Look ahead to FTSE 350, other companies reporting & economic events from 28 November – 2 December 2022

• Abrdn and Weir Group are set to be promoted to the FTSE 100.
• Harbour Energy and Dechra Pharmaceuticals are set to be relegated to the FTSE 250.
• Easyjet capacity over peak travel seasons will be in the spotlight
• How will Pennon Group tackle high inflation?
  

The FTSE All Share Index Quarterly Review will take place next week – based on market capitalisations on Tuesday 29 November (announced 30 November), with changes taking effect after the close of business on Friday 16 December.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:

Abrdn – contender for promotion to the FTSE100
‘’It’s been a volatile year for Abrdn, the Edinburgh based investment company, as shares were dragged down amid the financial market volatility. Outflows from its funds caused nervousness among investors and it was ejected from the FTSE 100 at the last review. But in recent weeks the company appears to have turned a corner, helped by a rising appetite for risk sending its share price sharply upwards and putting it in pole position for promotion back into the top-flight.

Investor confidence in sectors around the world has jumped over the past month, and that’s helped restore optimism about the company’s prospects, particularly given that it’s known for its emerging markets and smaller companies’ funds.  A bolstered direct-to-consumer offering, and improved proposition are all welcome developments which could also help deliver an about turn in revenues. But the company will have to generate sustained and meaningful inflows to remove the risk of fresh volatility returning to the share price.

Weir Group – contender for promotion to the FTSE 100
Weir Group, the Glasgow based engineering firm, is also a close contender for re-entry to the FTSE 100. It took the opportunity to refocus on mining during the pandemic, moving away from the oil industry. Its share performance has been a little volatile as worries about global growth and the ongoing effects of China’s zero-Covid policy have continued. However, optimism appears to be returning that its strategic move into mining will pay off over the longer term, and its recent results were resilient, showing strong demand from the sector for its equipment, with order numbers up by almost a fifth over the last quarter. Maintaining its full-year revenue and profit guidance is not to be sniffed at in the current market.

Harbour energy looks set to leave the FTSE 100
Harbour energy has been sideswiped by the rumours and then confirmation of an increase in a windfall tax on North Sea oil and gas producers. Pleas from Linda Cook, CEO of the company, for Jeremy Hunt to look again at taxing profits went unanswered. The company said that the levy will drive investment out of the UK altogether, warning that the associated tax credit would not protect projects and jobs. The company has also been hit in recent days by falls in the price of crude, prompted by worries about the ongoing Covid crisis in China, with rolling lockdowns back in place in major cities after fresh outbreaks. The share price has fallen by around 30% over the last six months making it one of the most likely candidates to drop out of the FTSE 100 in the December reshuffle.

Dechra Pharma – contender to leave the FTSE 100
Dechra Pharma is in the business of keeping animals healthy throughout their lifetimes and was helped by soaring popularity for new furry additions to the household during the pandemic. The company has benefited from robust organic growth and has been on a spending spree in the US acquiring two firms, Piedmont Animal Health and Med-Pharma.  But Dechra has also been caught in the claws of worry about inflation. Additional costs have weighed on the business which has dented profits and a share placing to fund acquisitions has also diluted earnings per share growth.

Although demand for the pharmaceutical company’s veterinary products has been reasonably strong, there have been worries that with incomes facing a squeeze, spending per head could decline. Shares have fallen by more than 20% over the past year as worries about growth prospects have risen, and it looks likely to drop out of the top league. However, demand for pets doesn’t seem to be waning just yet which should make future revenues streams reasonably resilient as long as new product pipelines don’t get blocked.‘’

Companies currently scheduled to release results next week:

Easyjet, Full Year Results, Tuesday 29 November
Sophie Lund-Yates, Lead Equity Analyst
“EasyJet have been expecting capacity over the October half-term and Christmas to be back at pre-pandemic levels. Next week investors will find out if this was a fair prediction. This will be a crucial barometer for the group’s performance over the next year. Many are cautiously optimistic it can reach this target.

The other thing that will be monitored is the scale of full year losses. These are expected to come in between £170m and £190m, owing to adverse exchange rates and disruption and cancellations in the third quarter. A worse-than-expecting showing on this front won’t be well received by the market.

Finally, it’s forward bookings will be closely watched. With the cost-of-living crisis weighing on people’s spending power, and the pent-up demand from the pandemic unwinding, it’s wondered if easyJet’s likely to report a weakening of demand. The group’s stronger brand and proposition hold it in a better position than others, but it’s still something to be mindful of.”

Pennon Group, Half Year Results, Wednesday 30 November
Matt Britzman, Equity Analyst
“Pennon provides water and wastewater services to around 3.5m people in South West England. Recent performance has benefitted from improved non-household demand and the hybrid work-from-home model keeping household demand elevated. Whether these are longer term trends remains to be seen, next week’s half year results should shed further light.

Last year’s Bristol Water acquisition came with a big price tag, and many have already started to see glimpses of the benefits it could bring. Bristol Water’s initial performance was better than Pennon had expected. Investors are interested to see how the debt profile is looking in light of rising prices, given that around half of Bristol Waters debt is index-linked. This means that the interest rate rises with inflation.  That extends to the wider business too, all in there’s about £2.8bn in index linked debt to service. Though it’s worth remembering, the majority of the impact will be non-cash charges based on how the debt is accounted for.”