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Coffee break eyed at Whitbread as retail trading updates continue to flow

Week ahead includes trading updates from Whitbread PLC, Associated British Foods PLC, Experian PLC, Royal Mail Group PLC, William Hill PLC, Burberry PLC, plus UK inflation and retail sales data
Costa coffee cup
Whitbread’s trading update will be closely eyed for any hints on a possible Costa Coffee disposal

Whitbread plc’s (LON:WTB) third quarter trading update on Thursday will be closely eyed for any hints on whether the blue chip leisure giant could decides to sell off its Costa Coffee chain and/or its hotels real estate after pressure from an activist pressure to make such changes.

In a recent note, analysts at Barclays Capital pointed out that following the arrival of activist investor Sachem Head on Whitbread’s shareholder register in November, they have received numerous requests from investors asking the same questions and trying to understand the potential willingness of the board/key shareholders to engage in such discussions.

The BarCap analysts said that, in recent months, they have sensed a more open approach from Whitbread’s management regarding corporate activity, though they have felt this was more about the options on an 18-month-plus time horizon than anything imminent.

They added: “We see the most ‘obvious’ step, if any, as a sale of Costa rather than an ‘opco propco’ break-up of the hotels”.

The analysts noted that Whitbread’s latest third quarter trading update is not expected to be positive given weaker industry RevPAR (revenue per available room) trends for hotels and softer retail footfall data.

They forecast a 1% fall in Q3 RevPAR and a 0.5% decline in like for like sales at Costa, albeit with Whitbread’s restaurants stronger at 1.7% growth.

However, they think that, more encouragingly, Q4 trends have been better, and given that this will be Whitbread management’s first opportunity to comment on the potential separation of the group since Sachem Head’s stake disclosure, any open-minded commentary in this regard combined with reassurance on current hotel trading would, in their view,  likely mitigate any Q3 disappointment.

Primark still the Christmas key for AB Foods

The Christmas trading statements from retailers will continue to flow during the week, with Dunelm PLC (LON:DNLM), Halfords Group plc (HFDS), Greggs plc (LON:GRG) and Ocado PLC (LON:OCDO) all due to update, although the main focus is likely to be on Primark owner Associated British Foods plc (LON:ABF) first quarter numbers on Thursday.

Like all other UK and European clothing retailers, Primark’s numbers will likely show the scars of a warmer October, although there should have been some recovery in November, according to analysts at UBS.

In a preview, they forecast the discount fashion stores chain reporting like-for-like sales growth of 1%, against a flat performance in the comparable period a year earlier.

For the UK, the UBS analysts expect 3% like-for-like growth, with market share gains continuing from stronger fashion ranges, better value and range extensions into homewares, cosmetics and seasonal.

They added: “Key to look out for, in our view, will be any update on the EBIT margin outlook – currently guided to be flat, with a possible small decline in H1. Flat guidance seems to incorporate a return to normal markdown levels after an exceptionally good year last year. Any sign that markdowns have remained low in the year to date could provide some upside risk.”

Credit given for Experian

FTSE 100 listed credit checking firm Experian PLC garnered two upgrades in ratings from brokers recently ahead of a third quarter trading update also due on Thursday.

Following on from a move to ‘buy’ from ‘neutral’ by Swiss bank UBS, London broker Shore Capital also upped its stance for the blue chip firm to ‘buy’ from ‘hold’.

In their note, the UBS analysts said: “We believe 2018 will likely see Experian start to accelerate organic growth from c4% back towards >7%, for the first time since 2013.”

They added: “The key factor, in our view, will be B2C swinging from negative into positive growth, but we also expect help from new B2B contracts and upside in Latam.”

The analysts said the trends may be unchanged for the third quarter, but expects improvement to 6% growth for the fourth quarter of 2017 and see 7%-8% growth for full year 2020.

In its note to clients, ShoreCap analysts said they also expect momentum to build with higher group organic revenue growth emerging, growing from the around 4% level seen in the first half towards circa 7%.

