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.
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.
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.
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.
Thursday May 10:
Finals: BT Group Plc (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;