Top UK Stocks to Watch: Auto Trader shares pop as dividend returns

Auto Trader cautiously optimistic after a tough year, Halma delivers its 18th year of record profits, Mitie eyes a recovery after completing its turnaround plan, Card Factory confident despite sinking into the red, and DFS shares soar to new highs as it prepares to return to profit.

UK

Top News: Auto Trader beats expectations and forecasts strong growth

Auto Trader Group posted steep falls in revenue and profits during its recently-ended financial year, but beat expectations, forecast strong growth in the new year and reinstated its dividend.

Revenue fell 29% in the year to the end of March to £262.8 million, driven by a reduction from trade after Auto Trader waived advertising fees to its customers in April, May, December, February and at a discount in June to help them navigate the tough environment as showrooms were shut on numerous occasions during lockdown.

This caused a 38% fall in operating profit to £161.2 million and a 37% decline in pretax profit to £157.4 million. Basic EPS fell 40% to 13.24 pence from 22.19p the year before.

Although tough numbers to read, revenue and profits both came in significantly higher than what analysts had expected. Analysts had forecast revenue of £249.4 million, operating profit of £145.0 million and EPS of 11.93p.

Auto Trader said it is expecting to deliver ‘high single digit growth’ in average revenue per retailer as business for its trade customers can hopefully normalise as lockdown eases and Auto Trader charges full prices again.

Notably, while the pandemic has caused disruption for sellers, it has also driven up demand from buyers. Visits to Auto Trader have were up some 20% year-on-year during much of the period.

‘Despite unusually strong demand and tight supply, COVID-19 is currently having little impact on the financial performance of the business as we start financial year 2022. However, as seen in other countries, we cannot yet be sure that COVID-19 will not reappear as a significant negative factor in our future performance. The following remarks assume no significant restrictions on our retailers' ability to trade going forward,’ Auto Trader said.

Auto Trader has also reinstated its dividend after suspending payouts last year when the pandemic started to bite. The total payout for the full year will consist of a final payment of 5.0 pence per share, compared to the 2.4p interim-only dividend made last year.

‘Our capital policy remains broadly unchanged: to continue to invest in the business enabling it to grow while paying around one third of net income to shareholders in the form of dividends. We aim to return the remaining surplus cash to shareholders through share buy backs, which will recommence shortly,’ Auto Trader said.

Where next for the Auto Trader share price?

The Auto Trader share price had been forming a series of lower highs since late February. Today’s jump higher has taken the share price back over the multi-month descending trendline and to an all-time high of 624p. 

The RSI is in overbought territory so the price could just consolidate at this level or ease lower before further gains and a move towards 650p. 

It would take a move below 580p to negate the new uptrend. 

Halma delivers 18th consecutive year of record profits

Halma said it delivered its 18th consecutive year of record profits and hiked its dividend as it grows increasingly confident about its future.

Halma shares initially rose to a new record high in early trade this morning before falling back and losing ground to trade 0.6% lower at 2664.0p.  

The company, known for making a variety of life-saving products and technology, said revenue dipped 2% in the year to the end of March to £1.31 billion. That was the result of a 5% decline in the first half being partly cushioned by a 2% rise in the second.

Still, adjusted pretax profit inched-up 4% to £278.3 million to hit another yearly record, while reported pretax profit jumped 13% to £252.9 million.

Halma is paying a dividend of 17.65 pence for the year, up 7% from the 16.50p payout made the year before.

Halma said it is expecting to deliver low double-digit growth in profits this year on an organic, constant currency basis.

‘For the year ahead, we expect our markets to continue to recover, albeit at varying rates, while acknowledging that there are potential headwinds including currency, inflation, and supply chain constraints,’ chief executive Andrew Williams said.  

‘Organic constant currency revenue for the period from the beginning of January to the end of May is up 10% year-on-year. We have made a good start to the year, order intake is currently ahead of revenue and the same period last year, and we also have a good pipeline of potential acquisition opportunities,’ Williams added.

Mitie Group expects improvement after sinking to loss during tough year

Mitie Group said it is starting to see ‘green shoots’ of a recovery after putting in a resilient performance during a tough year, and said it expects to perform better than previously expected in the new year.

Mitie Group shares jumped 3.8% this morning to 74.5p, marking a new one-year high.

The outsourcing company said revenue in the year to the end of March rose to £2.56 billion from £2.17 billion the year before, mainly thanks to the boost provided by the acquisition of Interserve Facilities Management, which performed better than expected.

