Royal Mail, TalkTalk and Galliford Try

“The FTSE 100 continues to hover around the 7,600 mark despite a notable increase in corporate news on Tuesday, something that tends to drive up trading volumes. The blue chip index sees strength in life insurers and housebuilders offset by weakness in tobacco and construction stocks,” says Russ Mould, Investment Director at AJ Bell.

Royal Mail

“Life rarely moves fast at Royal Mail and so it is difficult to draw any firm conclusions about the health of its business from a trading update only covering a three-month period.

“The only clear issue is a decline in marketing letters as a result of new data protection laws making companies nervous about sending out junk mail.

“Overall none of the figures should be a surprise: letter volumes are falling, parcel volumes are increasing, and the overseas business (GLS) is seeing the strongest growth. That’s been a similar story for some time.

“The future of Royal Mail is all about dealing with fierce competition on the parcel deliveries side and achieving productivity improvements across the business, such as through increased automation. The latter could help to make the sorting and sequencing parcels more efficient and thus free up workers to spend more time delivering items.

“New chief executive Rico Back may be under pressure from shareholders to find ways to accelerate the pace of change in the business. Fortunately he’s worked for the business for more than 18 years and so can hit the ground running.”

TalkTalk

“Sometimes companies set themselves such a low bar that it is difficult not to clear it. Broadband provider TalkTalk is a case in point, with its share price rising sharply as it commits to full year guidance in a first quarter trading update.

“This is underpinned by the addition of 80,000 new broadband users in the period. This customer acquisition has come at a cost, with lots of them on fixed low-cost plans. Notably, average revenue per user fell slightly year-on-year.

“There is also a slight uptick in the proportion of customers leaving TalkTalk, which suggests the positive sentiment created by today’s update might be short-lived.

“Tomorrow’s AGM could be a test for management as they look to defend a £200m rights issue earlier this year.”

Galliford Try

“There is a rather big fly in the ointment for builder Galliford Try in its full-year trading statement.

“The construction division has swung from a comfortable net cash position into the red thanks to costs associated with the Aberdeen Western Peripheral Route (AWPR) joint venture.

“Partnered on this troubled road development with Balfour Beatty and the now defunct Carillion, both Galliford and Balfour have had to take on extra costs since Carillion’s collapse.

“In contrast, Galliford’s regeneration arm and its Linden Homes housebuilding business are performing very nicely. Linden delivered sales growth in line with expectations and improved profitability.

“Investors must hope AWPR is the last of several troublesome legacy construction projects and the company at least has the controls in place now to avoid the large scale, fixed price contracts that have been the problem in the past.”

These articles are for information purposes only and are not a personal recommendation or advice.