5 stocks to watch in October

Britain’s two oil giants, Shell and BP, report on their financial performance later this month, as do the drugs maker GSK, the housebuilder Bellway and the hotelier Whitbread. Here we look at what shareholders in these companies might expect.

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

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Shell and BP

Third-quarter updates 7 October 2024 and 29 October 2024

Oil is back in the spotlight as the intensifying crisis in the Middle East is reflected in the price of crude, which rose by about 4% on the day Israeli ground forces entered southern Lebanon. Shares in London’s two oil giants, Shell and BP, rose in sympathy; both companies report third-quarter results later this month.

But crude had actually been in decline since the summer of 2022, when it peaked at almost $130 a barrel. As recently as 10 September the price was as low as $69.19 before it rose to about $74 after the Lebanon invasion. At such prices the big oil companies such as BP and Shell will struggle to maintain their recent generous payments to shareholders, in the form of dividends and share repurchases, analysts say. A sharp decline in profits for refining crude oil into fuels adds to the pressure.

‘With moderating oil prices and weak refining margins, 2025 could be seen as a lost year for the sector,’ Biraj Borkhataria, an analyst at RBC Capital Markets, was quoted as saying by Reuters in a report entitled ‘Big oil’s big payouts under strain as energy prices fall’. He said Shell would have to borrow $3.8bn and BP $3.1bn to maintain current levels of share buybacks in 2025. While private savers do not normally take part in share buybacks, they do benefit indirectly because the reduction in the number of shares in issue results in higher earnings per share.

Oil companies will try to maintain returns to shareholders by cutting spending, primarily on investments in low-carbon energy, and by borrowing, according to Giacomo Romeo, an analyst at Jefferies, the investment bank. ‘Companies will have to face some tough choices in the coming months if [crude oil] prices don't recover,’ he added. There is no suggestion that dividends are under threat, however: another advantage of share buybacks is that they can be cut first in response to a downturn in trading before the dividend needs to be reconsidered.

More on Shell and BP

GSK

Third-quarter update 30 October 2024

GSK, the drugs maker formerly known as GlaxoSmithKline, will update investors on third-quarter trading at the end of the month. Because the company is large and global and has many American investors and a US stock market listing, the depth of the update will be more on a par with interim and annual reports, whereas quarterly updates from more domestically focused companies tend to be brief and contain little or no financial information beyond sales figures (BP and Shell, covered above, also publish detailed quarterly reports).

GSK’s interim report, released at the end of July, disappointed investors even though the company said it expected better growth in sales and profits than previously. The poor reaction of the market was seen as a response to lower sales of certain vaccines. Vaccines are one of GSK’s key areas of focus under Dame Emma Walmsley, the chief executive.

Shareholders also remain concerned by litigation over claims that GSK’s Zantac ulcer treatment causes cancer.

The company reiterated at the interim stage a dividend target for the full year of 60p a share.

More on GSK

Bellway

Final results 15 October 2024

Bellway, the housebuilder, will release its full-year results on 15 October but has already published some information about performance for the financial year that ended on 31 July. In a trading update on 9 August it reported reductions in the number of homes built, average selling prices, revenue from house sales and profit margins, although it said the first two measures were both ‘slightly ahead of previous guidance’. It put the declines down to ‘softer trading conditions’ and said the fall in profit margins (to 10% from 16% the previous year, on an ‘underlying operating’ basis) was in line with expectations and arose from ‘cost inflation, the use of sales incentives and the costs of operating outlets for extended durations’.

Overall it described its performance as ‘resilient’ and said the full-year dividend should be covered about 2.5 times by earnings on an underlying basis.

The company predicted a better year in 2024-25, saying that ‘good levels of customer enquiries and relative stability in reservation rates in recent months’ had been ‘encouraging’. The Bank of England’s interest rate cut and low inflation further underpinned improving customer confidence, it said, although that confidence has, according to various reports, since been hit by the government’s warnings of a painful Budget later this month.

Shares in Bellway have roughly doubled since a low point of about £16.50 a year ago but have yet to regain levels reached just before the pandemic in February 2020. Some of the recent recovery seems to be due to an improvement in sentiment towards builders thanks to Labour’s wish to boost housebuilding. Analysts at Jefferies last month reiterated their positive stance on housebuilders, saying they were ‘still seeing considerable upside potential to share prices from the improving [interest] rate environment and government changes to planning’.

A few days after the trading update Bellway said it would not proceed with a mooted bid for rival Crest Nicholson.

Jefferies said ‘significant land buying through 2021-23’ had helped to put Bellway in one of the strongest positions among Britain’s quoted housebuilders to generate near-term volume growth from any recovery in customer demand. Should it achieve previous completion targets, the bank said Bellway offered ‘the greatest volume upside, operational leverage [profit benefit from increased turnover] and ROCE [return on capital employed] improvement’. When comparing the share price with Bellway’s net asset value Jefferies said it ‘sits among the cheapest of the UK housebuilders’.

More on Bellway

Whitbread

Interim results 16 October 2024

It may bear the name of a brewer but these days Whitbread is almost exclusively a hotelier via its Premier Inn chain of budget hotels in Britain and Germany. It is another company whose share price has yet to regain pre-pandemic levels.

In a trading statement for the first quarter of the financial year released in mid-June the company reported almost flat sales relative to the previous year of £739m, although growth in Germany was strong at 15%. It said recent trading in Britain, where the company has the vast majority of its hotel rooms, had been ‘more encouraging’, although the summer months will be key; we will learn more about that in this month’s update.

Dominic Paul, the chief executive, said: ‘Our accelerating growth plan to optimise F&B [food and beverage operations] at a number of sites and add 3,500 rooms to our UK pipeline is on track and will increase our momentum to deliver long-term profitable growth. With significant potential in both the UK and Germany, supported by the structural reduction in supply and our asset-backed balance sheet, our strategic plans are set to deliver a step change in our performance.’

Analysts at Redburn Atlantic, the broker, sounded a note of caution. They said prices of hotel rooms had been normalising from ‘elevated levels’ in Britain while there were ‘challenges’ in the restructuring of the restaurant portfolio. But they added: ‘Despite our negative view on the trading environment, we have never argued that Whitbread was not a high-quality business.’ They praised its ‘impressive cost management’, ‘strong management teams’ and ‘focus on operational performance that is very hard for competitors to replicate’. Overall they have a neutral stance on the stock.

More on Whitbread

Five-year share price performance table

Past performance is not a reliable indicator of future returns.
Source: FE, 2.10.19 to 2.10.24 Basis: Total returns in GBP. Excludes initial charge.

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.