As May moves on there are still few opportunities to sell and go away as the corporate diary remains pretty active, with updates due from a number of blue-chip firms including Royal Mail Group PLC (LON:RMG) and Marks & Spencer Group PLC (LON:MKS).
Aside from company news, investors also have to eye the economic diary, which brings the latest UK inflation and retail sales numbers, while the count-down to next month’s final parliamentary vote on Theresa May’s Brexit deal and the expected political fall-out will also keep the mood cautious.
And Thursday’s elections for the European Parliament, which UK citizens thought/hoped they would never have to vote in, will also provide some spice to the mix.
Royal Mail to deliver drop in full-year profits
Ahead of its full-year results on Wednesday, Royal Mail has already warned that profits could fall by as much as 28% as letter volumes continue to decline.
In a January trading update, the postal operator cut the upper end of its 2019 guidance range for adjusted operating profit before transformation costs to £500-£530mln from £500m-£550mln, down from last year’s profit of £694mln.
Royal Mail predicts letter volumes will drop by 7-8% in the year after the new General Data Protection Regulation (GPDR) – which aims to give individuals more control over their personal data – added pressure on the business as it meant less marketing material was sent in the post.
The group’s international business, Global Logistics Systems (GLS), and the UK parcel delivery arm have helped to offset falling letter volumes but it faces cost pressures in Europe and the US amid tough competition from Amazon.
Royal Mail has said it expects the rate of GLS volumes to slow in 2020 as it protects the margin by avoiding the temptation of lowering prices to fend off rivals.
The firm has also cautioned that addressed letter volume declines, excluding elections, in 2020 are “likely to be outside our forecast medium-term range”.
Investors will be looking at any changes to guidance for the year ahead and new chairman Keith Williams’ strategy to address the slowdown in parcel volumes and ongoing struggles in the letters arm.
M&S still struggling, despite Ocado deal
It had to pay a hefty price for its troubles - £750mln to be exact – but it does give the retailer access to the growing online market. It might even turn out to be cheap given the costs associated with going it alone.
Still, that deal hasn’t officially gone through yet, and even when it does, the full benefits won’t be realised for a good year or so.
Aside from that tie-up, it’s been a tough time for M&S, which has been reflected in its share price.
Its clothing and home division has struggled and not much change is expected there, but food sales will be eyed a little more closely, as this has been a stronger area in recent times.
Elsewhere, any further Information on the Ocado deal and the extensive restructuring will also be welcomed.
Grim reading expected from SSE finals
Energy distributors have had a tough time lately, a lot of which they cannot be blamed for – for example, the unusual weather patterns, increasing regulatory pressure on pricing, and political uncertainties - so Wednesday’s full-year results from SSE PLC (LON:SSE) should make for grim reading.
There has been a fair amount of restructuring within the FTSE 100-listed group, including the consolidation of its renewable assets.
Late last year there was the disappointment that the merger of SSE’s retail division with German firm Innogy had been scrapped, so investors will hope for further comment as to whether there are any other demerger plans for the business.
SSE’s management have already guided that full-year earnings will be at a new lower range of 64p to 69p per share, so failure to meet this figure or any threat to its dividend will see the firm’s share price reach new multi-year lows just like that of its peer and rival British Gas-owner Centrica Plc (LON:CNA).
On the Waterfront - Seven Trent and United Utilities to update
Switching to water, Severn Trent PLC (LON:SVT) and United Utilities Group PLC (LON:UU.) will both publish their final results this week, with shares in both having been diluted in recent weeks by rising political worries and tougher regulatory rulings.
John McDonnell, the Labour party’s shadow chancellor, confirmed last week that the next Labour government would aim to pay just book value to investors as part of its plans to renationalise England’s water companies. Book value of the 15 companies would be less than £15bn, compared to the compensation of £44bn estimated by the companies themselves, based on market value.
Moreover, water regulator Ofwat last month published its draft determinations for Severn Trent, United Utilities and fellow listed peer Pennon PLC (LON:PNN), setting out the prices the companies can charge over 2020-25.
In a recent note, Deutsche Bank said the “slightly more conservative” forecasts for allowed returns and outperformance led it to lower its equity return estimates by an average of 0.5%, although the prices could still change modestly if Ofwat revised its view.
In its preview of the upcoming trio of results, Deutsche Bank said they should feature “double digit earnings growth for each stock and could provide an opportunity for management teams to give a further update on their positioning for the next regulatory period” but “probably too early for the companies to outline new dividend policies”.
Severn Trent will report on Tuesday, with Deutsche pencilling in a 17% increase in pre-tax profit (PBT) to £376mln and a 16% increase in adjusted earnings per share (EPS) to 140.5p, with the dividend per share (DPS) up 8%.
United Utilities reports on Thursday, with a 22% increase in PBT predicted to £451mln, a 20% increase in adjusted EPS to 53.5p and a 2% DPS growth.
