change the perception of the investment case, and may help drive a re-rating [rise in earnings multiple] of the shares’. They have an ‘overweight’ rating on the stock and a £15.90 price target.

As for trading in the financial year so far, WH Smith said in an update for the first 21 weeks – in other words all but a few weeks of the first half – that it had had ‘a good start to the financial year, and we continue to see strong momentum across our core travel business’. Revenues in the travel arm were 8% higher than in the same period the previous year while the UK high street division’s 3% fall in like-for-like sales was ‘in line with our expectations’.

On Friday, alongside the announcement of the sale of the high street arm, WH Smith said trading across the group remained in line with market expectations.

WH Smith’s interim results are on 16 April.

More on WH Smith

Associated British Foods

Associated British Foods may be an unfamiliar name for many even though it is valued by the stock market at about £14bn, operates in 56 countries and employs 138,000 people. Few, however, will be unfamiliar with its biggest business, Primark. Indeed, according to the stockbroker Davy, ‘Primark performance dominates the equity narrative’ – the share price in other words. And Primark’s performance, at least in its home territories of Britain and Ireland, has lacked sparkle of late.

In a trading update for the first quarter of the current financial year published in late January the company said Primark’s sales in the UK and Ireland had fallen by 4%, or 6% on a ‘like-for-like’ basis, which disregards sales growth attributable to newly opened shops. The two countries combined account for about 45% of Primark’s sales. Perhaps the fall in sales shouldn’t surprise us in view of the impact of the Budget on consumer confidence. The company said in its update: ‘During the period, the overall clothing retail market in the UK declined. Trading activity within elements of our shopper base was weak as a result of cautious consumer sentiment and a lack of seasonal purchasing catalyst given the mild autumn weather.’

It was a more upbeat story in what Associated British Foods describes as Primark’s ‘growth’ markets beyond these shores. Sales growth was 9% in Spain and Portugal, 16% in France and Italy, 17% in the US, 22% in central and eastern Europe and 3% in Northern Europe. The company said it ‘continued to make good progress with the execution of our store rollout programme in Europe and the US’.

Gary Martin of Davy said he expected Primark’s performance in Britain and Ireland to remain ‘subdued’ throughout the current financial year before a recovery in the following one. Another positive note is that ABF expects Primark’s adjusted operating profit margin to remain ‘broadly in line’ with the 11.7% achieved last year, helped, Davy said, by a fall of about 30% in the price of cotton and freight costs that have ‘cooled materially’.  

The broker concluded: ‘We believe ABF’s valuation is pricing in a permanent growth impairment at Primark … which is overly punitive. Primark’s value proposition and evolving reinvestment model provide a good pathway for top-line [revenue] development allied with consistent space growth which, in turn, supports valuation upside and offers a compelling opportunity for patient capital.’ Davy expects the shares to ‘outperform’ and has a price target of £31.20, compared with a current share price of £19.

Associated British Foods’ interim results are on 29 April.

More on ABF

HSBC

The proportion of HSBC’s revenues that come from Asia increased from a quarter to just under half between 2009 and 2024, so it seems appropriate to seek commentary on the bank from analysts based in that continent rather than in London.

A research note published a few days ago by the China International Capital Corporation’s Hong Kong-based securities team assessed the giant bank’s fortunes following a major reorganisation announced last autumn, which aimed to focus the bank more tightly on its two key regions of Britain and Hong Kong as well as on its international corporate and wealth management operations. CICC said HSBC showed ‘clear advantages’ in Hong Kong and the UK, while the new organisational structure ‘emphasises leveraging advantages’ in the international corporate and wealth management networks.

It said HSBC’s returns relative to its net assets, a key measure of banking profitability, could rise from already healthy levels in the mid-teens thanks to the growth potential of the Asian market, especially the wealth management business, continued investment in core businesses where it enjoys competitive advantages and its efforts to streamline its organisational structure and maintain cost discipline, along with the use of share buybacks as ‘an important method of capital distribution’.

For the current year CICC predicted a 0.5% rise in revenues and a 1.3% decline in after-tax profits; for 2026 it forecast growth of 3.9% in revenues and an 8.1% rise in post-tax profits. We’ll get a sense of how the year has begun when HSBC announces first-quarter results in a month’s time.

CICC has an ‘outperform’ rating on the shares.

HSBC’s first-quarter results are on 29 April.

More on HSBC

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.

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