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Costa Coffee demerger move hangs over Whitbread trading update

Aside from Whitbread, updates are also due in the week ahead from cruises operator Carnival, packaging firm Bunzl, struggling floorings retailer Carpetright, and pubs operator Greene King
Costa Coffee
The decision to hive off Costa Coffee came after activist investors Elliott Advisors and Sachem Head urged Whitbread to split its business

Having bowed to pressure from some shareholders to spin-off its Costa Coffee business, Wednesday’s trading statement from Whitbread plc (LON:WTB) has an added piquancy.

Deutsche Bank is expecting the FTSE 100-listed firm’s first quarter update to be weak, reflecting recent trends in the UK hotels market and the tough market conditions hitting retail footfall.

“However,” the German bank’s analysts said in a preview, “we believe efficiency savings (raised recently from £150mln to £250mln) provide some protection to consensus estimates. Still, recent corporate announcements including the Costa demerger would likely support the shares.”

The decision to hive off Costa Coffee came after activist investors Elliott Advisors and Sachem Head, which together control 10% of shares, urged Whitbread to split the business into two.

The growth of the coffee shops business has overshadowed the Premier Inn and restaurants business for years but concerns are growing that Costa has reached saturation point in the UK.

In the current financial year, the group has previously said it plans to open 4,000-4,500 Premier Inn rooms in the UK and Germany along with 230-250 net new Costa stores globally, and investors will be interested to see whether that level of expansion is still on the cards.

Cruising not easy for Carnival

Anglo-American cruises operator Carnival PLC (LON:CCL) has seen its shares run out of steam over the last nine months possibly reflecting higher oil prices.

Investors will be hoping that the FTSE 100 listed firm’s second-quarter update on Monday will show that the trend for an increasing amount of people going on cruises has continued as well as any signs that those customers are prepared to pay more.

With the hurricane season coming up analysts have cautioned over Caribbean demand, so one area to concentrate on will be demand from Asia, especially China.

Slower revenue growth seen at Bunzl

A half-year trading statement from blue-chip distribution and outsourcing group Bunzl PLC (LON:BNZL) may show a tapering off of revenue growth.

Group revenue in the first quarter increased by 7% year-on-year (yoy) at actual exchange rates and by 14% on a constant exchange rates basis, due to underlying growth of around 6% and an impact from acquisitions of about 8%.

“The underlying revenue growth, which is principally due to the additional grocery business won, albeit at lower margins, in North America towards the end of 2016, is expected to return to more normal levels during the remainder of the year as the additional business in North America has now been fully absorbed,” the group cautioned back in April.

The April trading update contained news of two bolt-on acquisitions and it would not be a massive surprise were Bunzl to unveil another purchase or two.

Tough year for Carpetright

It’s been a tough time for Carpetright PLC (LON:CPR). The flooring retailer has issued a string of profit warnings over the past year as a squeeze on household incomes, a stagnant property market and changes in the way we shop have knocked sales.

The market already expects to see a loss of £7mln and £9mln in Tuesday’s full-year results, while like-for-like sales in the UK – its core market – are forecast to fall 3.6%.

Investors will be looking for signs that the worst news is now behind them. Earlier this month, Carpetright began to implement its turnaround plan after raising £60mln from investors.

The plan is to close 92 of its worst-performing stores, slash the rent on the remaining 113 sites and cut 300 jobs – actions which chief executive Wilf Walsh said are essential if the company is to “restore our profitability and deliver a successful turnaround”.

Inflation and wages growth are steadily reversing, while recent figures from Barclaycard and the British Retail Consortium have suggested shoppers are opening their wallets again.

Could that provide some much-needed relief for Carpetright and its shareholders?

World Cup boost eyed for Greene King

Investors already have a fairly good idea of what to expect from Greene King PLC’s (LON:GNK) full-year results on Thursday, thanks to a trading update in April just before the end of the pub operator’s financial year.

In that update, the FTSE 250 group revealed like-for-like sales in its Pub Company division – which accounts for more than 80% of total sales – were down 1.8% year-on-year.

Despite the drop-off in revenues, particularly food sales, Greene King kept its full-year profit guidance on hold at between £240-245mln.

