As the summer lull starts to take hold, there will be fewer major company news releases in the coming week, although the UK economic diary will be packed full, with inflation, employment and retail sales numbers all due.
The biggest firm on the UK corporate diary will be B&Q owner Kingfisher PLC (LON:KGF) which is expected to reveal on Thursday that the heatwave across Europe buoyed demand for barbecues and garden furniture in the second quarter.
The FTSE 100-listed company had bad luck with the weather earlier this year as the so-called ‘Beast from the East’ – which brought over heavy snowfall and icy temperatures in February and March – kept customers away. It blamed the poor weather for a 1.2% fall in sales to £2.83bn for the three months to April 30 and a 4% drop in like-for-like sales. Analysts at UBS expect Kingfisher to see an improvement in the second quarter with like-for-like sales growth of 1.2%.
While the sunny weather could have helped Kingfisher this time around, DIY markets have been tough for some time and analysts don’t see that changing any time soon. That is certainly the case at Castorama, Kingfisher’s DIY retail store in France.
The B&Q stores in the UK, which sell home and garden products, have also been affected by a slowdown in the housing market and weaker consumer confidence in retail. Screwfix, a retailer of trade tools and hardware products, has been the group’s bright spot as it has shrugged off a difficult retail market to grow sales.
Kingfisher is in the third year of its transformation plan and last time we heard from the company in May that was on track to achieve strategic targets.
“The company’s transformation plan has caused some disruption in recent times and the market will be hoping for some signs that the benefits are coming through,” Graham Spooner, investment research analyst at The Share Centre.
“Rival Homebase is also having a tough time, it was sold for £1 in May and any disruption there may benefit Kingfisher.”
Major surprises unlikely from Antofagasta
Blue-chip miner Antofagasta PLC (LON:ANTO) is unlikely to have any big surprises up its sleeve when it reports its first half results on Tuesday, having recently updated investors on trading.
The Chilean-focused group published a second quarter trading update in July, which showed copper production rose 6.1% to 163,200 tonnes from 153,800 tonnes a year ago. Higher output at its Centinela and Antucoya mines mitigated declines at Zaldívar and Los Pelambres, which was hit by a blockage in the concentrate pipeline in April and May.
Antofagasta left its full-year guidance unchanged for production of 705-740,000 tonnes and net cash cost of US$1.35 per pound.
“Investors should appreciate that the group aims to have a more disciplined approach to costs which have been recently rising,” said The Share Centre’s Graham Spooner.
“Any comments regarding future global demand especially from China will also be worth noting.”
China, the biggest consumer of commodities, has been embroiled in a dispute with the US over trade tariffs, which could impact the economy and mining companies.
Insurer Admiral set to motor
Two motor insurers will report numbers in the coming week, with FTSE 100-listed Admiral PLC (LON:ADM) issuing a second-quarter update on Wednesday, and interims from FTSE 250-listed esure Group PLC (LON:ESUR) due on Tuesday.
Data from the motor insurance sector suggests they saw a good underwriting performance last year and may achieve a fairly good outcome this year as well.
However, new car sales have been falling steeply and after several years of rising premiums competition has increased, so it will be interesting to see if that is reflected in Admiral’s figures.
The price comparison websites have also seen more in the way of competition so the market will be keeping an eye on profits in that area as well.
Additional services key to esure
In recent years esure has been dependent on 'non-underwritten additional services' for most of its profits, which includes providing third party services to its customers, such as breakdown assistance, and motoring legal protection.
Given the importance of these ancillary services, insurance itself has been something of a loss leader in recent years, but significant progress in underwriting last year means that could be about to change.
esure’s combined operating ratio, a key measure of underwriting performance, improved from 98.8% to 96.7% last year, and analysts are hoping for more progress there.
Given the importance of cross-selling to esure, the other key metric to watch out for is policy numbers, as more policies sold means more opportunities to cross-and up-sell.
First-half declines see for Hikma
Numis Securities, which recently downgraded the stock to ‘hold’, is looking for first half sales of US$884mln and US$151mln in underlying earnings (EBITDA).
“This would equate to a slight decline in revenue and 15% decline in profits that may take some of the momentum out of the perceived operational progress in H1,” the broker said.
In May’s trading statement, Hikma’s chief executive, Siggi Olafsson, said the new financial year had got off to an encouraging start.
For the full year, the FTSE 250-listed group expects Injectables revenue to be in the range of US$750mln to US$800mln and core Injectables operating margin to return to more normalised levels in the low to mid 30s.
Hikma’s generics revenues in 2018 are expected to be in the range of US$550mln to US$600mln with an operating margin in the low-single digits.
Pipeline key for Balfour Beatty
Completion of the Aberdeen Western Peripheral Road project, which was delayed by the collapse of Carillion, remains a millstone around the company’s neck but otherwise “progress has been good across most of the business, although UK Construction is a bit of a laggard,” according to Nicholas Hyett, an equity analyst at Hargreaves Lansdown.
