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Rate hike unlikely from May Bank of England policy meeting after recent dull UK data

Aside from the latest Bank of England interest rate decision, the week ahead includes updates from Wm Morrison Supermarkets, Next, BT Group, ITV, and William Hill ...

BoE boss Mark Carney
Until recently some economists had expected a UK rate hike at this month's Bank of England MPC meeting

Until recently some economists had been expected that the May Bank of England Monetary Policy Committee meeting, due in the coming week, to sanction a hike in UK interest rates.

However, disappointing first-quarter UK GDP growth and weak April purchasing managers’ surveys, pointing to a limited pick-up in activity at the start of the second quarter, look to have laid to rest any prospects of a tightening.

In a preview of the rate decision on Thursday, Howard Archer, chief economic advisor to the EY ITEM Club, said: “We now expect the Bank of England to keep interest rates at 0.50% at the May MPC meeting, having previously expected a hike to 0.75%.

“However, this is likely to be a delay, rather than an abandonment, of the Bank of England’s plans to gradually normalise monetary policy.”

He added: “We expect the Bank of England to hike interest rates from 0.50% to 0.75% in August, this is on the assumption that the UK economy sees clear improvement over the coming months, despite the seemingly lacklustre start to the second quarter.”

Archer concluded: “This is likely to be the only interest rate hike in 2018 (we had previously expected two – in May and November). Although we are still forecasting two interest rate rises  in 2019.”

Mergers on the mind for Morrison’s

Wm Morrison Supermarkets PLC (LON:MRW) is likely to face questions over a possible deal between rivals J Sainsbury plc (LON:SBRY) and Walmart Inc (NYSE:WMT) owned Asda to merge when it reports its first quarter results on Thursday.

While Morrisons was crowned the fastest-growing supermarket in the latest industry data from Kantar Worldpanel, it remains the fourth largest in terms of market share behind Tesco PLC (LON:TSCO), Sainsbury’s and Asda.

A combined Sainsbury’s and Asda is expected to take over from Tesco as the leading supermarket and could weaken Morrisons position.

Exane BNP Paribas said it thinks Morrisons could face more competition if the UK mergers watchdog approves the deal, although it believes the firm “could be considered a consolation prize”.

The Sainsbury’s-Asda deal comes hot on the heels of Tesco’s acquisition of wholesaler Booker, leaving Morrisons on its own to address the challenges facing the so-called ‘big four’ supermarkets.

The ‘big four’ have been losing market share to discounters Aldi and Lidl and online rivals such as Amazon while UK consumer confidence has taken a hit since the Brexit vote.

Investors will be looking out for any remarks Morrisons makes on its strategy for tackling these issues in its quarterly update.

“The key measure to look out for will be like-for-like sales, where we’re hopeful Morrison can deliver another quarter of growth,” said George Salmon, equity analyst at Hargreaves Lansdown.

“However, we’re wary that the dreadful weather in early Spring may have impacted trading.”

Weather eye on Next

A cold wind has been blowing across the high street lately, and it wasn’t just caused by “The Beast from the East”, so hopes are not high that the latest trading update from clothing retailer Next Plc (LON:NXT) will please investors on Thursday.

Snow at the end of February prompted the FTSE 100-listed firm to temporarily close 60 shops and industry data suggests fashion firms have yet to make up lost business in April.

Having said that, JPMorgan noted that market research data from Kantar showed Next was only one of three retailers to show an improving trend in the 12 weeks to March 11.

The broker is predicting Next Brand sales were up 3% year-on-year in the first quarter.

Next’s management has already highlighted that the first quarter will be going up against soft comparatives for the year before and warned the market not to get too excited by like-for-like sales figures.

BT dividend cut ‘cannot be ruled out’

BT Group plc (LON:BT.A) is expected to update the market on its dividend policy, pension scheme and position with regulators when it unveils its full year earnings and new strategy on Thursday.

Analysts at Morgan Stanley think BT could lower its dividends to prioritise investment in overhauling the UK’s broadband infrastructure to improve internet speeds.

The pressure is on BT to follow through on its plans to connect fibre optic broadband into three million premises by the end of 2020 after regulator Ofcom eased wholesale price controls on the group’s network subsidiary Openreach to support the investment.

“We think investors will be gauging a number of issues including: (i) Whether the relationship with the regulator Ofcom is better than say 12-months ago; (ii) Outlook for the dividend policy which currently stands at ‘progressive’ meaning flat or up YoY; (iii) Confidence in the management team,” Morgan Stanley said in a preview.

The broker pointed out that BT’s new chairman Jan Du Plessis, who left Rio Tinto PLC (LON:RIO) to replace Mike Rake last November, is likely to focus on repairing relations with Ofcom as part of the group’s strategy.

“This could require a very visible demonstration that network investment should be prioritised ahead of shareholders and as such, a dividend cut in the future cannot be ruled out.”

