Quality and quantity on the company news front, but Brexit vote, Fed rates, US jobs to be key

The cream of the corporate updates will likely come from blue-chips BT Group, Royal Mail, Royal Dutch Shell, Unilever and Diageo

New BT Boss Philip Janson
BT is expected to post weaker earnings and revenue as its new boss picks up from where Gavin Patterson left off

There will be another step-up in quality and quantity from the corporate updates in the coming week, with blue-chips such as BT Group PLC, Unilever plc (LON:ULVR), Royal Mail Group PLC (LON:RMG), Royal Dutch Shell PLC (LON:RDSA) and Diageo plc (LON:DGE) all on the City diary.

Aside from the company news, there should be another parliamentary vote on Theresa May’s amended Brexit plan B on Tuesday, while the first Federal Reserve policy meeting of 2019 arrives on Wednesday, followed by the January US payrolls report on Friday.

Spotlight on BT’s new boss

The main corporate focus should be on BT Group’s third-quarter update on Thursday, which is expected to bring weaker earnings and revenue as its new boss picks up from where Gavin Patterson left off.

Before standing down as chief executive and handing over the reins to former Worldpay boss Philip Janson, Patterson unveiled his strategy to improve BT’s performance.

That included axing 13,000 jobs and launching new consumer packages that combine broadband, mobile and pay-TV as a single service and bill.

He also merged BT’s business and public sector divisions with the wholesale and ventures arm to create BT Enterprise in a bid to streamline operations.

Deutsche Bank expects to see evidence that Patterson’s strategy is starting to bear fruit in the third quarter results.

The German bank expects the company to post a 6% year-on-year decline in earnings (EBITDA) to £1.8bn and a 1.7% decrease in revenue to £5.9bn in the third quarter, which is 0.6% above and 0.1% below company compiled consensus estimates, respectively.

The German investment bank said steps taken to lower BT’s cost base, including job cuts, closing the final salary pension scheme and moving out of the London headquarters in St Paul’s, offer a “silver lining of sorts from recent turmoil”.

Its biggest concern is how new boss Jansen grasps BT’s roll-out of superfast fibre broadband to homes and businesses, given the costs involved and competition it faces from rivals doing the same thing such as Talktalk Telecom Group (LON:TALK) and Vodafone Group PLC (LON:VOD).

First look at Unilever’s new boss

It’s also a new dawn over at Unilever, with Alan Jope taking over the reins as CEO from Paul Polman, who stepped down earlier this month following an unsuccessful bid to relocate the consumer goods giant to the Netherlands.

Despite shareholder uproar over the plans to move, Jope is taking over a well-groomed beast: a sticky customer base and improved margins mean Unilever is in good shape.

The new boss has already committed to the targets for sales growth and profit margin improvement set by his predecessor, so expect to see 3-5% growth in underlying sales in Thursday’s fourth-quarter update.

Third-quarter figures back in October showed some recovery in sales, while last month Unilever made a big move into the Asian market with the acquisition of GSK’s consumer nutrition business.

The move boosts Unilever’s footprint in India, and while it might be too early for details, any plans for the business are worth paying attention to.

Investors hope Royal Mail can deliver

There is also a fairly new boss at Royal Mail, which delivered a disappointing first half performance after missing its cost savings target and struggling with an ongoing decline in letter volumes.

Profit before tax fell to £33mln in the 26 weeks to September 23 from £77mln a year ago and revenue rose 1% to £4.93bn from £4.83bn last year as 9% growth in European business Global Logistics Systems (GLS) offset a 1% drop in the UK parcels, international and letters division (UKPIL). 

Analysts at UBS expect to see a similar trend when the postal operator reports its results for the nine months ended December 23 on Tuesday.

“We believe that 9-month trends will likely be similar to H1, with UK parcel volume and revenue +7% (H1: +6%) and UK letter volume -7 %, with revenue -5%,” UBS said.

“Given strong e-commerce growth over Christmas, the key question is whether costs and productivity developed in line with guidance.”

Royal Mail’s current guidance for the 2019 financial year is for adjusted group operating profit before transformation costs of £500-550mln. The consensus forecast is £509mln.

Oil price wobble to hit Shell

Easy paydays are over for the integrated oil majors, according to analysts at Deutsche Bank, so Royal Dutch Shell’s fourth-quarter update on Thursday is likely to paint a dull picture.

