It will be pretty hectic in the coming week with a plethora of big blue-chip results, notably from the heavyweight oils, banks and drug sectors sandwiched between the UK Budget, Bank of England's 'Super Thursday' and the latest US jobs report.
Perhaps for the first time in a while, BP is being seen by investors as the preferred choice between the two UK-listed oil ‘super-majors’.
Last month, Morgan Stanley upgraded its stance for BP to ‘overweight’ whilst claiming there would be a new cycle of building for major oilers.
A new price target of 695p, upgraded from 680p, suggested some 27% upside to BP’s current price of 545.6p.
“BP has underperformed in recent months as investors have digested the BHP acquisition,” Morgan Stanley analysts said in their note.
“Yet, the company increasingly stands out amongst European majors, offering the highest dividend yield and underappreciated FCF growth prospects.”
Not so sure of Shell
‘Could do better’ was pretty much the City’s view of Shell’s most recent results, so naturally, the market will be anxious to see signs of improvement, or, indeed whether the financial performance has in fact worsened.
Unlike BP, in the summer, Morgan Stanley downgraded its rating for Shell to ‘neutral’, moving away from a previously positive stance.
“FCF and gearing are still set to improve but no longer in a differentiated manner,” Morgan Stanley analysts said at the time.
“Dividend growth is now lagging peers, and the buyback has started but at a lower than expected pace. We feel our overweight case is no longer supported.”
So, as the next set of figures loom the questions from shareholders are quite simple – how much cash are you generating and how much of it will be ours?
Banking results continue with HSBC, StanChart
Following quarterly updates from Lloyds Banking Group PLC (LON:LLOY), Royal Bank of Scotland Group PLC (LON:RBS) and Barclays PLC (LON:BARC), there are just two of the UK’s biggest banks left to publish their results.
The two lenders are both Asia-focused so a concern for investors is the risk of a further slowdown in China’s economy as the nation continues to bump heads with the US over trade.
UBS said the banks also face the “double headwind of reporting in US$ – where Sterling weakness is a drag – and the weakness seen across much of emerging markets driven it seems by higher US$ rates and concerns around liquidity availability and costs.”
Profit before tax is forecast to rise to US$5.64bn from US$5.44bn a year ago.
“Seasonality and more volatile capital markets and weaker EM FX rates should also have kept a lid on revenue growth,” UBS said, although it expects HSBC to report another strong year of credit quality.
UBS anticipates StanChart's third-quarter results showing weaker revenues with market volatility hurting wealth and corporate finance income.
It estimates revenue falling to US$3.68bn in the quarter from US$3.61bn last year and underlying pre-tax profit declining to US$900mln from US$1.04bn in 2017.
Drugs are working for Glaxo
On the drugs front, a strong showing from its Vaccines division last time out meant second-quarter results from GlaxoSmithKline plc (LON:GSK) were reasonably robust, and investors will be hoping for more of the same from the pharma group’s third-quarter results on Wednesday.
Vaccines division revenue rose by 16% in Q2 to US$1.3bn, as the launch of shingles jab Shingirx offset declining sales of Meningitis and flu vaccinations.
Shingirx will likely be carrying the team again this time out, according to George Salmon, equity analyst at Hargreaves Lansdown, with Glaxo having pinned their hopes on full-year revenue of £600mln-£650mln from the vaccine.
In a preview, Salmon said: “Investors should be keeping an eye on cost savings too. GSK is trying to lop £400mln off the cost base by 2021. The costs associated with this are set to be £1.7bn over the next three years - hopefully, those estimates stay flat.”
He added: “There’s high hopes for Consumer Healthcare too- it now accounts for 25% of sales, and has been bolstered by the $13bn buyout of Novartis’ 36.5% stake in the groups’ consumer joint venture.
“Skincare’s strong showing in Q2 ironed out less impressive growth elsewhere in the division, and next week’s results should tell us if it’s still plumping up revenue.”
UBS estimates Glaxo reporting third-quarter sales of £8.03bn, core operating profit of £2.40bn, and core earnings per share of 33.0p.
Takeda takeover looms for Shire
Fellow drugs blue-chip Shire Plc (LON:SHP) will announce its third-quarter numbers on Thursday with the main focus to be on anything that could potentially cause a negative shareholder vote on the firm’s takeover by Takeda of Japan.
However, analysts at UBS think it will be hard for the Shire results to provide much new news on that topic.
The Swiss bank’s analysts estimate Shire’s total product sales of US$3,693mln and non-GAAP operating income of US$1.358bn.
Restructuring continues at BT Group
We already knew the chief executive was on his way out and now we know when and who his successor will be following the news a week earlier that Patterson will hand over to Philip Jansen, the former boss of payments specialist, Worldpay hang around at the end of January
While Patterson would no doubt like to sign off on a relative high - before Jansen, in all probability, writes down the value next year of all the investments made on Patterson’s watch- the group only announced the results of its strategic review back in May, which does not leave a lot of time for Patterson to have achieved much.
The first quarter of the current fiscal year (i.e. April to June) saw adjusted profit before tax on an IFRS 15 accounting standards basis rise to £816mln from £791mln a year ago despite a fall in revenues.
The improvement came largely as a result of the company slashing costs as part of its restructuring; it would be no surprise were the new boss to swing the axe even harder next year, given that he is said to be a “corporate restructuring specialist”.
Consensus expectations are for second quarter revenues to fall by 2.4% to £5.786bn, with adjusted underlying earnings (EBITDA) down 2.3% to £1.769bn.
A dividend yield of 6.2% indicates quite clearly where the main appeal of the stock lies. The handsome dividend may be one area where the new boss will choose to “rebase” - a weasel word for “cut” - but Patterson has previously assured the City that the dividend is safe on his watch.