“With margins heading back in the right direction, the next challenge is to get revenues moving too. We’ve seen the order book shrink steadily in recent results as the group has focused on bidding for business it can execute profitably. That’s all well and good, but making great margins on little business isn’t all that different from poor margins on lots of business,” Hyett said.
“In the past Balfour have said the pipeline looks strong, so hopefully it will start delivering from here,” Hyett concluded in a preview of the group’s first-half results due on Wednesday.
Spanish gamble for Rank
Investors in FTSE 250-listed gambling operator Rank Group PLC (LON:RNK) will be waiting to see if the firm maintains its cautious outlook for UK consumers when it releases its full-year results on Thursday.
In a trading update in April the group cautioned that revenues for the 2017/18 financial year would continue to be impacted by lower than expected visits to its venues as well as a negative contribution from VIP players at its Grosvenor Casino arm.
As a result, Rank lowered its full-year operating profit guidance to between £76mln-£78mln, adding that the impacts would continue to be felt into the 2018/19 financial year.
However, investors make take some respite from the gloom in Rank’s acquisition of QSB Gaming Limited, which owns YoBingo.es, a Spanish language digital bingo business, in May which may offset the decline in UK business somewhat.
New OEM deal to lift spirits for Filtronic
The group has already forecast higher operating profits for the year of £1.8mln, up from £1.7mln in 2017, although with a lower revenue of £24mln compared to £35.4mln previously.
However, the new contract with a major European original equipment manufacturer (OEM) announced on 1 August, through which Filtronic has already received initial orders worth around US$2mln, will surely provide curiosity to investors, as well as some added positivity from a US$4mln invoice finance agreement between its US sUBSidiary and Wells Fargo Bank.
UK data deluge
With the Bank of England having raised UK interest rates at the start of this month, the latest round of UK data will be eyed keenly for indications of whether the move was justified or not.
UK employment, average earnings, inflation and retail sales numbers will all be released in the coming week, with the trends expected to be mixed.
In a preview, economists at RBC Capital noted that the last three months have seen employment gains of 197,000, 146,000, and 137,000, and said the “continued ability of the labor market to generate employment was a key influence on the BoE’s decision to raise interest rates at its last meeting.”
For the latest numbers due on Tuesday they are forecasting a jobs gains in the region of 100,000, with the unemployment rate holding steady at 4.1%
For earnings, the RBC economist don’t see any change from last month and expect both the including and excluding measures of wage growth to remain unchanged at 2.5% and 2.7%, respectively.
Inflation to rise
Meanwhile, the June UK consumer price index measure of inflation surprised the markets by coming in lower than expected at 2.4%, and the RBC economists are forecasting CPI to have increased by 2.6% year-on-year in July.
In a preview, they said: “With fuel prices up almost 12% y/y, we should continue to see the transport category make a large upward contribution.
“One further factor this month that is likely to make an upward contribution could be food prices; the latest BRC shop price index showed food price inflation, particularly fresh food, accelerating in July.”
Significant announcements expected this week:
Monday August 13:
Finals: Univision Engineering Ltd. (LON:UVEL)
Tuesday August 14:
Interims: Antofagasta PLC (LON:ANTO), esure group PLC (LON:ESUR), Capital & Regional PLC (LON:CAL), JPJ Group PLC (LON:JPJ), Mears PLC (LON:MER), John Menzies PLC (LON:MNZS), Polypipe PLC (LON:PLP), Realm Therapeutics plc (LON:RLM), Apax Global Alpha Limited (LON:APAX)
Economic data: UK unemployment, average earnings; German ZEW survey; US import, export prices
Wednesday August 15:
Interims: Admiral PLC (LON:ADML), Balfour Beatty plc (LON:BBY), Hikma Pharma PLC (LON:HIK), Hochschild Mining PLC (LON:HOCH), Lookers PLC (LON:LOOK, CLS Holdings PLC (LON:CLI) , Riverstone Energy Limited (LON:RSE)
Economic data: UK CPI, RPI, PPI, HPI inflation; UK construction output; US retail sales; US industrial production; US Empire State manufacturing survey; US housing market index
Thursday August 16:
Trading update: Kingfisher PLC (Q2) (LON:KGF)
Ex-dividends: To knock 17.13 points off FTSE 100 index - Anglo-American PLC (LON:AAL), Ashtead Group PLC (LON:AHT), Aviva PLC (LON:AV.), Evraz plc (LON:EVR), HSBC PLC (LON:HSBA), Legal & General Group PLC (LON:LGEN), Lloyds Banking Group PLC (LON:LLOY), Pearson plc (LON:PSON), Reckitt Benckiser PLC (LON:RB.), Schroders PLC (LON:SDR), Segro PLC (LON:SGRO), Standard Life Aberdeen PLC (LON:SLA)
Economic data: UK retail sales; US weekly jobless claims; US housing starts; Philly Fed business outlook survey
Friday August 17:
Economic data: University of Michigan US consumer sentiment survey