The end of a fairly busy week, particularly for data, will finish more quietly on Friday, with just the latest UK public sector finance numbers due for release after a week that saw inflation, average earnings, and retail sales growth all remain subdued.
Public sector net borrowing (excluding public sector banks) in the current financial year-to-date (April 2018 to May 2018) was £11.8 bn, £4.1bn less than in the same period in 2017, and the lowest April to May year-to-date net borrowing since 2007.
That downgrade trend in borrowing is expected to continue, but while the numbers are crucial for the UK government as it struggles to deliver a Brexit strategy, it should have little impact for the Bank of England’s monetary policy, with the rest of the week’s data having reduced expectations that a UK rate hike could be forthcoming at the central bank’s next meeting the week after next.
Sharp decline seen in Beazley profits
The corporate diary also looks fairly scant, with just a smattering of results and trading updates on the agenda.
Among them, Lloyds of London insurer Beazley PLC (LON:BZY) is expected to report a sharp decline in half-year results as investment losses and lower reserve releases pressure its earnings.
Analysts at Peel Hunt have pencilled in a 65% drop in first-half pre-tax profits to US$55mln, which includes US$54mln of unrealised investment losses, a function of negative mark-to-marking of the bond portfolio as interest rates rise.
They pointed out that Beazley’s adjusted pre-tax profit is a better reflection of underlying trends, which they forecast at US$112mln, down 10% year-on-year as the smoothing effect of reserve releases reduces following last year's catastrophe losses.
The analysts concluded: “Beazley's growth strategy will continue to support top-line growth together with positive rate increases (2%) and we see premium income rise 10%.
“Beazley is a good business and remains a consensus favorite; however, we believe a punchy valuation (P/TNAV 2.8x 2018E) is not supported by underlying 14-15% returns and a low basic yield (2.0%).”
Risk/reward key for Acacia Mining
On July 10, Barclays Capital upgraded its rating for Acacia Mining PLC (LON:ACAA) to ‘overweight’ as, following a collapse in the gold miner’s share price due to an export ban in Tanzania, the broker said it now sees an attractive risk/reward on offer, noting that the group's interim results - due today - could provide a catalyst.
An update from Acacia in July showed production fell sharply year-on-year as its row with the Tanzanian government over unpaid royalties continued to simmer. However, second quarter production was up slightly on the first three months of the year, while a rise in net cash was also encouraging.
The Tanzania government banned Acacia from exporting gold and copper concentrates last year, claiming it is owed royalties from Bulyanhulu and Buzwagi. In response, the miner cut back operations in the country and switched to producing gold bars.
Canadian mining giant Barrick, which owns 63.9% of Acacia, is still in talks with the Tanzanian government over a final settlement of the dispute, with negotiations having dragged on for more than a year, although Barclays believes they should be concluded soon which should be a key catalyst for a re-rating of Acacia.S
Significant events expected on Friday July 20:
Interims: Acacia Mining PLC (LON:ACAA), Beazley PLC (LON:BZY)
Trading updates: KCOM Group PLC (LON:KCOM), Record PLC (LON:REC)
Economic data: UK public sector finances; Baker-Hughes US rig count