Wednesday is a busy day for corporate announcements and given the market shake-out it could be a good day to bury bad news.
In the bad old days of “growth for growth’s sake”, mining giant Rio Tinto’s results might have fallen into that category but the last couple of years have seen a much greater emphasis on asset disposals and returning cash to shareholders, which led to the shares doubling from the start of 2016 to the end of 2017.
Rio Tinto announced US$8.2bn of returns to shareholders in 2017 and has committed to US$1.9bn of share repurchases in 2018; UBS thinks this figure could be lifted by US$2-3bn, especially when Rio receives the proceeds from disposals.
UBS expects Rio to maintain capital expenditure guidance at US$5.5bn for 2018 and US$6bn for 2019.
“We expect management to reiterate its focus on value over volume in iron ore, despite healthy commodity prices/margins and to maintain 330-340mln tonnes 2018 guidance,” the Swiss bank declared.
The market is expecting underlying earnings for 2017 of US$8.6bn; UBS has predicted operating cash flow for the second half of 2017 of US$13.3bn, up 58% year-on-year.
“All business units are forecast to be profit making and improve year-on-year,” UBS said.
Anxiety attack for Glaxo shareholders
If Rio Tinto is expected to carry on being generous to shareholders, despite an already generous yield, some market commentators expect drugs giant GlaxoSmithKline to think seriously about cutting the dividend to fund growth.
Nicholas Hyett, an equity analyst at Hargreaves Lansdown, thinks there is some justification for these fears.
Firstly, there are some “tantalising acquisition opportunities” out there at the moment with both Pfizer and Merck rumoured to be considering selling their consumer businesses, Hyett said.
Glaxo could do with some fresh revenue sources as it has been struggling with declining sales of the asthma treatment, Advair.
“All that means cash is at a premium, and it would be foolish to think the £3.9bn dividend hasn’t attracted a long hard look,” Hyett said.
“(New chief executive) Emma Walmsley’s first set of full-year results as CEO looks set to be an interesting one.”
Tullow Oil striving to balance debt reduction with value creation
For mid-cap energy explorer Tullow Oil plc (LON:TLW) the crude price and revenue generation will naturally be important, as will the group’s profit and cash flow metrics when it updates on Wednesday.
Investors will also be keen to get the latest measure on the group’s debt pile and will welcome commentary around the expected pace of debt repayment. Dovetailing into that will be news on Tullow’s growth initiatives and, therefore, its capital spending plans.
As ever, shareholders expect Tullow to walk the tightrope between debt repayment and value creation in the group’s asset portfolio (which contains a significant volume of undeveloped oil resources but also the potential for big development bills).
Thomas Martin, an analyst at Numis, described the broker’s disposition ahead of the results as “cautious” while highlighting that Tullow is priced at a 38% premium to the rest of the sector.
“Company progress has generally been in-line with expectations (Suriname exploration excepted); however, we have some reservations about the Kenya resource update expected in conjunction with the year-end results on 7th February 2018,” Martin said in a note.
A chance for Redrow to settle shareholders' nerves on the day the Halifax house prices report comes out
Shares in house-builder Redrow plc (LON:RDW) have fallen 7% in the year-to-date so the half-year report represents a chance to settle shareholders’ nerves.
City broker Liberum Capital thinks the share price slide has been caused by fears around earnings momentum, but its analysts argue that recent updates from Redrow’s peers suggest trends are stabilising in the new build sales market.
The broker has set its half-year volumes expectations for the mid-cap builder at 2,750 units, up 14% year-on-year, driven by increased outlet openings to 132, up from 122 a year earlier.
It has pencilled in £311,000 for the average selling price, which is 2.5% ahead of where it was last year, and predicts sales of £862mln and profit before tax of £163mln, both of which would represent an increase of around 16% on last year.
Significant announcements expected
Finals: GlaxoSmithKline plc (Q4) (LON:GSK), Tullow Oil plc (LON:TLW), Rio Tinto PLC (LON:RIO), Smurfit Kappa PLC (LON:SKG)
Interims: Redrow plc (LON:RDW)
Trading updates: Imperial Brands PLC (LON:IMB), Severn Trent PLC (LON:SVT), Grainger PLC (LON:GRI), Anglo Pacific PLC (LON:APF)
Economic data: Halifax UK house prices; US consumer credit