“Sharp commodity declines combined with a challenging downstream means the strong earnings and cash momentum apparent for much of the past two years should end this quarter,” said DB analyst Lucas Herrmann in a sector preview note.

However, the analyst added: “The scope for material working capital and derivative cash release at Shell may also calm emerging nerves on a seeming lack of 2019 flexibility.”

Separately, the Share Centre previewed Shell’s update saying: “The oil major has been reporting great numbers as average oil prices made steady progress since the lows of 2016.

“However, given the anticipation of higher supplies from shale and Iranian oil supplies not expecting to fall back as dramatically as previously expected, oil prices during the final quarter wobbled which will no doubt hit Shell's numbers.

“Investors though will still expect solid free cash flows and hope that gearing level shave down a little further.”

Diageo set for Chinese slowdown

But analysts expect a “solid” performance from drinks giant Diageo when it publishes half-year numbers, also on Thursday.

The Smirnoff and Baileys owner has seen revenues and profits rise of late as improving sales trends in higher-risk emerging markets and higher selling prices have worked their magic.

Diageo’s North American business takes care of itself, but there will be particular focus on the group’s performance in Asia, especially in China where the economy has started to stutter.

Any comments on India, which is as important as any market for the company, will also be of interest given that the company has taken full control of United Spirits.

Overall, investors will be keen to see if the company hits its target of mid-single digit organic net sales growth, while they will also want to see if the hefty cost-saving plan is starting to bear fruit.

Additional US$3bn buyback spied at Glencore

Staying with the blue-chips, miner and commodities trader Glencore PLC (LON:GLEN) has seen its shares tumble over the past year, largely due to a corruption investigation launched by the US Department of Justice over summer.

The political situation in the Democratic Republic of Congo has also hit the stock price. Allegations of huge fraud in last month’s general election have plagued the mineral-rich nation, where Glencore has two of the world’s largest cobalt mines.

Still, Deutsche Bank thinks there will be some good news round the corner for the mining giant in the near future, possibly as soon as soon as the upcoming fourth-quarter update.

“At the upcoming results we expect an increase to the existing buyback and forecast a further US$3bn in 2019 on top of the already announced US$2bn,” the German bank said a note to clients.

As for the other issues, Deutsche reckons the DRC political situation is “a potential catalyst and risk in the near term”, while it expects the DoJ investigation to hang over shares for some time yet. [Still], we believe the current discount (~30% vs peers) is too severe.”

Crest Nicholson braces for drop in profits

Moving down the market ladder, FTSE 250-listed housebuilder Crest Nicholson PLC (LON:CRST) won’t have much to celebrate in its final results on Tuesday after forecasting a drop in profits for the 12 months in October.

At the time, the firm said the usual pick up in sales volumes in the Autumn period had not been evident across September and October as many home buyers decided to put off purchases amid the political and economic uncertainty in the UK.

While investors will be on the look-out for any impact from new cost-cutting measures and slower build rates, any news of a new chief financial officer could also be welcomed seeing as Crest has been without once since October when incumbent Robert Allen stepped down amid the profit warning.

Analysts at Redburn have certainly not been feeling positive, downgrading Crest to ‘neutral’ from ‘buy’ on the grounds that it was “unlikely” the firm would reach its profit estimates for 2019 for between £170mln-£190mln.

“Consensus (£169m) believes in the low end of the range, but we are 10% below that, at £152mln” the analysts said, adding that it did appear Crest was “faring less well” than similarly priced peers such as Berkeley and Countryside Properties.

Fibre roll-out amid Stratford move eyed for TalkTalk

Broadband and telecoms provider TalkTalk will be hoping to post a better start to the second half on Friday as it reports third-quarter results.

The FTSE 250 group saw its first-half revenues dip in November mainly due to the decision to close its mobile virtual network operations in 2017.

Analysts at UBS are expecting “slight quarterly revenue growth” on the back of solid net adds performance and stabilisation of average revenue per user (ARPU).

Investors will also be looking for an update on the roll-out of the group’s fibre broadband company, FibreNation, which is aiming to compete with BT’s Openreach network.

Analysts at Deutsche Bank are upbeat about the roll-out, saying in a note that TalkTalk “has an opportunity to achieve favourable terms from any number of builders and wholesalers of [fibre to the home] infrastructure (including BT). After all, securing the two largest non-network aligned ISPs (i.e. Sky and TalkTalk), with a combined 40% retail share of UK broadband, would underpin the long-term returns of any fibre build project”.