Morgan Stanley also expects BT to publish the results of its triennial pension valuation in the strategy update.

The broker has forecast a pension deficit of £13bn, compared to consensus estimates of £10-12bn, and average top-up payments of £1.1bn per year for the next three years.

As for the financials, Morgan Stanley expects fourth quarter revenue to fall 1.1% to £6.05bn and underlying earnings (EBITDA) to increase 0.5% to £2.08bn.

Simple goal for ITV

With the FIFA World Cup kicking off in Russia in just over a month’s time, investors in commercial broadcaster ITV plc (LON:ITV) will be hoping for an advertising boost from the tournament.

The FTSE 100-listed firm will issue a first-quarter trading update on Thursday and the group is expected to show an improvement in ad revenues having seen full-year 2017 results, in February disappoint due to the impact of an uncertain economic environment for consumers.

The broadcaster reported a 5% decline in net advertising revenue (NAR) to £1.6bn at ITV Family – the division that includes its television channels – last year.

However, the company said it expects NAR to be positive in the first half, predicting first quarter growth of 1%, while the second quarter will include the benefit of its coverage of the World Cup, which begins in mid-June.

STV PLC (LON:STV) which holds the ITV1 franchise for most of Scotland, gave a trading update at its AGM at the end of April, and this seemed to imply that national advertising looks to be performing in line with what ITV said for Q1 and what the market expects for April and May.

However, analysts at Liberum Capital pointed out that that the abolition of penalty fees for late booking may reduce visibility on May trends.

Price mix seen negative for Imperial Brands

Cigarette manufacturer Imperial Brand PLC (LON:IMB) said in its AGM statement in February that said the group was on course to make full year revenue and profit guidance.

However, with delivery expected to be weighted towards the second half, the Lambert & Butler to Winston cigarettes firm’s half-year numbers - due on Wednesday - are unlikely to be impressive, according to analysts at Hargreaves Lansdown, especially given they’re expected to show some negative price/mix impacts.

A £160m hit to operating profit following the collapse of tobacco distributor Palmer & Harvey won’t help matters, the Hargreaves analysts’ added, although one area that will attract attention is the group’s efforts in Next Generation Products.

Imperial Brands has upped its investment in e-vapour and heated tobacco of late, with new product launches and entrances into new markets.

It’s a segment the FTSE 100-listed firm has arguably underinvested in previously, although given US rival Philip Morris’ recent trouble with its ‘heat-not-burn’ product, that could prove a sensible decision.

What’s for odds for William Hill

The annual general meeting of bookmaker William Hill plc (LON:WMH) should see shareholders break off from downing a few shandies to celebrate “a right result” in the recent fixed odds betting terminals inquest to listen to a trading update for the first four months of the year.

That period encompassed the “Beast from the East”, which led to a high level of racing fixture cancellations, which won’t have done the bookie any favours.

The bets-taker recently agreed to sell its Australian business as new gambling regulations there are expected to put a crimp on returns.

The UK, of course, remains the core of the business but the bookie is hopeful that regulations in the US will move in its favour.

Along with commentary on US aspirations, the trading statement may include an update on the company’s online offering, which after a long period of underperformance is starting to make up ground down the back straight.

Margins the focus for Barratt Developments

The latest trading update from housebuilder Barratt Developments PLC (LON:BDEV) comes on the same day that the Bank of England announces its decision on interest rates, and Barratt shareholders will be hoping that the BoE holds fire on a rise so that the house-building gravy train can continue to roll on.

The group’s first half results were solid, showing total completions up 2.0% year-on-year, while revenue rose 9.5%.

Some analysts have expressed concerns about the operating margin but this edged up to 17.9% in the second half of calendar 2017 from 17.8% a year earlier.

However, a weak housing market in London is likely to have thwarted the company’s efforts to grow the margin faster while the bitterly cold weather at the end of February/beginning of March may have temporarily depressed site visits from potential house buyers.

JD Wetherspoon to see slowing sales

FTSE 250 pub chain JD Wetherspoon PLC (LON:JDW) will also release a third-quarter trading update on Wednesday which will be watched to see if the company’s guidance from its interims in March is starting to reflect in actual performance.

Back then the group issued a cautious outlook expecting lower like-for-like (LFL) sales growth in the second half of the financial year.

In a preview, analysts at City broker Peel Hunt said they think that Wetherspoon’s third quarter sales will have slowed but would still be ahead of assumptions for the year-to-date.

“We expect to maintain our FY forecasts that assume 4.5% LFL sales (vs 6.1% in H1) and 40bps EBIT margin growth (vs +80bps in H1)” the broker said.

In addition to the financials, and in what has seemingly become tradition at this point, the latest round of possible Brexit chat from Wetherspoon’s chairman Tim Martin will also add some flavour.

