Having increased targets last time it reported, margin improvements will be a key focus at the half year stage for blue chip drinks group Diageo plc (LON:DGE), with cost savings and productivity gains to attract the most attention.
Having said that, increased investment in the US and its Scotch brands could dent margins in these two important segments in the short term, so top line revenue growth will probably be a more useful measure of performance at the interims.
Analysts at UBS forecast Diageo’s first half margins to be up 37 basis points, with group organic underlying earnings (EBIT) growth seen at 4.9%.
They estimate that Diageo’s first half organic net sales will show 3.7% growth, driven by Africa (+7.0%) and LatAm & Caribbean (+5.4%).
One area of interest for investors, even if it’s unlikely to move the share price, will be the performance of the Casamigos super-premium tequila brand, which Diageo acquired for US$700mln last summer from Hollywood star George Clooney.
Demise of rivals plays well for easyJet
Shares in low-cost airline easyJet PLC (LON:EZJ) are up 15% over the last three months, in response to improving market conditions, with a boost Friday from an upgrade in rating by US investment bank Morgan Stanley.
The demise of Air Berlin and Monarch – the former now part of easyJet – has taken some capacity out of the market, but countering this the cost per seat (excluding fuel) at constant currency has been on the increase, rising 0.9% to £38.69 in the year to 30 September 2017.
Investors will therefore be looking for an update on the latter in the blue chip airline’s first quarter trading update, as well as further thoughts on the acquisition of Air Berlin and its airport slots.
The company is also said to be in the running to make a bid for Alitalia in conjunction with Air France, and might comment on this.
Revenue trends in the first quarter of the current financial year were said to have been encouraging, according to a paragraph in the company’s full year results statement.
Revenue per seat growth at constant currency in percentage terms in the first quarter is expected to be positive by low to mid-single digits and reflects a degree of short-term benefit as well as underlying improvement.
The company has previously said visibility for the second half of the financial year is very limited, so the market will be hoping that the skies have cleared a bit in this respect.
“Air Berlin slot costs are considerable, with £60mln of operating losses and £100mln of exceptionals in 2018E, on top of the purchase cost,” noted Liberum Capital Markets, which is bearish on the stock on the basis of negative free cash flow and rising gearing.
Dixons Carphone investors remain on hold
Things have gone pear-shaped in recent months for Dixons Carphone Plc (LON:DC.), one of the great survivors of the British High Street.
It’s not the old-fashioned white goods, electricals and extended warranties no one needs part of the business – the Dixons bit – that has upset the Apple-cart, but rather the mobile phones part, or the Carphone Warehouse bit, if you prefer.
The company has responded by shaking up the mobile business and switching Andrew Harrison from his role as deputy chief executive to his old role as boss of Carphone Warehouse.
Dixons Carphone’s mobile phone division has come under pressure as UK consumers have been holding onto their handsets for longer rather than updating to the latest releases as a weaker pound pushed prices higher and put a strain on household incomes.
On the plus side, the company had a record Black Friday; one of the interesting factors to look out for in the Christmas trading update is whether the splurge on Black Friday meant there was less money spent in the Boxing Day and New Year sales.
Either way, analysts are braced for slightly disappointing sales of the Apple 8 and Apple X iPhone. UBS’s own research suggests the iPhone X has proved more popular than the iPhone 8 but there have been stock shortages in Apple stores.
ASOS results should be as seen
Online fashion retailer ASOS plc (LON:ASC) has so far avoided the struggles facing its UK High Street rivals to deliver robust trading.
Consumers have been increasingly avoiding busy High Street stores to shop online, providing a boost to ASOS.
“The UK clothing retail sector may have a slightly better year in 2018, with less need for price increases; however, we still see market shares shifting towards the value retailers, disruption from the online channel shift which puts pressure on marginal profitability, and difficulties in maintaining price discipline,” said Deutsche Bank, which rates ASOS as a ‘buy’.
ASOS reports its first quarter trading update on Thursday and investors will be keen to see whether it has been able to once again shrug off a challenging retail market to achieve further sales growth.
In its full year results in October, the group said it expected 2018 sales will grow by 25-30% compared with its own medium-term guidance of 20-25%.
Revenues jumped 33% to £1.92bn in the year ended August, while pre-tax profit surged 145% to £80mln.
Sales not Brexit talk wanted from JD Wetherspoon
The next instalment of JD Wetherspoon PLC (LON:JDW) boss Tim Martin’s Brexit rants – A.K.A trading updates – is due on Wednesday.
The pUBS-operator-cum-Brexit-agitator is now well-known for his pro-Brexit stance and his criticism of European Union head honchos the CBI and ‘Remoaners’ among others.
One of those groups, if not all of them, is likely to get another bashing, although the progress made with talks just before Christmas might make him mellower.
Despite concerns over the health of the pub industry – rising costs, weak consumer environment, Brexit etc – ‘Spoons’ sales have held up pretty well.