Any updates on discussions with potential partners, notably the infrastructure equity investment arm of M&G Prudential, will be eyed.

Britvic hoping for new year fizz after strong 2018

Drinks maker Britvic will be looking for more of the same in a first-quarter trading statement on Thursday after it capped off its last fiscal year with a 5% rise in annual revenue and profit.

Given that the firm had to fend off not only a new sugar tax but also a shortage of CO2 in the summer, investors will be looking for a return to form with these headwinds now either absent or adapted to.

The update will come as the firm prepares to hold its annual general meeting on the same day.

Investors await 2019 guidance from SThree

Ahead of its 2018 results due on Monday, specialist recruitment firm SThree PLC (LON:STHR) has already told investors that profits would beat market expectations.

In a trading update last month, the company said it expects adjusted pre-tax profit for the year to be slightly ahead of the top end of the current market consensus forecast range of £49.0mln to £51.4mln.

SThree, which specialises in recruitment for the science, technology, engineering and mathematics (STEM) sectors, predicts gross profit will rise 12% to £320.9mln for the year following a strong final quarter.

In the fourth quarter, gross profit gained 12%, led by a 20% increase in Continental Europe. US gross profit rose 8% while the Asia Pacific and Middle East division grew 11%.

The UK and Ireland division, however, saw gross profit drop 5% in the quarter due to weaker business confidence amid Brexit uncertainty.

With the guidance for the 2018 financial year already known, investors are now awaiting the group’s 2019 estimates.

Investors will also be keen to hear if there have been any developments on finding a new chief executive to replace Gary Elden, who is standing down at the company’s annual meeting in April after six years at the helm. 

More declines seen for Renishaw

Mid-cap precision engineering group Renishaw PLC (LON:REW) will release its second-quarter results on Thursday, with Deutsche Bank expecting a sequential quarterly fall in profit, as has been the case in two of the last three years.

In a preview, the German bank’s analysts forecast Renishaw’s second-quarter group pre-tax profit falling to £28mln, down from £33mln in the first quarter, while the group’s revenue is seen declining to £127mln versus £154mln.

The Deutsche Bank analyst cut their full-year 2019 group pre-tax profit estimate to £142mln, 8% below the consensus forecast of £155mln.

They said this is based on weak capex trends across important end markets, such as semiconductor and relevant indicators, such as Japan machine tool orders, which have been negative year-on-year at an increasing rate in every month in the fourth quarter of 2019.

Capital Markets Day for Pennon

UK water utility Pennon Group plc (LON:PNN) will be among those getting investor attention on Wednesday as it pitches the City at its Capital Markets Day at the stock exchange.

As is typical, the company will release a statement to investors to coincide with the City shindig.

Most likely is that attention will be the regulatory cycle given that at the end of January comes OFWAT's business plan assessment.

“This offers both up and downside risk as OFWAT could command significant changes (negative) or very few (positive) to plans,” Morgan Stanley analysts said in a note earlier this month.

It was also noted by the analysts that the CMD may give “more confidence in the growth of the business.”

“Pennon has an attractive (and well-diversified) business mix, with its best-in-class returns in water and growth in waste,” they added.

“This diversification sets it apart from its UK water peers, with its growth in waste providing a key support to the dividend into the next cycle.

“Furthermore, that dividend yield beats peers (5.9% for 2020e, versus 5.5% UK Water average).”

Statement eyed from no change Fed meeting

Away from the churn of corporate trading updates, the coming week also brings the first US monetary policy decision of 2019, and the first set of US non-farm payrolls (NFP) data for the new year.

The Federal Reserve is widely expected to make no changes to their 2.25%-2.50% target range at the upcoming FOMC meeting, which concludes on Wednesday, following a hike in December.

Therefore, the accompanying statement and Jerome Powell’s press conference will garner all of the attention.

In a preview, economists at RBC Capital said: “Expect the statement to reflect this shift toward a more cautious/data dependent approach to further hikes.

“We think this narrative eventually also permeates the infamous dot plot (due at the March meeting), where the path of least resistance is lower.”

They added: “While the Fed likely stops short of removing all hikes from 2019, we would not be surprised if the median moved down to just one more 25bp increase, with no more moves beyond 2019.”

Slower growth for US jobs

Following on from the Fed meeting, the January US jobs report on Friday will give a snapshot of the economic situation during the current record US government shutdown, although furloughed employees are still be counted as employed.