Testing times ahead for Intertek?
The FTSE 100-listed group, which acts as a ‘quality stamp’ for products in the healthcare, food and construction sectors, in March put out final results containing a whopping 39% increase in its year-end dividend as sales and pre-tax profit climbed 4.7% and 8.3% respectively on rising demand for its services.
In a preview, analysts at the Share Centre said the company has been “a steady performer for some years now and nothing too different is expected for the first quarter of the year”, apart from updates on the four acquisitions and investments it made in the period.
“As a company with testing laboratories at ports across the world, it will be interesting to see if the tariff feud between the US and China will lead to any comments by management regarding the impact on trade volumes or any additional expenses relating to administration,” they added.
Higher costs to dent Mitchells & Butlers’ half-year profit
Like-for-like sales were solid in the first quarter, climbing 2.2% despite the squeeze on consumer spend, although Peel Hunt expects them to have softened slightly in the following three months.
Staff costs have gone through the roof, as has the cost of food and drink, while business rates and taxes are also crippling those in the sector.
M&B has previously guided for a £60mln jump in costs this year, so keep an eye out to see if this is still the case.
In terms of the bottom line, City broker Peel Hunt has pencilled in a £3mln drop in profits to £76mln.
Can Halfords keep costs under control?
A profit warning back in January put the brakes on the full-year outlook for Halfords, so investors are already braced for a 13%-19% drop in pre-tax profits.
Its troubles weren’t helped by a mild winter, which meant people were buying fewer bits-and-bobs to weatherproof their cars.
Operating margins have also come under pressure as Halfords ploughs money into its stores, while trying to keep its process down. For every pound that customers spend, Halfords only makes 6.6p of profit.
“Plans to boost face-to-face services and keep prices competitive make sense, but we’d like to see underlying costs remain under control,” said Hargreaves Lansdown analyst George Salmon.
Second quarter recovery boost for Topps Tiles
The tile stores group, which reports its interims on Tuesday, revealed in an April trading update that like-for-like sales in the second quarter to March 31 rose 1.8% compared to last year when the ‘Beast from the East’ meant customers stayed indoors to avoid heavy snowfall and icy temperatures brought over to the UK from Siberia.
Sales were also helped by this year’s later timing of Easter, which is typically not helpful for retailers as the bank holidays reduce their number of trading days.
Topps Tiles expects to post revenue of £108.8mln for the first half, compared to £109.4mln last year, with like-for-like sales growth of 0.2% as a stronger second quarter offsets a weak start to the year.
Analysts at Peel Hunt have said the better-than-expected performance means first-half profits will likely beat current market estimates. The analysts estimate pre-tax profit of £7.9mln from Topps, up 10% year-on-year.
Will Mothercare nurse itself back to health?
In an April trading update for the fourth quarter, the group said it had achieved £19mln in annualised cost savings from closing stores. There are now just 80 stores in the UK, down from 137 last year.
While the store closures saved it money, the move hit sales in the year to the end of March 2019.
Total group sales fell 14.6% compared to a 1.9% decrease last year.
UK sales were down 15.4% in the year after a 4.8% rise in 2018 while like-for-like sales dropped 10.8% after a 1.3% dip.
Mothercare’s sales have come under pressure from competition from online retailers and supermarkets as well as a slowdown in consumer spending.
When the group reports its complete full-year results statement on Thursday, the focus will be on the progress of its turnaround plan.
Finals de-risked for TalkTalk following guidance cut
Broadband and telecoms provider TalkTalk Group PLC (LON:TALK) guided down full-year expectations with its third-quarter results at the start of February so the final numbers, due on Thursday, look to have been de-risked, according to analysts at Deutsche Bank.
The guidance cut reflected a higher-than-expected drag from IFRS15 accounting changes, more rapid migration of customers to fibre broadband, and the ongoing consolidation of FibreNation (FN) as it became clear that a joint venture deal for the business would not be signed before the year-end.
In a preview note, the German bank’s analysts said: “Though competition remains 'vibrant', this guidance reset should have de-risked the FY print and Q4 likely saw a slower rate of customer growth (i.e. lower customer acquisition costs).”
They also noted that recent press reports that at a formal process has commenced to fund FN to build fibre out to 3mln homes and reported private equity/infrastructure fund interest in fibre assets across Europe.
The analysts said this sees them increasingly optimistic that the project will go ahead, which would de-risk the prospect of ongoing losses and consolidation of FN’s capital expenditure, which they assume at £20mln in the current year.
They pointed out that just 2mln, or 7% of UK homes are passed by a full fibre network - FN before any finance deal passes around 30,000 and targets 100,000 - and though BT Group PLC’s (LON:BT.A) Openreach is accelerating deployment there is a considerable opportunity for other infrastructures to take meaningful share from Openreach, which currently controls 80% of UK broadband lines.
