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Housebuilders to take centre stage again after Persimmon boss drama

The week ahead includes trading updates from Bovis Homes and Taylor Wimpey, full year results from McCarthy & Stone, interims from Royal Mail, Vodafone and Premier Foods along with a batch of UK data
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Bovis Homes, Taylor Wimpey and McCarthy & Stone are set to publish updates

The housing sector is set to remain in the spotlight after eventful week that saw Persimmon PLC (LON:PSN) ask its boss Jeff Fairburn to leave following a backlash over his £75mln bonus.

Since Fairburn was promoted to chief executive of Persimmon in 2013, the housebuilder said its market capitalisation has risen from £3.4bn to £7.5bn and the company has returned more than £2.2bn to shareholders.

Yet, his pay award was considered "grossly excessive" by shareholders while it could be argued that much of Persimmon’s success can be put down to the fact that low interest rate and government schemes such as Help to Buy, Buy-to-Let and the Lifetime ISA have been a huge boon for housebuilders in recent years.

The measures should continue to help the likes of Taylor Wimpey PLC (LON:TW.) and Bovis Homes Group PLC (LON:BVS), although they won’t last forever.

Chancellor Philip Hammond said in last week’s Budget that Help to Buy will end in 2023, so investors will want to see both companies building some strong foundations while the sun is shining.

For any housebuilder, there are three main issues: how many houses can you build? At what cost? And how much can you sell them for? The first two in particular will be a key focus for investors.

Housebuilders are also having to contend with a slowdown in the market. The latest data from Halifax showed annual house price growth fell to its lowest rate in more than five years in October while a survey by Royal Institution of Chartered Surveyors predicted prices will fall in the next three months amid Brexit uncertainty.

Taylor Wimpey and Bovis Homes tackle rising costs

Taylor Wimpey, which will update the market on Tuesday, has previously said costs would rise by no more than 3-4% over the year. Given that higher labour spending earlier this year contributed to a 1.8% decline in operating profits, it’s an important target to hit.

Rival Bovis, due to release its third-quarter update on Thursday, has been dealing with costs much better. That helped to boost first-half profits, leading bosses to claim that full-year earnings would be at the top end of expectations.

The dodgy weather in the first half of the year held back TW’s completions in the first half of the year. It wasn’t a terrible effort by any means, but Bovis once again showed up its peer, building more in the opening six months of 2018 than it did in the same period of last year.

Analysts will want to see TW’s numbers rebound in the second half, while for Bovis, it will be: ‘More of the same, please’.

McCarthy & Stone transformation strategy in focus

The environment is slightly different for retirement housebuilder McCarthy & Stone PLC (LON:MCS) which will publish its full-year results on Tuesday. 
 
New chief executive John Tonkiss conceded in an update back in September that it had been a “tough” year for his company, which hasn’t benefitted from any government support like Help to Buy.
 
From that update, the market already knows what the numbers are likely to be: revenue up slightly of £670mln, but operating profits down to between £65-73mln from almost £100mln last year.
 
Attention, therefore, is likely to be on its recently announced business transformation strategy, which will see margins prioritised over growth.
 
Through the programme, McCarthy also expects to save £90mln over the next couple of years.
As with any housebuilder, the forward order book, which was looking healthy back in September, will also be eyed as an indication of what to expect in the coming year.

Profit warning and management changes to overshadow Royal Mail interims

Away from housebuilders, Royal Mail Group PLC (LON:RMG) reports its interims on Thursday.

The postal operator issued a profit warning in an unscheduled trading update last month so is unlikely to have any surprises up its sleeve for the first half results.

The company expects full year operating profit before transformation costs of between £500mln and £550mln, well below the £694mln posted last year, after a 7% decline in first-half letters volumes. 

Letter volumes were dragged lower by challenging trading conditions and lower marketing mail following the introduction of GDPR rules.

The group has also lowered its cost savings estimate to £100mln from the £230mln previously forecast, after a disappointing UK productivity performance. 

This month the company announced that Sue Whalley, the head of the Post & Parcels UK arm, has stepped down from its board with immediate effect. Chief executive Rico Back will assume direct commercial responsibility for the business.

The recent profit warning and the management changes are expected to overshadow the company’s first half results and investors will be searching for further details on the group’s plans to turn around the business.

UBS expects first half revenue of £4.9bn, adjusted earnings (EBIT) of £92mln and an interim dividend per share of 8.0p.

“After the profit warning we expect to hear more about how the company will improve labour productivity (only c+0.1% in H1), as well as developments in the letter and parcel market, particularly around the impact of GDPR on advertising mail volumes,” UBS said.

Investors seeking reassurance from Vodafone

Vodafone PLC (LON:VOD) has seen a disappointing share price performance recently, with sentiment impacted by a slowdown in Europe, EU regulation on roaming charges, UK handset financing and lower service revenues out of its Indian operations.

Investors will therefore be seeking reassurances that these issues are being contained when the FTSE 100-listed mobile telecoms firm’s new management team, led by CEO Nick Read, release its interim results on Tuesday.