They were up 6.1% on a like-for-like basis in the first quarter against strong comparatives and investors will be looking for that to have continued over the key Christmas and New Year period.
Financials ‘solid’ but takeover key for Sky
UK broadcaster Sky PLC (LON:SKY) is expected to deliver “solid financials” when it reports its first half results on Thursday, but investors will almost exclusively be focusing on any news surrounding the 21st Century Fox takeover offer.
The provisional findings from the Competition and Markets Authority are expected later this month, which should indicate whether or not the £11.7bn deal can go through.
Disney has thrown a bit of spanner into the works with its US$66bn offer to buy the entertainment assets of Fox, including the 39% Sky stake.
Fox can’t back out now though if it wins regulatory approval, so there’s the possibility that Disney could end up owning Sky if both deals are given the green light.
On to the interims and UBS is looking for organic revenue growth of 5% across the group to £6.79bn and 11% underlying growth in EBITDA to £1.12bn, with subscriber numbers rising in the UK and Germany but falling slightly in Italy.
Keep an eye out for any commentary on the next Premier League rights auction which is due to kick off in February.
Earnings and growth
With the latest UK inflation data showing a ticker low to 3% in December, providing some relief for Bank of England governor Mark Carney, the focus in the coming week will be on whether average earnings growth can start catching up.
The last UK labour market data showed workers average pay increased by 2.5% including bonuses and by 2.3% excluding bonuses, both of which were better than forecast, and economists will be hoping for more of the same.
Meanwhile, the UK unemployment rate is likely to remain at the 4.3% level seen for the three months to October, which was its joint lowest level since 1975 having been unchanged from the previous reading.
The first reading for UK GDP numbers in the final quarter of 2017 will also be key, with hopes for an improvement on the 0.4% growth seen in the third quarter, which gave a 1.5% year-on-year increase, in line with the previous quarter.
Significant events expected:
Monday January 22
Trading updates: Dixons Carphone Plc (LON:DC.), Computacenter PLC (LON:CCC), Goals Soccer Centres PLC (LON:GOAL, Mortgage Advice Bureau Holdings PLC (LON:MAB1), Revolution Bars Group PLC (LOON:RBG), Safestyle UK PLC (LON:SFE)
Interims: Accrol Group Holdings PLC (LON:ACRL)
Economic data: UK public sector finances; Chicago Fed national activity index
Tuesday January 23
Trading updates: easyJet PLC (LON:EZJ), Cairn Energy PLC (LON:CNE), Marston’s plc (LON:MARS), N Brown Group PLC (LON:BWNG), Paragon Group PLC (LON:PAG), Pets at Home PLC (LON:PETS), SSP Group PLC (LON:SSP)
Interims: IG Group PLC (LON:IGG)
Finals: Benchmark Holdings PLC (LON:BMK), Harwood Wealth Management Group PLC (LON:HW.), Lakehouse PLC (LON:LAKE), Velocity Composites PLC (LON:VEL)
Economic data: CBI industrial trends survey; Richmond Fed manufacturing index
Wednesday January 24:
Trading updates: JD Wetherspoon PLC (LON:JDW), WH Smith Group PLC (LON:SMWH), Fevertree Drinks PLC (LON:FEVR), Sage Group PLC (LON:SGE), Empresaria Group plc (LON:EMR), Hotel Chocolat PLC (LON:HOTC), Getbusy PLC (LON:GETB), STM Group Plc (LON:STM)
Finals: Crest Nicholson Holdings PLC (LON:CRST), Staffline PLC (LON:STAF)
Production reports: Fresnillo PLC (LON:FRES), Polymetal PLC (LON:POLY)
Economic data: UK unemployment, average earnings; US house price index
Thursday January 25:
Trading updates: ASOS plc (LON:ASC), Daily Mail & General PLC (LON:DMGT), Brewin Dolphin PLC (LON:BRW), CMC Markets Plc (LON:CMC), Countryside Properties PLC (LON:CSP). Close Brothers Group PLC (LON:CBG), Fuller Smith & Turner PLC (LON:FSTA), Greene King PLC (LON:GNK), Genel Energy PLC (LON:GENL), ITE Group PLC (LON:ITE), Kier PLC (LON:KIE), Restaurant Group PLC (LON:RTN), St James’ Place Capital PLC (LON:STJ)
Production reports: Anglo American PLC (LON:AAL), Antofagasta PLC (LON:ANTO), KAZ Minerals PLC (LON:KAZ)
Interims: Diageo plc (LON:DGE), Sky PLC (Q2) (LON:SKY), Renishaw PLC (LON:RSW), CPL Resources PLC (LON:CPS)
Finals: Blue Prism Group plc (LON:PRSM)
FTSE 100 ex-dividends: None
Economic data: ECB monetary policy meeting; US weekly jobless claims; US international trade in goods; US new home sales
Friday January 26:
Economic data: UK GDP; US GDP; US durable goods orders