We’re coming to the end of the busiest week of the year so far for half-time company results, and with the Brexit vote barely a month old, they’re arguably the most important so far. Here are three FTSE 100 companies reporting today.
Airline upheaval
Airlines have felt the effects of our forthcoming EU withdrawal, as fuel costs have risen in sterling terms and access to Europe’s open skies is under question. The vote caused a sharp drop in International Consolidated Airlines Group (LSE: IAG), but the shares have recovered a little since. A 3% uptick in first-half results today leaves the shares at 422p, down 20% since referendum day.
The owner of British Airways and Iberia reported a rise in Q2 operating profit to €555m, from €530m in the same period last year (and excluding Aer Lingus, that’s €487m). However, currency movements (largely the fall in sterling) cost the company €148m during the quarter. For the half, reported pre-tax profit rose by 67% to €554m, with earnings per share up 69% to 26.6 euro cents, although passenger unit revenue fell by 7.2%. Net debt actually fell despite the impact of exchange rates, to €7,889m.
Should we buy the shares? Forecasts suggest a forward P/E of only 5.2 for this year, though the massive debt figure takes the shine off that a bit. But a predicted dividend yield of 4.8% does look attractive, and it should be well covered.
Publishing hardship
The market wasn’t impressed by interim results from publisher Pearson (LSE: PSON) today, forcing the shares down 9% to 881p approaching midday, and it’s not too hard to see why. Sales in the half fell by 11% at constant exchange rates (CER), leading to an 81% fall in adjusted operating profit to just £15m (also CER). The bottom line was a 1.3p adjusted loss per share, though net debt did improve by 38% to £1,426m.
Despite these apparently poor figures, chief executive John Fallon pointed out that the firm has “two big trading quarters in education ahead,” saying that trading is still in line with full-year expectations and that the firm is “making progress toward our target of £800m or more of operating profit by 2018.”
Forecast dividends are strong with yields in excess of 5%, but cover by earnings would be weak. With a tough year ahead and a 22% fall in EPS predicted, a forward P/E multiple of 16 doesn’t attract me — I’d wait a while longer.
Flight to safety
Reckitt Benckiser (LSE: RB) was one of the immediate beneficiaries of the Brexit vote, with its shares up 9% between the day of the event and Thursday’s close of business. But Friday’s first-half results led to a 5% drop to 7,089p, though adjusted figures looked pretty reasonable.
Reported profits were down, but adjusted operating profit rose by 11% to £1,081m with adjusted earnings per share up 16% to 114.7p (both CER). Chief executive Rakesh Kapoor described the half as strong, and told us the firm is targeting full-year like-for-like revenue growth at the lower end of the 4% to 5% range. He added that: “Our global footprint means we expect no tangible impact from uncertainty over Brexit.”
Is Reckitt Benckiser a buy? It’s a great, and safe, company for the long term. But with a forward P/E of 25 and a paltry 1.6% dividend yield, the shares are too expensive for me.