Graham Spooner, investment research analyst at The Share Centre thinks the market will want to know that the integration of Vodafone’s broadband acquisitions in Europe are going well and that data demand growth and emerging market growth continues at a rapid pace.

In a recent note, analysts at JP Morgan Cazenove cut their target price for Vodafone to 240p from 255p amid concerns over the sustainability of its dividend and the growth outlook.

The analysts said they believed the company’s fortunes now rested on its ability to cut costs rather than in top-line growth.

Solid interims hoped for from Experian

Shore Capital expects Experian PLC (LON:EXPN) to report strong interim results on Tuesday, following on from July’s first quarter trading update which confirmed a positive start to the year with group organic growth then running at around 8%.

The City broker’s analysts expect new product and service launches to be continuing to drive the FTSE 100-listed data services specialist’s organic development, leveraging industry secular growth in data.

Regionally, they added, North America is likely to continue to lead growth at around 10% for the first half, led by core business data, while the UK & Ireland is still generating modest growth, weighed by the restructuring of Experian’s Consumer services business.

The analysts noted that the results will be the first set based on the revised divisional reporting structure on an IFRS15 basis, so they don’t have a full comparative to last year, but they think the reported revenue increase should be a good guide to like-for-like performance.

Shore Capital forecasts Experian’s first half revenues rising by 6% to US$2.33bn, with adjusted underlying earnings (EBITA) up 9% to US$648mln, and their interim dividend expectation is for around a 5% increase to 14.0 US cents.

Meanwhile UK retail sales growth during the summer months remained relatively robust, despite the gloom pervading the high street, partly helped by the extremes of weather earlier on during the year, the football World Cup, a royal wedding and the continued growth of online sales.

For October, the consensus view is for retail growth to remain relatively strong at around 3.6%, a good increase on September’s 3.0% increase, when the figures are released on Thursday.

Land Securities and British Land tackle challenging market conditions 

Ahead of half-year results from British Land and Land Securities, analysts at Barclays said they were more pessimistic on the UK retail real estate sector.

Barclays moved British Land’s rating down to ‘equal-weight’ from ‘overweight’, cutting its target price to 580p from 730p. The bank also reduced its target price for Land Securities to 790p from 910p and reiterated an ‘underweight’ stance.

It said transaction markets have dried up, tenant failures have increased and valuation declines were evident.

“We believe the various structural issues - online sales, tenant failures, shortening average lease lengths - support our thesis for a prolonged period of reducing rents, yield expansion and retail asset valuation declines,” Barclays said.

“Not all retail is equal and the impact will be more acutely felt in low-yield, high-rent assets. We believe the extent of these declines is underappreciated in the market, as consensus still expects flat or increasing NAV for the companies discussed in this report.”

Land Securities posts its first half results on Tuesday followed by British Land on Wednesday.    

In May Land Securities swung to a full year pre-tax loss of £251mln from a profit of £112mln last year, reflecting the costs of a major refinancing and a stagnant London office market and the retail sector stagnate.

In contrast, British Land posted an annual pre-tax profit of £501mln, up from £195mln a year earlier, and revenue increased to £639mln from £589mln, supported by the company’s strategy of targeting high quality destination shopping centres and mixed use London campuses.

DCC continues M&A frenzy

DCC Plc (LON:DCC) reports its first-half results on Tuesday in the wake of buying musical instruments distributor Jam Group and raising more than £600mln through a share placing.

The oil distribution, tech and health and beauty products conglomerate committed £690mln for merger and acquisitions in the 2018 financial year and £270mln in the year to date for 2019.

“After the September acquisition of Canada-based Jam Group for £130mln and an equity raise which resulted in proceeds of £600mln, DCC now has £800-900mln of firepower for M&A,” UBS said.

 “While DCC’s larger acquisitions are typically lumpy and unpredictable, after their entry into the US earlier this year we could start to see some smaller bolt-on deals announced alongside results.”

UBS estimates earnings of £127.6mln for the first half with growth across all segments

Premier Foods issues first post-revolt results

The chief executive of Bisto-maker Premier Foods PLC (LON:PFD), Gavin Darby, may be a little anxious as the firm releases its half year results on Tuesday having narrowly survived a shareholder revolt at its AGM in July.

Dissatisfaction has been growing ever since Premier rejected a 65p a share offer from US food giant McCormick back in 2016.

A solid first quarter trading update issued just before the AGM however showed sales rising 1.7% year-on-year, a trend investors (and Darby) will be hoping has continued.

Gloomy forecast for Flybe

A trading update in October will have left investors with little positivity ahead of Flybe Group PLC’s (LON:FLYB) interims on Wednesday.

Last month the budget airline warned that slowing demand for its domestic and near-continent flights will dent full-year earnings, sending shares into a nosedive.

Despite an encouraging first half, the group said it has been struggling to fill planes over the last month, a trend expected to continue into the second half.

Potentially morbid outlook for Dignity

The impact of a funeral costs price war triggered by the Co-op in September will be on the minds of shareholders in Dignity PLC (LON:DTY) when it reports a trading update on Monday.