Attention will, therefore, be on the start of the current financial year and the outlook, as pub groups battle higher costs and squeezed household incomes, which have put pressure on their top and bottom lines.

The recent warm weather should have provided some respite, while the World Cup is also a traditionally strong period for the industry.

The dividend will also be closely eyed. Analysts had thought it might be chopped, although the maintained profits forecasts back in April should mean its secure this time around.

Ghana news wanted from Tullow Oil

There’ll likely be a healthy focus on oil prices and margins as Tullow Oil plc (LON:TLW) releases its trading update on Thursday, not least because it follows the latest OPEC meeting (June 22).

In a recent note, analysts at UBS said that attention will be on Tullow’s growth project, specifically on its drilling in Ghana where four wells are in the schedule.

“The first of these 4 wells is in the Ntomme field and is due to be brought online this month. Tullow's FY18 production guidance is 76,000 to 85,000 boe/d (UBSe 85kboe/d on strong performance at TEN),” the analysts said.

“We will also be looking for an update on plans to procure a second rig for Ghana, and progress on the early oil production scheme (EOPS) in Lokichar, Kenya.”

UBS has a ‘neutral’ rating on Tullow with a price target of 250p, versus a current share price of around 232p.

Order pipeline news wanted from Petrofac

Commentary around order pipelines and new contract procurement will no doubt be what investors are looking for from oil services group Petrofac PLC (LON:PFC) when it issues an update on Tuesday.

Petrofac, at its general meeting last month, described “good progress” in the year to date as it continued to bounce back from a difficult 2017.

“Tendering activity remains high and the group has been awarded more than US$1.7bn of new orders in the year to date,” chief executive Ayman Asfari said.

A note by Redburn analyst Michael Rae cautioned that investors ought to handle Petrofac ‘with care’, rating the company as a ‘sell’, with the competition, regulation and legal concerns.

“Our updated view of the pipeline and competitive landscape reveals Middle Eastern lump-sum construction is not getting any easier,” Rae said in a note earlier this month.

Petrofac faces both revenue and SFO-driven uncertainty.”

Plainly, after Petrofac’s troubled recent history there’ll likely be a degree of scrutiny from investors.

First post-Amec update for Wood Group

John Wood Group PLC (LON:WG.) will report first-half trading news on Thursday, its first update since completing the acquisition of Amec Foster Wheeler earlier this year.

Analysts at UBS expect the release to follow the previous Wood formats of qualitative updates by division and an update on the outlook/guidance based on these divisional trends.

Their key focus will be on the integration of Amec FW, progress in disposals and deleveraging, any US onshore bottlenecks impact, and signs of recovery in the international oil & gas markets.

Activity levels high for Hunting

Fellow oilfield services group Hunting Plc (LON:HTG) will also issue a first-half trading update on Thursday, with the FTSE 250-listed firm having already flagged that it had a strong start in 2018 driven by high activity levels within the onshore North American completions market.

In an update in April, Hunting said its first-quarter underlying earnings (EBITDA) totalled roughly US$33mln and analysts at UBS expect the second-quarter momentum to be at least as strong, implying that first-half EBITDA could be greater than US$66mln.

The Swiss bank’s analysts said the other key area of focus for Hunting is on cash because of a strain on inventories and receivables due to the strong ramp in activity.

Bumpy year for Stagecoach

Stagecoach Group PLC (LON:SGC) will release its final results on Thursday after a bumpy year for the buses and trains operator.

Back in March, the FTSE 250-listed company saw like-for-like revenue for its regional UK bus operations fall by 2.5% as severe weather dented earnings but it said that its full-year expectations remained unchanged.

In May, the group was hit by the news that East Coast main line, the rail franchise which Stagecoach has run with Virgin since 2015, will be brought back under public control.

Liberum Capital downgraded its rating for Stagecoach to ‘hold’ from ‘buy’ in June and cut its price target to 145p from 185p.

The broker’s analysts said: “Further disappointments if combined with a failure to win new profitable rail franchises would put (the) dividend at risk.”

