UK Previews: Segro and Rentokil Contrasting Perspectives

The two biggest UK stocks are expected to report earnings tomorrow. However, they offer contrasting perspectives on the country's future.

The Elusive High

Heading into earnings season, the FTSE 100 closed shy of a new record high. However, risk appetite plunged earlier this week, dragging global indices lower. Conflicting factors have influenced the index. Recent gains came from rising large-cap energy stocks benefiting from higher crude oil prices, which hit a six-month high last Friday. Meanwhile, gains from increased Middle Eastern tensions also came with a more risk-averse attitude towards consumer goods companies.

The latest employment figures in the UK are expected to push the BOE towards earlier rate cuts, which will likely have varying effects across the index. Home builders would benefit from lower mortgage costs, while exporters would see improved results due to weaker currency translation. However, the lack of domestic economic growth would hurt consumer discretionary stocks, which comprise a large portion of the index. As a result, UK stocks could move independently of each other, as shown by the two major companies set to report tomorrow.

Rates-Dependent vs Demand-Centric

Segro is scheduled to release its Q1 trading update before tomorrow's market open. Investors will likely look for any adjustments to the outlook in light of changing interest rate conditions. The real estate investment trust (REIT) was optimistic when it reported full-year earnings in February, but interest rates appeared likely to remain high until late in the year back then. So, commentary on occupier markets will be a key focus as an important metric for the firm.

Rentokil Initial will also announce earnings around the same time but from the perspective of a company offering an always-in-demand service: pest control. Rentokil saw solid growth over the past year thanks to integrating Terminix, its recent acquisition. Traders will likely want to see if the company raises its outlook again and whether it benefits from synergies. Another focus will be the outlook for US operations, which was previously expected to provide mediocre growth but could improve given a better economic outlook in the US.​

Segro in Corrective Phase

Both Segro and Rentokill have seen notable gains since bottoming out last October. However, Segro's recovery has been more contained, whereas Rentokill has retraced deeper. With a low at 810 and a high at 915 GBX while trading around the mid-point, Segro appears poised for a breakout or breakdown in the near future. Exceeding the upper limit could see prices appreciate towards 950 and potentially reach the 1000 handle. Conversely, sliding under the local support could see the stock fall towards 750 should the support at 800 give in.

Source: SpreadEx Segro

Key Takeaways

Segro and Rentokil are expected to report earnings tomorrow, which may provide contrasting perspectives on the future performance of the UK economy and FTSE. Given shifting rate expectations, Segro will be watched closely for any changes to its outlook. At the same time, Rentokil continues to benefit from strong demand for its services and the integration of a recent acquisition. Recent gains in the FTSE have been uneven, buoyed by rising energy stocks but pressured by more risk-averse sentiment towards consumer goods companies. So, the stocks' performances represent the index's independence as economic factors variably impact its components, leaving the individual options on the table.​