The Co-op, the largest provider of funerals in the UK, said it would reduce the cost of its “simple” funeral by £100, to £1,895, plus burial and cremation fees to minimise the financial hardship felt by people after a bereavement.

At the time, Dignity’s shares dropped around 6%, and with an ongoing CMA investigation into the cost of funerals, any changes in outlook will be closely watched.

UK wage inflation outstripping CPI

It will be a big week for UK data, with inflation, average earnings, unemployment and retail sales numbers all due over the five days.

First up will be the latest labour market report on Tuesday, with Helal Miah, investment research analyst at The Share Centre believing it is probable that the unemployment rate will have stayed at a lowly 4%, the same as the previous three months, despite the relatively slow pace of UK economic growth. 

More interest, however, will be paid to the rate of earnings growth, he added,  which in the previous month rose above 3%, as another increase could almost certainly raise the Bank of England Monetary Policy Committee’s view that wage, and therefore consumer inflation pressures could build in the economy. 

To that end, Wednesday’s consumer price inflation numbers for October will also be very closely eyed, especially after September’s annual inflation rate eased back to 2.4%, down from 2.7% in the previous month as price increases from food, transport and leisure activities slowed.

The Share Centre’s Miah said investors will want to see the CPI rate heading even closer to the BoE’s target rate of 2%, but he thinks this may be too much to ask in such a short period, especially given the stronger wage growth and the impact of higher oil prices in the summer months are still feeding through the system.

Meanwhile UK retail sales growth during the summer months remained relatively robust, despite the gloom pervading the high street, partly helped by the extremes of weather earlier on during the year, the football World Cup, a royal wedding and the continued growth of online sales.

For October, the consensus view is for retail growth to remain relatively strong at around 3.6%, a good increase on September’s 3.0% increase, when the figures are released on Thursday.

Significant announcements expected in the week:

Monday November 12:

Trading update: Dignity PLC (LON:DTY), Playtech PLC (LON:PTEC)

Finals: Carr’s Group PLC (LON:CARR)

Interims: James Cropper plc (LON:CRPR), Mckay Securities PLC (LON:MCKS), Warehouse REIT PLC (LON:WHR)

Economic data: US consumer inflation expectations

Tuesday November 13:

Interims: Vodafone PLC (LON:VOD), Land Securities PLC (LON:LAND), DCC Plc (LON:DCC), Experian PLC (LON:EXPN), FirstGroup PLC (LON:FGP), Premier Foods PLC (LON:PFD), BTG PLC (LON:BTG), Carclo PLC (LON:CAR), Codemasters Group Holdings PLC (LON:CDM), Adept Technology Group PLC (LON:ADT), Oxford Instruments PLC (LON:OXIG), Castings PLC (LON:CGS), Schroder Real Estate investment Trust PLC (LON:SREI)

Finals: McCarthy & Stone PLC (LON:MCS), Orchard Funding Group PLC (LON:ORCH)

Trading updates: Taylor Wimpey PLC (LON:TW.), Aggreko PLC (LON:AGK), TT Electronics PLC (LON:TTG), Vitec PLC (LON:VTC), Charter Court Financial Services Group PLC (LON:CCFS), JPJ Group PLC (Q3) (LON:JPJ)

Economic data: UK unemployment, average earnings; US NFIB business optimism index

Wednesday November 14:

Interims: British Land PLC (LON:BLND), SSE plc (LON:SSE), Flybe Group PLC (LON:FLYB), Speedy Hire Plc (LON:SDY), Renold plc (LON:RNO), Workspace Group plc (LON:WKP)

Finals: Avon Rubber PLC (LON:AVON), AB Dynamics plc (LON:ABDP), Grainger PLC (LON:GRI)

Trading update: Cobham PLC (LON:COB), Solgold PLC (Q1) (LON:SOLG)

AGMs: Seeing Machines Ltd. (LON:SEE)

Economic data: UK CPI, PPI, HPI inflation; UK construction output; US CPI inflation

Thursday November 15:

Interims: Royal Mail Group PLC (LON:RMG), Mediclinic International Plc (LON:MDC), Dart Group PLC (LON:DTG), Norcros PLC (LON:NXR), Urban Logisitics REIT PLC (LON:SHED)

Trading updates: Bovis Homes Group PLC (LON:BVS), Close Brothers Group PLC (LON:CBG), Safestore Holdings PLC (LON:SAFE)

AGMs: Avation PLC (LON:AVAP)

Ex-dividends to chop 16.2 points off FTSE 100 index: J Sainsbury plc (LON:SBRY), Marks & Spencer Group PLC (LON:MKS), Royal Dutch Shell PLC A and B shares (LON:RDSA) (LON:RDSB), GlaxoSmithKline PLC (LON:GSK), Bunzl PLC (LON:BNZL), Scottish Mortgage Investment Trust PLC (LON:SMT)

Economic data: UK retail sales; US weekly jobless claims; US retail sales, US import/export prices; Philly Fed manufacturing index; Empire State manufacturing index

Friday November 16:

Interims: Afrarak Group PLC (Q3) (LON:AFRK)

Trading update: Regional REIT PLC (LON:RGL)

Economic data: US industrial, manufacturing production


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