Initial weekly jobless claims during the period were back near the all-time lows on a labor force adjusted basis, so the big hurdle for payroll growth will be a technical one, according to RBC’s economists.

They said: “Given that extremely robust month-ago print of 312k, we would be surprised if NFP did not print something closer to 150k in January. Anything north of that would be quite good given the tough sequential comp.”

The economists added: “With payroll growth running well ahead of the break-even rate (which is about 100k), we expect the unemployment rate will tick lower on the month.

“Indeed, the increase in December was on the heels of a sharp re-entrance into the labor force—something hard to repeat in the short term.”

Brexit Plan B

And last, but by no means least, Tuesday will bring the latest twist in the Brexit saga, with another parliamentary vote due on Theresa May’s Plan B, following Plan A’s rejection earlier this month.

The prime minister has vowed to seek changes from the European Commission to the Irish ‘backstop’ measures regarding the border between Northern Ireland and the Irish Republic after the UK leaves the EU.

May has also scrapped the £65 fee EU citizens were due to pay to secure the right to continue living in the UK after Brexit.

However, few other details about how her deal would be changed have emerged so far before next the latest vote.

Significant announcements expected for week ending Feb 1:

Monday January 28

Finals: SThree PLC (LON:STHR), Paragon Banking Group PLC (LON:PAG)

Interims: Sensyne Health PLC (LON:SENS)

Economic data: US durable goods orders; US new home sales

Tuesday January 29:

Trading updates: Royal Mail Group PLC (LON:RMG), Intermediate Capital PLC (LON:ICP), Domino’s Pizza PLC (LON:DOM), DP Poland Plc (LON:DPP), Greencore PLC (LON:GNC), Luceco PLC (LON:LUCE), UDG Healthcare PLC (LON:UDG), Intermediate Capital Group PLC (LON:ICP)

Interims: Hargreaves Lansdown PLC (LON:HL.), PZ Cussons PLC (LON:PZC), NWF Group plc (LON:NWF), Filtronic PLC (LON:FTC)

Finals: Crest Nicholson PLC (LON:CRST)

Economic data: US consumer confidence; US goods trade balance; US Case-Shiller house prices; US consumer confidence

Wednesday January 30:

Federal Reserve monetary policy decision

Capital Markets Day: Pennon Group plc (LON:PNN)

Trading updates: Wizz Air PLC (LON:WIZZ)

Finals: Low & Bonar PLC (LON:LWB), Staffline Group PLC (LON:STAF), Aukett Swanke Group PLC (LON:AUK)

Interims: Best of the Best plc (LON:BOTB), Hargreaves Services PLC (LON:HSP)

Economic data: UK BoE consumer credit, mortgage approvals; US ADP employment; US preliminary GDP; US pending home sales

Thursday January 31:

Trading updates: BT Group PLC (LON:BT.A), Royal Dutch Shell PLC (LON:RDSA), Britvic Plc (LON:BVIC), Dairy Crest PLC (LON:DCG), Evraz plc (LON:EVR), Polymetal International PLC (LON:POLY), 3i Group PLC (LON:III), IQR PLC (LON:IQE), DiscoverIE PLC (LON:DSCV), Ergomed PLC (LON:ERGO), Gattaca Plc (LON:GATC), PPHE Hotel Group PLC (LON:PPH)

Finals: Unilever plc (LON:ULVR), Primary Health Properties PLC (LON:PHP), Premier Oil PLC (LON:PMO), Redhall Group PLC (LON:RHL), Infrastrata PLC (LON:INFA)

Interims: Diageo plc (LON:DGE), Renishaw PLC (LON:RSW), Rank Group PLC (LON:RNK), ANGLE PLC (LON:AGL), Alumasc Group PLC (LON:ALU

FTSE 100 ex-dividends: None

Economic data: UK international trade in services data; CBI quarterly industrial trends survey; US weekly jobless claims; US Challenger job cuts; US personal income, consumption

Friday February 1:  

Trading update: Glencore PLC (LON:GLEN), Talktalk Telecom Group PLC (LON:TALK), Euromoney Institutional Investor PLC (LON:ERM), RPC Group PLC (LON:RPC)

Economic data: UK manufacturing PMI; UK international trade in services; US non-farm payrolls; US ISM manufacturing; US manufacturing PMI; US construction spending; US University of Michigan final consumer sentiment

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