Spending and expansion eyed at Greggs

A first-quarter trading update from FTSE 250-listed bakery chain Greggs plc (LON:GRG) on Wednesday will likely be watched for signs of a continuation of the group’s encouraging like-for-like (LFL) sales growth at the beginning of the year, which were up 3.2% in the days up to 24 February in its full-year results.

The company’s spending plans will also be eyed after  comments from chief executive Roger Whiteside with full-year 2017 numbers in February which said 2018 would be “the peak year for investment in our supply chain as we create the platforms for further growth.”

The Greggs boss also said the company was planning to open a record number of shops as it pushes its strategy to become the leading “food-on-the-go” brand in the UK.

TUI to retain full-year targets

Travel operator TUI AG (LON:TUI) will deliver its first-half results on Wednesday, and shareholders are expecting good results supported by strong demand for holidays in Greece, Turkey and Cyprus.

Analysts at Deutsche Bank expect the FTSE 100-listed firm to report revenues of €6.7bn driven by good performances at its cruises and hotels divisions, with seasonal underlying losses (LBITDA) of €166mln.

Last Easter had a negative impact for the travel firm, but the German bank’s analysts expect a less negative impact this year.

In February, TUI said turnover in the three months to 31 December 2017 rose to €3.5bn, up from €3.2bn in the same period a year earlier.

Online boost for SuperDry

A trading update from high street fashion retailer SuperDry PLC (LON:SPD) should provide decent reading on Thursday, although the boost is likely to come from online sales rather than bricks and mortar stores.

Analysts at JP Morgan pointed out that just over a quarter of firm’s revenue is generated online, and the group has a strong digital and social marketing strategies that, along with its omni-channel platform, “are real assets”.

Looking at the finances, the US bank’s analysts said they expect SuperDry’s return on capital employed to improve from 25% in fiscal 2017 to 30% by fiscal 2020 and free cash flow to more than triple to £77.7mln by then, leaving room for cash to be returned to shareholders.

Julian Dunkerton, one of the founders of Superdry, left the business on 31 March 2018 and donated around £1.16mln worth of company shares as a personal donation to the Blue Marine Charity creating a stock overhang at the firm.

Significant events expected:

Monday May 7:

UK BANK HOLIDAY

Interims: Kosmos Energy PLC (LON:KOS)

Economic data: US consumer credit

Tuesday May 8:

Trading update: William Hill plc (LON:WMH), Hiscox Limited (LON:HSX)

Interims: Cambria Automobiles (LON:CAMB), Treatt PLC (LON:TET)

Finals: Faron Pharmaceuticals Oy (LON:FARN), Horizon Discovery Group PLC (LON:HZD), IDE Group Holdings PLC (LON:IDE), Vertu Motors PLC (LON:VTU)

Economic data: US JOLTS jobs report

Wednesday May 9:

Interims: Imperial Brands PLC (LON:IMB), TUI AG (LON:TUI), Compass Group PLC (LON:CPG)

Finals: Deltex Medical PLC (LON:DEMG), Mirriad Advertising Plc (LON:MIRI)

Trading updates: JD Wetherspoon PLC (LON:JDW), Greggs plc (LON:GRG), G4S PLC (LON:GFS), IFG Group PLC (LON:IFP), Marshalls PLC (LON:MSLH), OneSavings Bank PLC (LON:OSB), Provident Financial PLC (LON:PFG), Renishaw PLC (LON:RSW)

Traffic numbers: International Airlines Group PLC (LON:IAG)

Economic data: US wholesale trade; US forward PPI

Thursday May 10:

Finals: BT Group plc (Q4) (LON:BT.), Stobart Group Ltd (LON:STOB)

Trading updates: Barratt Developments PLC (LON:BDEV), Next Plc (LON:NXT), Wm Morrison Supermarkets PLC (LON:MRW), ITV plc (LON:ITV), RSA Insurance Group PLC (LON:RSA), Coca Cola HBC PLC (LON:CCH), Superdry PLC (LON:SDRY), Derwent London PLC (LON:DLN), Hansard Global PLC (LON:HSD), SIG PLC (LON:SHI), Randgold Resources PLC (LON:RRS), Vesuvius Plc (LON:VSVS)

Interims: On The Beach Group PLC (LON:OTB), Arrow Global Group PLC (LON:ARW)

Ex-dividends: FTSE 100 – Admiral Group PLC (LON:ADM), BP PLC (LON:BP.), Centrica PLC (LON:CNA), GlaxoSmithKline plc (LON:GSK), Royal Dutch Shell PLC (LON:RDSA)

Economic data: RICS UK housing market data; UK trade data; UK construction output; UK index of production; US CPI; US weekly jobless;

Friday May 11:

Interims: Afrak Group PLC (LON:AFRK)

Economic data: US import, export prices; University of Michigan consumer sentiment index

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