That being said, don’t look for anything more than the current pay-out being maintained.
Online again to lead the way for Next
As such, September’s trading update, in which Next lifted its central guidance for annual pre-tax profit by £10mln to £727mln, broadly in line with last year’s profit of £726.1mln, bodes well for the retailer.
Before investors get too carried away, however, Next said it is budgeting for lower growth rates in the second half of this year.
Once again, expect the online division to lead the way; the retailer is hoping to push through an 8% increase in average margins online to make up for the profit on a 5% loss of sales in the bricks and mortar business in the first half of the year.
UBS forecasts full price sales growth for Next Brand of 2% in the third quarter.
New broom to deliver at Smith & Nephew
Newish Smith & Nephew PLC (LON:SN.) boss Namal Nawana was bullish about the artificial hips and knees maker’s health a few weeks after taking the helm, and investors will hope the firm’s interims on Thursday will back this up.
Although there is a tendency for new management to “kitchen sink” results – throw in every write-down and exceptional charge available – investors will be hoping that at the very least Nawana will reiterate full-year guidance for underlying revenue growth of between 2-3%, with margins at or above the 19.6% it achieved last year. The consensus forecast is for Q3 organic sales growth of 2.7%.
The new boss has vowed to streamline the operating model to reduce complexity, cut costs and improve the commercial model to accelerate top-line growth.
HSBC, which recently downgraded the stock to ‘hold’, would like management to provide more clarity on these strategic steps, “whether they come with additional restructuring costs and how management is going to address soft performances in segments including Advanced Wound Care, bioactives and AET [Arthroscopic Enabling Technologies].”
Steady as she goes for Reckitt Benckiser
In a preview, Graham Spooner, investment research analyst at The Share Centre said investors will be hoping that previously improved guidance on Reckitt’s sales growth will be maintained
Spooner noted that the company produces a number of well-known brands, including Dettol and Nurofen, among products that are generally considered as everyday necessities in developed markets and sales of these products will not vary hugely through the economic cycle.
He added: “Other areas to concentrate on will be costs, emerging market sales, and the performance of its foot care brand Scholl and recent acquisition Mead Johnson.”
UBS forecasts Reckitt reporting +3.7% organic sales growth in the third quarter.
US is the word for Paddy Power Betfair
Shares in FTSE 100-listed betting firm Paddy Power Group PLC (LON:PPB) have struggled this year in common with most of the sector, due mainly to increased taxes in the UK and elsewhere.
There are rumours of further tax rises to come in the latest UK Budget on Monday, with the focus being on offshore gambling activities.
However, on a more positive note, the recent merger of Paddy Power Betfair’s US operations with fantasy sports group FanDuel has raised hopes of growth and any further update on that will be of interest.
Investors will be paying especially close attention to any full-year earnings guidance for the betting firm given that it was lowered in August to £460mln-£480mln.
Austerity relief in UK Budget
Away from the corporate whirl, Chancellor Philip Hammond will unveil his UK Budget on Monday with a key focus on whether he will usher in the "end of austerity" that the prime minister has promised to deliver.
The government has faced calls to raise spending for the public sector but with Brexit looming large it has had to tread cautiously.
However, the chancellor is understood to have received good news from the Office for Budget Responsibility (OBR), which cut borrowing forecasts until 2022.
The Financial Times said the OBR has underestimated the recent strength of personal tax receipts and corporation tax revenues, meaning the deficit will be cut by about £13bn for the 2018-19 financial year.
Some of the policies that are expected to be included in this year’s Budget include no rise in fuel duty for a ninth consecutive year, a tax crackdown on technology giants and getting rid of a loophole that allows private schools to avoid having to charge VAT because they are registered as charities.
Bank of England to hold steady
It will be another ‘Super Thursday’ for the Bank of England this week with the central bank set to announce its latest policy decision, post minutes from its Monetary Policy Committee (MPC) meeting and publish its latest Inflation Report.
Economists at RBC Capital expect the MPC to leave the UK bank rate unchanged at 0.75% in November, with a unanimous 9-0 vote anticipated again as in September, having hiked rates by 0.25% back in August.
They said while the recent better-than-expected domestic growth numbers and a strengthening in wage inflation will have to be factored in, these are likely to be offset by concerns over weaker global growth and stalling Brexit negotiations.
However, the RBC economists expect the policy message from the inflation report to continue to point to ‘gradual and limited’ policy tightening over the policy horizon with medium-term inflation projected to remain slightly above 2%.
US payrolls to end the week
The surprisingly weaker number of US jobs created during September did not at the time put much concern into the market as investors focused on the steadily improving rate of wage growth.
For October there is an expectation that jobs growth could bounce back closer to the 200,000 level, while hourly wage growth could hit above 3%.
If so, then even more focus and expectation will be on the Federal Reserve to increase the pace of monetary tightening., although currently unstable financial markets may not like that.
Significant announcements expected week ending November 2:
Monday October 29:
Trading update: HSBC PLC (Q3) (LON:HSBA)
Economic data: Nationwide house price index; US personal income and spending
Tuesday October 30:
Economic data: EU preliminary GDP; US S&P/Case-Shiller house price index
Wednesday October 31:
Economic data: UK GfK consumer confidence; US ADP employment change; US Chicago PMI
Thursday November 1:
Bank of England Policy meeting, inflation report
Economic data: UK manufacturing PMI report; US weekly jobless claims; US Challenger job cuts; US ISM manufacturing report; US construction spending
Friday November 2:
Economic data: UK construction PMI report; US non-farm payrolls, average earnings; US balance of trade; US factory orders