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City set for unusually busy Friday with RBS leading the way

Alongside RBS, AstraZeneca, Just Eat, WPP and Pearson are all due to publish first-quarter trading updates on Friday

busy businessman
There'll be no rest for the wicked this Friday

Fridays in the City, especially after a sun-drenched bank holiday, tend to be quiet affairs, but not this week.

Several blue-chips are due up, but most interest will probably be on Royal Bank of Scotland Group PLC (LON:RBS), not least because of the resignation of its chief executive Ross McEwan on Thursday.

Away from the boardroom, the bank, which is still 62% owned by the UK taxpayer, looks finally to be back on track after drawing a line under legacy issues following its taxpayer bailout in 2008.

Last year it paid its first dividend since the 2008 financial crisis after a US$4.9bn settlement with the US Department of Justice over mortgage-backed securities. RBS paid an interim dividend of 2p per share and a final dividend of 7.5p per share.

Analysts at Deutsche Bank think RBS could return another £11bn to shareholders over the next three years.

At its full year results in February, RBS said it aimed to end 2019 with risk weighted assets of around £185bn–£190bn. It expects to incur £1.5bn in restructuring costs this year but plans to reduce operating expenditure by £300mln.

RBS said it remained “comfortable” with its 2020 target of a return on tangible equity of more than 12% but added that its goal for a cost to income ratio of less than 50% was “increasingly challenging for the business to achieve with the risk being to the downside”.

“This reflects the ongoing economic and political uncertainty and the additional ongoing costs associated with ring-fencing and Brexit,” it said.

Investors will be looking to see whether RBS is on track to meet its targets when it reports its first quarter results on Friday.

Investors want update on Just Eat’s search for new CEO

Another company on the lookout for a new boss is Just Eat PLC (LON:JE.) which is yet to appoint a replacement for Peter Plumb, who left at the beginning of the year.

The market will want more information on how the search is coming along in Friday’s first-quarter update.

The FTSE 100 company has been the dominant player in the online takeaway sector for years, but it has started to come under pressure from the deep-pocketed Uber Eats and Deliveroo of late.

To try to head off that threat, Just Eat has poured tens of millions into rolling out a delivery service. The extra investment meant Just Eat swung to a loss in 2017, but it paid off last year as it returned to profitability.

Last month, bosses guided for revenue of £1.0bn-£1.1bn and underlying earnings in the range of £185mln-£205mln this year, and investors will be hoping that guidance is repeated, if not upgraded.

Cash in focus at AstraZeneca

After years of declines, AstraZeneca PLC’s (LON:AZN) total revenues should return to growth this year.

In Friday’s first-quarter numbers, investors will want to see that this corner has been turned as expected.

Old drugs which have lost patent protection make up an ever-decreasing proportion of sales, and the growth is being driven by new cancer drugs, with Tagrisso the stand-out performer so far.

Contributions from newer additions such as Imfinzi and Lynparza should also pick up as they mature and new indications added.

Much of the market’s focus will be on cash, though. Even after the group’s recent bumper US$3.5bn fundraise, at US$19bn Astra’s debts remain substantial and the commitment to sustaining the dividend will only add pressure on the company to start converting revenues into cash.

North American account losses to weigh on WPP

Switching to media, blue-chip advertising giant WPP PLC (LON:WPP) is another due to issue a first quarter trading update on Friday.

Analysts at Liberum Capital forecast the company reporting a fall in Q1 organic net sales (or revenues less pass through costs) of -2.2%.

They see North America as the main driver of the declines, down an expected -9.5% year-on-year due to the loss of accounts including a large chunk of Ford.

The analysts added: “We don’t expect much new from the statement, either on FY performance or a possible partial sale of the Kantar business.”

They concluded: “At c. 9x FY19E adjusted PE and offering a 6.6% dividend yield, the shares are attractively valued but there probably needs to be signs of an improvement in Q2 performance to drive further momentum.”

More reassurance needed from Pearson

Investors will be hoping for more reassurance from publishing group Pearson PLC (LON:PSON), with the FTSE 100 firm’s full-year 2018 results released at the end of February proving mixed.

The company said then that it expects company-wide sales to stabilise this year before growing again in 2020 and beyond, as it reported in-line 2018 profit and a big fall in net debt, with analysts expecting the first quarter to show organic revenue growth of around 1%.

Earlier in February, Pearson had also announced a deal to sell its US K12 courseware business to Nexus Capital Management for US$250mln, a move continuing a shift in its focus from textbooks to digital education courses, so more news on this will be sought by the market.

In March, JPMorgan Cazenove upgraded its rating for Pearson to ‘overweight’ from ‘neutral’ after raising earnings estimates sharply on the back of stronger higher education growth and better operational gearing.

The US bank’s analysts said: “We expect top-line growth to accelerate from -1% in 2018 to +3% in 2022 driven by US Higher Education & structural growth activities that represent 36% of revenues.”

The US bank’s analysts raised their longer-term forecasts for Pearson’s underlying earnings (EBIT) by 25%-30% as a result of stronger higher education growth and better operational gearing.

Significant events expected on Friday April 26:      

Trading updates: Royal Bank of Scotland Group PLC (Q1) (LON:RBS), AstraZeneca PLC (Q1) (LON:AZN), Just Eat PLC (LON:JE.), Pearson PLC (LON:PSON), WPP PLC (LON:WPP), Rotork PLC (LON:ROR), Hastings PLC (LOH:HSTG)

Finals: EU Supply PLC (LON:EUSP)

AGMs: Capital Drilling Ltd. (LON:CAPD), Greencoat UK Wind PLC (LON:WIND)

Economic data: US preliminary GDP; University of Michigan final consumer sentiment index

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