‘Although COVID has challenged us all, our business has been far more resilient than we originally expected, with revenue, excluding the contribution from Interserve, just 1.6% lower than the prior year.  The second half of the year was significantly better than the first half, with 6.5% year on year growth, as variable projects and discretionary spend works picked up and cleaning and security demand increased,’ chief executive Phil Bentley said.

Adjusted operating profit fell to £63.4 million from £86.1 million as a result of less project work during the pandemic and a shift in revenue mix. At the bottom-line, Mitie reported a pretax loss of £9.1 million compared to a £48.4 million profit the year before.

Mitie has been implementing a turnaround programme for the last four years but that is now complete, prompting the company to pursue a new strategy that is targeting mid-single digit revenue growth and margins of 4.5% to 5.5% over the medium-term compared to just 2.4% at present.

‘As businesses slowly start to reopen and our customers' employees return to offices, we are starting to see some green shoots of recovery in the variable project and discretionary spend works and we anticipate this continuing as re-occupation plans solidify.  With some high-quality new contract wins, short-term support to the public sector and additional synergies from the integration of Interserve, we now anticipate FY22 will be materially ahead of our prior expectations,’ Bentley said.

Mitie is not paying any dividend for the year but is considering resuming payouts in the new financial year on expectations that cashflow will improve and it can deliver greater synergies from Interserve than previously expected.

Mitie’s order book grew significantly to end March at £7.20 billion compared to just £4.29 billion a year earlier.

Card Factory confident of recovery after strong reopening

Card Factory said it has performed well since reopening stores and seen results from its investment in its digital operations as it revealed it was pushed into the red during a tough year plagued by the pandemic.

The greeting cards and gift store suffered a 37% decline in revenue during the year to the end of January to £285.1 million from £451.5 million as the impact of closing stores during lockdown took its toll. Card Factory stores were closed for an average of five months of the year, reducing demand and hurting profitability.

Still, the company impressed by still managing to deliver like-for-like growth of 0.1% in the year compared to a 0.5% fall the year before.

This caused Card Factory to sink to a pretax loss of £16.4 million from a £65.2 million profit the year before.

Card Factory shares were trading 3.3% lower in early trade this morning at 64.7p.

Card Factory said it has performed better than anticipated since stores reopened while its shift to online is also paying off, with digital sales up 135% in the year. Still, online sales only amounted to £11.1 million in the year and was not enough to offset lower store sales.

‘Since joining Card Factory in March 2021, I've been immensely encouraged by what I have seen and heard. We have successfully reopened our entire store estate following the third lockdown and delivered a reassuring performance in stores, whilst maintaining online momentum,’ said chief executive Darcy Willson-Rymer.

‘Our powerful brand and unique business model means we are well placed to respond positively to the changing retail environment and to unlock the inherent potential in this business,’ he added.

DFS Furniture to return to profit and impresses with outlook  

DFS Furniture said it has performed well and expects to return to profit in the current financial year despite its stores having to close for much of the period, giving it the confidence to post a better than expected outlook.

The company said it expects to report underlying pretax profit of ‘at least’ £105 million in the year that will end on June 27. That will be a marked improvement from the £56.8 million loss booked in the last financial year.

Revenue was up more than 10% during the first 49 weeks of the year despite stores having to close for 21 weeks due to lockdown, as its shift to made-to-order ramped up to meet demand. Online order intake was up 222.5% in the third quarter alone.

DFS Furniture also told investors that it expects to declare a final dividend of 7.5p when it releases results for the financial year in September 2021.

DFS Furniture shares soared 13% in early trade to hit a new all-time high of 310.3p.

With its order intake having grown strongly in recent months, driven by customers being impatient waiting for showrooms to reopen, DFS said it is expecting pretax profits of between £66 million and £96 million in the next financial year – well ahead of the £61.4 million currently forecast by analysts.

This is because it is expecting many of its orders to be pushed into the new financial year. Order intake in the first 10 weeks of the fourth quarter was up 92% and most of these orders will not be fulfilled until the new financial year starts. That represents a significant surge considering order intake in the first 23 weeks of the second-half increased 14% from pre-pandemic levels.

‘Our aim is to lead sofa retailing in the digital age by building a truly Integrated Retail model that allows us to drive market share gains ahead of the competition.  Looking ahead, we will continue to invest in key strategic initiatives such as our digital channels, our showrooms and our Sofa Delivery Company final mile logistics capability, along with new investment in UK manufacturing and capacity and expansion into other home categories,’ said chief executive Tim Stacey.

‘Despite short-term supply chain challenges and a macro environment that's hard to read, we believe the business is well set for growth, to be delivered in both a responsible and sustainable manner,’ he added.

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