Positive update expected from BCA Marketplace

BCA Marketplace PLC (LON:BCA) owner of webuyanycar.com, will also release its full-year results on Thursday.

The used car marketplace’s results will come with a positive tone after a trading update in April said the company was trading ahead of market expectations as the positive outlook continued from its interim results.

The FTSE 250-listed group also made headlines earlier this month after it said it had rejected a takeover approach from private equity firm Apax Partners LLP.

In a statement at the time, BCA said that Apax had approached the firm with a conditional all-cash offer of 200p per share, a 6.5% discount on the 213p close price on 21 June.

Commenting on the offer, Russ Mould, investment director at AJ Bell said it was “classic private equity behaviour: swoop when someone is temporarily down”.

He added: “BCA’s shares are now trading at an all-time high as a result of Apax’s interest becoming public news. This may prevent other potential suitors from wanting to show their hands unless someone is prepared to take a long-term view and has identified synergies that could warrant paying a high price today in order to make good returns down the line.”

Final Q1 GDP growth likely discounted

On the macro front, the third and final estimate for UK first-quarter GDP growth will not come with any new information that hasn’t already been made available.

Instead, economists at RBC Capital said, the main interest will be on whether or not the expected upward revision to the ONS’s current Q1 GDP quarter-on-quarter growth estimate of 0.1% will materialise.

Judged by the minutes of its latest meeting, the Bank of England Monetary Policy Committee appears to have largely discounted the Q1 growth out-turn and is now focused on what it expects to be a stronger Q2 print.

That means the UK April Index of Services data on the same day will be the main point of interest, particularly as it will show how the all-important services sector has begun the second quarter.

Significant announcements expected this week:

Monday June 25:

Trading update: Carnival PLC (LON:CCL), 

Finals: D4t4 Solutions PLC (LON:D4T4), Polar Capital Holdings plc (LON:POLR), Sutton Harbour Holdings PLC (LON:SUH)

Interims: Porvair PLC (LON:PRV)

Economic data: German IFO business climate; US new home sales

Tuesday June 26:

Trading update: Petrofac PLC (LON:PFC)

Finals: Carpetright PLC (LON:CPR), HML Holdings plc (LON:HMLH), Northgate PLC (LON:NTG)

Interims: Blue Prism Group plc (LON:PRSM)

AGMs: Capita PLC (LON:CPI)

Economic data: BBA UK mortgage lending; US consumer confidence; US Case-Shiller house price index

Wednesday June 27:

Trading updates: Whitbread plc (LON:WTB), Bunzl PLC (LON:BNZL)

Finals: Great Eastern Energy Group Ltd (LON:GEEC), Liontrust Asset Management PLC (LON:LIO), Sysgroup PLC (LON:SYS) Tatton Asset Management Plc (LON:TAM), ULS Technology LON:ULS)

Economic data: CBI distributive trades survey; US durable goods orders, US pending home sales; US international trade in goods

Thursday June 28:

Trading updates: Tullow Oil (LON:TLW), Hunting Plc (LON:HTG), John Wood Group PLC (LON:WG.)

Finals: Greene King PLC (LON:GNK), Stagecoach Group PLC (LON:SGC), BCA Marketplace PLC (LON:BCA), James Latham PLC (LON:LTHM), Redcentric PLC (LON:RCN), XPS Pensions Group PLC (LON:XPS)

Ex-dividends: To knock 6.18 points off FTSE 100 - British American Tobacco plc (LON:BATS), British Land PLC (LON:BLND), Burberry Group PLC (LON:BRBY), Coca-Cola HBC PLC (LON:CCH), International Consolidated Airlines Group PLC (LON:IAG)

Economic data: Nationwide UK house price index, US weekly jobless, US Q1 GDP final reading

Friday June 29:

Trading updates: Serco PLC (LON:SRP), Reach PLC (LON:RCH)

Finals: 7Digital Group PLC (7DIG), European Wealth Group Ltd. (LON:EWG)

Economic data: UK GfK consumer confidence; UK Q1 GDP final reading; UK BoE consumer credit, money supply, mortgage approvals; US personal income & consumption; US PCE index; US Chicago PMI; University of Michigan consumer confidence


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