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Brexit a factor in easyJet update, while US/China trade wars could be a drag for Burberry

The Week Ahead will also bring trading updates from the likes of Vodafone, Anglo American, William Hill, Dixons Carphone, and WH Smith, plus the latest UK jobs and wages data

view from a jet airline
Aside from Brexit, the budget airline sector is also facing challenges from higher fuel costs, ongoing competition in the short-haul market

With the Brexit can kicked down the road until the end of the month, investors will be able to focus on another rash of blue-chip trading updates in the week ahead, plus the latest jobs and wages data to give a snapshot of the state of the UK economy.

However, the updates will undoubtedly still have a strong flavour of Brexit to them, particularly that due from budget airline easyJet PLC (LON:EZJ) on Tuesday.

The FTSE 100-listed firm’s profits jumped 41% last year as Ryanair cancellations and the collapse of Monarch and Air Berlin led to a record number of passenger numbers.  

But in 2019 the budget airline is facing sector-wide challenges of higher fuel costs, ongoing competition in the short-haul flight market and uncertainty surrounding the UK’s departure from the European Union in March.

In a note on the European airline sector, Barclays said 2019 looks set to be the “height of aviation demand uncertainty in recent years” as Brexit approaches. Weaker demand could put negative pressure on fares as airlines cut prices to entice customers, the bank said.

Barclays lowered its rating on easyJet to ‘underweight’ from ‘equal weight’ and cut its target price to 1,200p from 1,500p, saying it thinks the growth profile for the airlines “lacks some momentum in our view, not helped by difficult comparables and possible UK demand related risk”.

“With a network that is focused on primary constrained airports, organic growth opportunities are limited, and the incremental revenue associated with these premium slots is currently being offset with incremental costs given the level of delays and disruptions associated with operating with constrained infrastructure,” Barclays said.

The bank expects easyJet to report a 4% decline in first-quarter revenue per seat, reflecting the impact of adopting IFRS 15 accounting standards. “We expect a marginally better Q1 than Q2, given the impact of Easter, which drops out of Q2 and into Q3 this financial year,” the bank said.

Burberry sales growth expected to slow in third-quarter

If it isn’t Brexit, it is US/China trade war issues that have dominated market sentiment recently, and luxury goods firm Burberry Group PLC (LON:BRBY) is very exposed to sales in Asia and the US.

The blue-chip firm has been repositioning its brand to go more upmarket and the debut collection from new chief creative Riccardo Tisci in September was well received.

However, the full range of the new collection won’t be in stores until autumn so it will take some time see how well it feeds through to sales. 

The fashion label posts its third-quarter results on Wednesday and analysts at Deutsche Bank expect sales of £724mln, compared to £719mln a year ago.

In the second quarter, like-for-like retail sales grew 3% and Deutsche Bank expects “the trends to consolidate at around 2% for the rest of the year, with Europe underperforming Asia and the Americas”.

Deutsche Bank said weaker expected retail like-for-like growth in the second half of the financial year is “unsurprising” given the disruption from the company’s brand repositioning, which is expected to last for another two to three quarters.

Investors hoping for some reassurance from Vodafone

Elsewhere with the blue-chips, Vodafone PLC (LON:VOD) has seen its share price perform terribly since the end of 2017 and investors will want some of the fears to be allayed by management when the mobile phones giant issues a third-quarter trading update on Friday.

They will want to hear that competition in Italy and Spain has not become anymore fierce and that organic growth numbers still look reasonably good as the FTSE 100-listed firm’s broadband service expands.

As Vodafone’s new CEO Nick Read beds into his role, investors will also want to hear how progress is being made in making the organisation improve its commercial execution and how it is gearing up for a digital future.

 Last time around some assurances were given over Vodafone’s generous dividend, helping lift the share price unfortunately most of those gains have already been given up so far in the new year.

UBS expects Vodafone to re-iterate its full-year guidance organic growth in underlying earnings (EBITDA) of around 3%.

Gross inflows the focus for St James’s Place

FTSE 100-listed St James’ Place PLC (LON:STJ) has seen its shares underperform the market over the past six months due to concerns about prospects for global growth and some disappointment with the level of gross inflows reported by the wealth manger in its third quarter update in October.

That figure will therefore be much scrutinised when the firm issue its fourth quarter update on Thursday and investors will be interested to hear if the group’s CEO still believes the industry is facing a more challenging environment.

However, investors will probably have to wait until St James’s Place’s full final results in February to get more detail on other areas such as the performance of the Asian business. 

Gold, copper production bounce-back for Antofagasta

A pair of blue-chip miners will also provide production updates in the coming week.

Chile-focused Antofagasta PLC (LON:ANTO) has seen its shares struggle of late, tracking the downward trend of the copper price.

The widely-used metal has seen its price fall in recent months as demand dropped off – particularly from China, the world’s largest consumer of raw materials.

The FTSE 100-listed group has seen copper and production slump this year, largely as a result of lower grades.