Problems in store for Pearson

Educational publisher Pearson plc (LON:PSON) will issue a trading statement on Wednesday and analysts at Liberum Capital expect the FTSE 100 listed firm to disappoint the market on 2018 guidance, either with this update or its full year results.

In a note to clients on Monday, the analysts said: “2018 is shaping up to be another difficult year in US Higher Education and the recent move by #2 player Cengage to offer an ‘all you can eat’ pricing model threatens to introduce the tsunami of price deflation on top of volume declines and industry pressures continue.”

They pointed out that Pearson has limited room for further extensive cost cutting given it has already restructured extensively, while it is also impacted negatively by the recent weakening of the US dollar versus the pound.

The Liberum analysts pointed out that they are 16% below consensus estimates for full year 2018 and reiterated a ‘sell’ rating on the stock but raised their target price to 380p from 330p, albeit with the shares changing hands at 730p each on Monday.

Christmas post key for Royal Mail

The last we heard from Royal Mail PLC (LON:RMG) it claimed that an underlying 2% rise in revenue represented “a good start to the year”.

In truth, with the letters business posting a 5% year-on-year decline in the first half of the financial year, the letters and parcels delivery group’s spin on the results was not too far off the mark, especially as the rate of decline in the letters business had slowed.

Offsetting the decline in the letters business, the group saw a 6% rise in UK parcels revenue and a 9% revenue increase in its General Logistics Systems (GLS) business in the six months to 24 September.

As one might expect, however, the Christmas period is a critical one for Royal Mail, and the group scored a big success by heading off the threat of industrial action over the period with an agreement to talk with the Communications Workers Union over pension grievances.

UBS expects a slowdown in UK parcel volume growth in the second half to 3% along with a marginal deterioration in letter volumes to 5.5%.

“The primary reason for this is the slowdown in UK retail sales, which is likely to [have an] impact on the level of growth in UK e-commerce, although it will continue to grow.

“With a large part of the £190mln cost avoidance programme this year achieved in H1, we also assume a slower run-rate for cost reductions in H2,” UBS said.

Gaming regulations overshadow William Hill

The fourth quarter trading update from William Hill plc (LON:WMH) will be made under the shadow of regulatory concerns. Online gambling sites operating in Australia will be banned from offering lines of credit under new reforms to take effect in February 2018.

“With the credit betting ban now passed by the Australian Government and the potential for a Point of Consumption Tax to be adopted by other states, we continue to manage spend carefully while extending and diversifying our product range,” William Hill said, back in November.

Meanwhile, the industry is no doubt lobbying hard to head off the threat of the maximum bet on fixed odds betting terminals – dubbed “the crack cocaine of gambling” – being cut from £100.

The Department for Digital, Culture, Media and Sport has indicated it would cut the maximum stake to between £2 and £50, and is currently in a consulting period that is due to end this month.

Bookmakers have warned that shops could close if the maximum stake is cut, but with many local government authorities now trying to stop the growing concentration of betting shops in the poorest areas of town, they may be shooting themselves in the foot with this line of argument.

Full year results are likely to be in line with expectations after the bets-taker reported a 3% increase in retail net revenue in the 17 weeks to October 24.

The online business delivered a 6% increase in revenue with wagering up 13% against a strong performance in the year-ago period when the Euro 2016 tournament was taking place, and gaming net revenue was up 14%.

The US business achieved a 28% gain in net revenue with amounts wagered up 33%, boosted by the Mayweather-McGregor boxing match, but it’s probably best not to talk about the struggling Aussie business – especially if punters down under bet big on the Poms getting humiliated in the Ashes.

Credit Suisse is expecting the statement to be short in detail, but might give an indication of operating profit versus market expectations.

The Swiss Bank is forecasting operating profit of £267mln for 2017, some £4mln below the consensus forecast.

Luxury gap remains for Burberry

Investors will be looking for a smooth execution of Burberry Group PLC’s (LON:BRBY) new strategy when the luxury trench coat maker updates investors on Wednesday.

