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Inflation figures to lead macro news on Wednesday, Royal Mail braces for full year figures

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

Inflation
The rate of inflation is likely to stay below the Bank of England’s 2% target range

Inflation figures will be taking the lead role in the macroeconomic news on Wednesday, while Royal Mail is scheduled to lead a group of blue-chip results including M&S and SSE.

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.

Royal Mail to deliver drop in full-year profits

Ahead of its full-year results, 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

The big news from Marks & Spencer (LON:MKS) recently is that it’s taking a 50% stake in Ocado Group plc’s (LON:OCDO) retail business.

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 in its full year results, as this has been a stronger area in recent times.

UBS analysts are expecting M&S to report a pre-tax profit of £520mln for the year, in line with consensus estimates, while the like-for-like sales for the clothing division are predicted to have fallen 1.5%.

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).

Deutsche Bank’s analysts have already started to stick the knife in, forecasting a “sharp drop” in profits and predicting that the company’s EPS will be at 67.4p per share, around the middle of its newly lowered range.

Britvic hopes for more fizz

Britvic Plc (LON:BVIC) will be hoping to add some more fizz at its interim results on Wednesday.

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.

Analysts at UBS are expecting the firm to report organic net sales growth of 6.4% with net revenue of £774mln. Deutsche Bank, meanwhile, is expecting continued strong performance from the company’s UK stills division as well as in the Brazil and International segments.

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).

Significant announcements expected for 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)

Interims: Britvic Plc (LON:BVIC), IXICO PLC (LON:IXI), Paragon Banking Group PLC (LON:PAG)

Trading updates: Bovis Homes PLC (LON:BVS), IG Group PLC (LON:IG.), Close Brothers Group PLC (LON:CBG)

AGMs: Motif Bio PLC (LON:MFTB), Sound Energy PLC (LON:SOU)

Economic data: UK CPI, RPI, PPI; UK house price index; UK public sector finances

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