But things have been improving of late - October’s update saw a 15% quarter-on-quarter rise in gold production, while copper production rose 43%.

Investors will want to see this trend continue, as well as confirmation that total capital expenditure came in at less than US$1bn last year.

Minas-Rio shutdown to affect Anglo American

Fellow FTSE 100-listed mining giant Anglo American PLC (LON:AAL) has weathered the Chinese storm much better, with its shares having jumped by more than a fifth since the start of September.

Despite a planned cut in production, its majority-owned De Beers diamond business is going great guns and sold US$540mln worth of rough diamonds in its tenth and final sales cycles of 2018 last month.

Anglo American has also had the recent boon of restarting operations at its Minas-Rio iron ore operation in Brazil after two leaks in a slurry pipeline forced it to shut earlier in 2018.

The shutdown dented copper equivalent production in the third quarter and given that things only restarted towards the end of December, a similar drop is expected in the final quarter.

Full year guidance key in Dixons Christmas trading update

Away from the blue-chips, retailers will feature again. FTSE 250-listed Dixons Carphone Plc (LON:DC.) had a challenging 2018 as weaker margins led to a slump in annual profits.

In the first half of the 2019 financial year, Dixons continued to struggle as it swung to a loss and slashed its interim dividend. Slowing mobile phone sales prompted the group to close around 92 stores over the period.

However, Dixons left its 2019 profit guidance unchanged, forecasting a pre-tax profit of £300mln, higher than last year’s profit of £289mln, on the back of a restructuring.

On Tuesday, Dixons will show how well it fared over the key Christmas period in a trading statement and investors will be paying particular attention to whether it can keep its annual guidance.

UBS expects the company to post flat like-for-like sales for the 10 weeks to January 5, down from 2% in the first half, due to a tough comparative year-ago period.

“Overall, the fact that FY PBT guidance was held at "around £300m" at the interims on 12 December suggested that there had been no adverse surprises in the Black Friday trading period,” the investment bank said.

“Within the breakdown we assume +1% for UK Electricals, driven by some strong promotional activity which we assume will be largely funded by long term planning with suppliers.

“Mobile faces a tougher comp (c+7% over peak last year), and this, plus the fact that some of the volume-related targets with the networks seem to have been toned down, suggests LFL could be in the -5% range.”

Travel likely to lift WH Smith once again

Seeing the recent high street trends, travel will probably dominate the trading update from books to newspapers chain WH Smith PLC (LON:SMWH) again on Wednesday.

Analysts at UBS are forecasting for like-for-like sales growth of 1% for the 20 week period, with a 3% rise in WH Smith’s travel business - which operates stores in airports and railways stations - to offset a decline of 2% for the high street arm.

UBS noted that the travel segment may have dipped, however,  due to some disruption in UK airports, while high street sales will likely be impacted by weak November footfall.

The retailer’s gross margins are expected to grow by 40 basis points, while no changes to its outlook are predicted.

UBS also said there could be an update on InMotion, the US-based airport accessories retailer that WH Smith acquired for US$198mln in October as part of a push to boost its international travel business.

In its original announcement the firm said the acquisition would be earnings per share accretive in the first full financial year after completion, so any deviation will be eyed.

Bookmaker-friendly results needed at William Hill

There is no need to bet to know that last year was a rough one for William Hill plc (LON:WMH), which saw its market value fall by almost half.

In November, the bookmaker slashed its profits forecasts for the next two years, blaming regulatory changes, tax hikes and “customer-friendly results”.

Back then, it said it expected to deliver an operating profit of between £225-245mln for 2018, but that relied on results evening out during the remaining few weeks.

It can do little about the three aforementioned issues, but investors have also been put off by the UK business’ failure to return to growth, while its US initiatives are yet to really gather pace.

As always, much will be made of William Hill’s outlook, but UBS isn’t expecting much, it reckons the core UK retail business will see a “sUBStantial contraction” in 2019 given the changes to tax and regulations.

Kraken wakes for Cairn Energy

On the oil front, issues around the Kraken field’s performance will be in focus as Cairn Energy PLC(LON:CNE) updates the market on Tuesday.

Cairn owns a 29.5% stake in Kraken, a large heavy oil project in the East Shetland basin, which in the first half of last year produced an average of 30,700 barrels of oil per day (gross) in the first half of 2018, and, was ramping up through the remainder of the year.

But, ongoing teething problems with the project’s ramp up were among the reasons for a recent broker downgrade of Kraken partner and operator EnQuest.

“System outages and equipment repairs on the Kraken FPSO continue to limit performance, which has led EnQuest to lower its production guidance for 2019,” RBC analysts said earlier this month. Gross Kraken production is now expected to be 30-35,000b/d, which includes DC4 contributions but is well below the previous guidance for total field plateau production of 50,000b/d and our annualised expectation of 40,000b/d.

“Although well testing is now complete at all 11 producing wells, we believe that given the revised production profile there is a risk of a reserves downgrade alongside FY18 results on 21st March

Production from the 20% owned Catcher field will also be an important factor in the group’s performance – output from Catcher was flagged at around 50,000 to 60,000 bopd at the half year point.