One of the first things new chief executive Marco Gobbetti did when he took office in November was to unveil new plans to transform the business amid a tough retail market.

He said the retailer would move in further upmarket and position itself “firmly in luxury” to try and take advantage of the uber-rich who have still been splashing the cash while the rest of us tighten the purse strings.

Given that it has only been a few months since the plans were made public, we’re unlikely to get an in-depth update, but a mention that things are coming along as planned wouldn’t go amiss.

As for other things to look for, sentiment will likely be driven by sales numbers and Hargreaves Lansdown is “hopeful the group can deliver a sixth consecutive quarter of positive like-for-like growth”.

UK retail sales weak as inflation rises

A couple of key pieces of UK data are scheduled for next week, with the Office for National Statistics due to release retail sales and inflation figures for December.

Last week’s British Retail Consortium data showed that retail sales between 26 November and 30 December were 1.4% higher than a year earlier.

The data also suggested there was faster growth in spending on clothing than many other items and that online spending rose more significantly than in-store spending, while food purchases also increased pretty quickly.

Given that the BRC has an invested interest in promoting the industry, it’ll be interesting to if the ONS’s numbers match up.

As for the Consumer Prices Index, that hit a six-year high of 3.1% in December, forcing Bank of England governor Mark Carney to pull out his pen and write a letter to the Chancellor.

Economists don’t expect him to have to explain himself once again as a slightly stronger pound, coupled with November’s modest interest rate hike should see inflation start to come in.

Food prices are likely to be sharply higher than they were last year though, although it was actually air fares that were mostly to blame for the jump past 3% last time around.

Should inflation stay the same or actually rise, the pound could move higher as speculation will start to mount that the BoE could be forced to raise interest rates once again. Carney will be hoping that isn’t case.

Significant events expected:

Monday January 15:


Production update: Rio Tinto PLC (LON:RIO)

Trading update: William Hill plc (LON:WMH)

Finals: Watkin Jones PLC (LON:WJG)

Tuesday  January 16:

Trading updates: Ashmore group PLC (LON:ASHM), Dunelm PLC (LON:DNLM), Greggs plc (LON:GRG), JD Sports Fashion PLC (LON:JD.), Johnson Matthey PLC (LON:JMAT), The Gym Group Plc (LON:GYM), Ophir Energy Plc (LON:OPHR), Premier Foods PLC (LON:PFD)

Interims: K3 Capital Group Plc (LON:K3C), NCC Group PLC (LON:NCC), 1PM PLC (LON:OPM)

Economic data: UK CPI, RPI, PPI, HPI inflation, US Empire State manufacturing survey

Wednesday January 17:

Production update: BHP Billiton plc (LON:BLT), Hochschild Mining PLC (LON:HOCH)

Trading update: Burberry PLC (LON:BRBY), Pearson plc (LON:PSON), Diploma PLC (LON:DPLM), Clinigen Group PLC (LON:CLIN), Secure Trust Bank PLC (LON:STB), Henry Boot PLC (LON:BOOT), City of London Investment Group PLC (LON:CLIG)

Economic data: US industrial production; Federal Reserve Beige Book

Thursday January 18:

Trading updates: Associated British Foods plc (LON:ABF), Royal Mail Group PLC (LON:RMG), Whitbread plc (LON:WTB), Experian PLC (LON:EXPN), Halfords PLC (LON:HFD), Ibstock Plc (LON:IBST), Ocado PLC (LON:OCDO), Ten Entertainment Group PLC (LON:TEG), Workspace PLC (LON:WORK)

Ex-dividends: To clip 3.04 points off FTSE 100 - Ashtead Group PLC (LON:AHT), Compass Group PLC (LON:CPG), Micros Focus International PLC (LON:MCRO), SSE plc (LON:SSE)

Economic data:  US weekly jobless, US housing starts, Philly Fed business outlook

Friday January 19:

Trading updates: Record PLC (LON:REC)

Economic data: UK retail sales; US consumer sentiment

 -- Adds Pearson preview --

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