Britvic hopes for more fizz
The FTSE 250-listed maker of J20 and Tango soft drinks has seen its shares increase by around 19% since late-November when it delivered a 5% rise in full year revenue and profit despite a challenging year that saw the industry deal with CO2 shortages and the introduction of the sugar tax.
Investors will also be eyeing a potential start date for new finance boss Joanne Wilson, who is replacing former CFO Mathew Dunn who stood down in April to join online clothing retailer ASOS plc (LON:ASC).
Tate & Lyle’s strategy in focus as takeover rumours swirl
Food ingredients group Tate & Lyle PLC (LON:TATE) has seen its share price boosted recently amid rumours that the company could be a takeover target, however the group’s own strategy plan will likely be the main focus when it delivers its final results on Thursday.
There may also be interest in how increasing demand for healthier diets and lower sugar content in food could benefit the company further, while the performance in North America, its largest market, will continue to carry weight.
Provident Financial to update in shadow of hostile NSF bid
Subprime lender Provident Financial PLC (LON:PFG) is scheduled to report a first quarter trading update on Tuesday, although investors minds will probably be more concerned about the ongoing hostile takeover bid from smaller rival Non-Standard Finance PLC (LON:NSF), controlled by former Provvie boss John van Kuffeler.
NSF said on 15 May that it had received unconditional acceptances for its bid representing 53.53% of the FTSE 250 subprime lender’s share capital which, while a majority, was much lower than the 90% threshold needed to force out minority stakeholders and take complete control.
However, NSF has since lowered the threshold to 50% and is continuing an attempt to force through the takeover.
With this in mind, whether Tuesday’s update is good or bad could provide the push for some shareholders to either switch sides or stay put.
UK inflation decline expected to continue
On the macro front, economists are expecting the consumer price index to be well below the recent growth in average earnings at around 1.8% year-on-year in April, down from the previous month’s 1.9% rate, when the latest UK inflation numbers are released on Wednesday.
Falls in clothing and food prices should once again act to counter a rise in transportation costs as an increase in energy prices takes time to feed through the system.
Nonetheless, the rate of inflation is likely to stay below the Bank of England’s 2% target range and have little impact on the chances of a rate rise for the time being given the political uncertainty caused by Brexit.
Meanwhile the April UK retail sale numbers on Friday could once again be volatile, negatively impacted by the weather.
March’s year-on-year figures were surprisingly good but largely explained by the unusual weather patterns this time last year and by stocking up from fearful consumers ahead of Brexit.
Significant announcements expected for week ending May 24:
Monday May 20:
Economic data: US Chicago Fed national activity index
Tuesday May 21:
Finals: Severn Trent PLC (LON:SVT), Halfords Group PLC (LON:HFD), Homeserve PLC (LON:HSV), Bloomsbury Publishing PLC (LON:BMY), Assura PLC (LON:AGR), Big Yellow Group PLC (LON:BYG), Electrocomponents PLC (LON:ECM), EntertainmentOne PLC (LON:ETO), Immedia Group PLC (LON:IME), Scapa Group plc (LON:SCPA), First Derivatives PLC (LON:FDP), Warehouse REIT PLC (LON:WHR), Schroder Real Estate Investment Trust PLC (LON:SREI)
Interims: Topps Tiles Plc (LON:TPT), Cranswick plc (LON:CWK), Greencore Group PLC (LON:GNC), Shaftesbury PLC (LON:SHB), UDG Healthcare PLC (LON:UDG), Renew Holdings PLC (LON:RNWH), Premier Veterinary Group PLC (LON:PVG), Nexus Infrastructure PLC (LON:NEXS), Watkin Jones PLC (LON:WJG)
Economic data: CBI UK industrial trends survey; US existing home sales
Wednesday May 22:
Finals: Royal Mail Group PLC (LON:RMG), Marks & Spencer Group PLC (LON:MKS), SSE PLC (LON:SSE), Babcock International PLC (LON:BAB), Pets at Home PLC (LON:PETS), Great Portland Estates PLC (LON:GPOR), C&C Group PLC (LON:CCR), Intermediate Capital Group PLC (LON:ICP), HICL Infrastructure PLC (LON:HICL); Picton Property Income Ltd. (LON:PCTN)
Economic data: UK CPI, RPI, PPI; UK house price index; UK public sector finances
Thursday May 23:
Finals: United Utilities PLC (LON:UU.), TalkTalk Group PLC (LON:TALK), Tate & Lyle PLC (LON:TATE), QinetiQ PLC (LON:QQ.), Mediclinic International Plc (LON:MDC), Helical PLC (LON:HLCL), Paypoint PLC (LON:PAY), New River REIT PLC (LON:NRR)
Economic data: German IFO business climate index; US weekly jobless claims, US new home sales
Friday May 24:
Economic data: UK retail sales; CBI UK distributive trades survey; UK BBA mortgage lending figures; US durable goods orders