In terms of growth outlook, attention will be on the Nova and SNE development projects in Norway and Senegal respectively.

That said, a recent note, analysts at Exane BNP cautioned: “There may also be an M&A angle, but we are concerned on SNE’s (Senegal) ability to generate a premium M&A valuation given a more cautious oil price outlook and competition for capital elsewhere.”

IG Group revenues to fall as regulators turn up heat

Market volatility rules currently, but shareholders in spread-betting and contracts for difference (CFD) firm IG Group Holdings PLC (LON:IGG) will still be bracing for a revenue decline in its interims on Tuesday after a warning in December.

New regulations from the European Securities and Markets Authority, which banned the sale of binary options to retail investors from July and restricted the marketing of CFDs, have dented the group’s revenue stream as well as its client intake.

The firm has said it expects first-half revenues to drop 6% on the back of the regulatory pressure, with revenues in the UK and EU expected to slump 20%.

Computacenter looking to press reset after Q3 decline

Computacenter PLC (LON:CCC) will likely be aiming to provide some sort of reset in its pre-close trading update on Wednesday after its revenues dropped in the third quarter.

In October, the company blamed the 3% drop on “a significantly more challenging comparison", adding that the fourth quarter was expected to see “improved growth” but not to the levels seen in the first half.

Analysts at UBS said for the fourth quarter they are looking for Computacenter to report organic growth of around 10% to £1.4bn, above consensus forecasts of £1.3bn.

The Swiss bank added that while comparatives for the third quarter had been particularly challenging for the firm, they would ease off in the fourth quarter.

Investors will also be keeping an eye on any changes to the FTSE 250-listed firm’s full-year outlook after it was reaffirmed in October after an upgrade in July.

Wages remain key in UK labour market data

Away from the corporate whirl, aside from a likely dull European Central Bank monetary policy meeting, the latest UK labour market data will provide the main macro focus during the week.

With UK unemployment at already historic lows, it is difficult for economists for the time being to see it head any lower in the current Brexit environment.

However, as it seems more likely that we will avoid a no deal Brexit scenario there could be some hopes that in the near future for the unemployment rate to head lower then.

And with the latest data showing inflation slowly heading back to the Bank of England’s 2% target level there are hopes that wage growth will hold at around the 3.3% to lift real income for households.

Significant announcements expected for week ending 25 Jan:

Monday January 21

US markets closed for Martin Luther King Day

Trading updates: William Hill plc (LON:WMH)

Finals: Premier Veterinary Group PLC (LON:PVG)

AGMs: Avacta Group PLC (LON:AVCT)

Economic data: None scheduled

Tuesday January 22:

Trading updates: easyJet PLC (LON:EZJ), Dixons Carphone Plc (LON:DC.), Cairn Energy PLC (LON:CNE), Close Brothers Group PLC (LON:CBG), Midwich Group Plc (LON:MIDW)

Interims: IG Group Holdings PLC (LON:IGG), Accrol Group Holdings PLC (LON:ACRL)

Finals: Velocity Composites PLC (LON:VEL)

Economic data: UK unemployment, average earnings data; UK public sector finances; US existing home sales

Wednesday January 23:

Trading updates: Burberry PLC (LON:BRBY), WH Smith PLC (LON:SMWH), Antofagasta PLC (LON:ANTO), Computacenter PLC (LON:CCC), CYBG PLC (LON:CYBG), Great Portland Estates PLC (LON:GPOR), Fresnillo PLC (LON:FRES), Petropavlovsk PLC (LON:POG), Brewin Dolphin PLC (LON:BRW)

Finals: McCarthy & Stone PLC (LON:MCS)

Interims: Harwood Wealth Management Group PLC (LON:HW.)

Economic data: UK trade in goods data; CBI quarterly industrial trends survey; US house price index; Richmond Fed manufacturing index

Thursday January 24:

ECB monetary policy decision

Trading updates: St James’ Place PLC (LON:STJ), Anglo American PLC (LON:AAL), Fevertree PLC (LON:FEVR), Daily Mail & General Trust PLC (LON:DMGT), Kier PLC (LON:KIE), CMC Markets Group PLC (LON:CMCX), KAZ Minerals PLC (LON:KAZ), Restaurant Group PLC (LON:RTN)

Finals: Benchmark Holdings PLC (LON:BMH), Blue Prism Group plc (LON:PRSM)

Interims: Haynes Publishing Group PLC (LON:HYNS), NCC Group PLC (LON:NCC)

FTSE 100 ex-dividends: None

Economic data: US weekly jobless claims; US Markit flash composite PMI

Friday January 25:  

Trading updates: Vodafone PLC (LON:VOD), AG Barr PLC (LON:BAG)

AGMs: Regency Mines PLC (LON:RGM)

Economic data: CBI monthly distributive trades survey; US durable goods orders; US news home sales; University of Michigan final consumer sentiment index

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