Housebuilders will be a focus in the coming week, with both Barratt Developments PLC (LON:BDEV) and Bovis Homes PLC (LON:BVS) to provide updates, while on the retail front Super Dry PLC (LON:SDRY), Dunelm PLC (LON:DNLM), and Ocado PLC (LON:OCDO) will all also issue trading news.
The macro calendar is fairly sparse, but UK GDP numbers will be eyed, together with minutes from the last Federal Reserve FOMC policy meeting as traders assess whether this month’s Fed get-together will bring an expected US rate cut.
Margin improvements helping Barratt Developments
The year-end update from Barratt should be fairly uneventful, with the group having said in May that its results will be “modestly” ahead of expectations.
Even though the FTSE 100 housebuilder, along with the rest of its peers, has seen build costs spiral in recent years it reported “good progress” on driving margin improvements this year, helped by “refinements” to its housing ranges. Build costs are still expected to rise by between 3-4% this year.
Trading performance has been solid, with reservation rates in 2019 at 0.79 per site, per week compared with 0.80 this time last year, forward sales are flat at £3.37bn and strong cash generation is expected to leave £600mln-650mln in the bank.
Analysts at Hargreaves Lansdown noted that Barratt shares have been held back by investors’ worries about the impact a disorderly exit from the EU could have on the company.
“That prompted a change in dividend policy from the Barratt board. The group intends to return the same £446.9mln of cash to investors, but now has the flexibility to split this between dividends and share repurchases,” they said in a preview.
“There’s not been any buybacks as yet, but it’ll be interesting to see whether the group plans on making any share repurchases in the coming months,” the analysts added.
Similar views expected from Bovis Homes
A trading statement is also scheduled from smaller sector peer Bovis Homes, whose last statement was very similar, with costs also running 3%-4% higher.
As of mid-May, Bovis had opened seven developments, with a further 16 new sites expected this year, and was operating from an average of 87 active sites.
The company added that it was making progress with its 2020 targets to become a leading UK housebuilder and significantly improve shareholder returns.
With Galliford Try rejecting that proposal and ending discussions, investors will be interested to hear more from Bovis about its plans to accelerate growth.
Ocado shareholders await update on M&S deal
Ocado’s joint venture with Marks and Spencer PLC (LON:MKS) is likely to be a key focus when the online grocer reports its interims on Tuesday.
The company’s shares received a boost in February when it announced the agreement to help M&S launch an online grocery delivery service for the first time. The £1.5bn deal has provided Ocado with funds to support the expansion of warehouses.
“Investors will be looking for an update on the M&S venture as well as any progress in rebuilding the Andover warehouse, which suffered from a major fire earlier in the year,” analysts at The Share Centre said in a preview.
“The market will also be interested in any comments on prospects for further deals with major supermarket groups around the world to develop automated warehouses.”
The fire at Andover carved about 1.2% off sales in the first quarter but the FTSE 100-listed firm’s retail revenue still rose by 11.2% to £404.0mln.
The Andover warehouse accounts for about 10% of Ocado’s capacity.
How is SuperDry’s turnaround coming along?
SuperDry’s annual profits are expected to halve when the troubled coat maker reports its full-year results on Wednesday.
Investors already know that sales were flat at £872mln for the year to the end of April, and UBS analysts expect pre-tax profits to have fallen by 53% to £45mln.
The numbers are likely to take a back seat though, with shareholders more interested in how the turnaround is progressing under Julian Dunkerton – the group’s founder who recently returned following an intense boardroom battle.
“Given the recent change in management we believe the outlook for a brand turnaround will be more important than current trading,” said UBS analysts in a preview note to clients.
“The key focus for us will be: 1) the magnitude of possible near-term investments (P&L and cash flow); 2) reaction from wholesale partners to new product ranges; 3) quality of the inventory stock file; 4) impact of lower promotions on the top line,” they added.
Few surprises see from strong Dunelm fourth quarter
Homeware retailer Dunelm PLC (LON:DNLM) is poised to end its year on a high with fourth quarter results on Wednesday, having previously upgraded its full-year profit expectations in June.
Like many other retailers the group has continually highlighted “political and economic uncertainty”, so investors will be looking for any impact on trading from the Brexit debacle.
The group will also potentially update on its digital capabilities, which it has sought to improve in a bid to boost business.
Analysts at UBS are expecting a strong performance for the FTSE 250-listed retailer’s fourth quarter, forecasting an increase in like-for-like sales of 14%, although they added that they expect “few surprises” in the update.
Can ‘Spoons offset cost pressures with volume increase?
The no-frill pubs group has had no trouble selling more of its cheap food and drink this year, but making more money out of those sales has proved difficult.
In November, it was forced to lower its expectations for the year, citing soaring staff costs in the hospitality sector.
Still, with like-for-like sales growth gently accelerating throughout the year, shareholders will be hoping that the volume increase might actually be enough to offset the cost pressures and get the bottom-line close to last year’s record.
Investors looking for more of the same from Robert Walters
Despite the political and economic uncertainty engulfing the UK and many other countries right now, specialist recruiter Robert Walters PLC (LON:RWA) has managed to keep putting one foot ahead of the other.
The London-based group reported a “solid” first quarter when it last updated the markets back in April, and investors will be looking for more of the same in Tuesday’s first-half update.
Growth has come from all of its markets in recent months, including the largest region, Asia Pacific, and its home UK market, where hiring has continued despite the ongoing Brexit shenanigans.
Concerns about UK economy weigh on PageGroup
Staying with staffing, recruiter PageGroup PLC (LON:PAGE) also delivered growth in gross profit across all regions in the first quarter despite the drag of Brexit uncertainty on UK business confidence.
However, PageGroup shares are trading some 15% below its peak levels last autumn amid concerns about the outlook for the UK economy and other key global markets.
AJ Bell pointed out that gross profit growth has decelerated in the last two quarters so it will be interesting to see if this trend has continued when PageGroup publishes its second quarter trading update on Wednesday.
More reassurance wanted from Micro Focus
Legacy software specialist Micro Focus International PLC (LON:MCRO) has seen its share price mount a strong recovery over the past year after shocking the market in March 2018 by parting ways with its then chief executive Chris Hsu and slashing its revenue guidance.
Since then the market has been reassured over the group’s performance following issues with integrating assets from HPE Software that had caused the downgrade last year.
As a result, few surprises are expected in Tuesday’s interims, particularly given a trading update in May that said the figures would be in line with previous guidance.
The focus therefore will be on whether Micro still expects its full year revenues to fall by 4-6%, has any acquisitions in the pipeline, and any prospects for shareholder returns.
Analysts at UBS are expecting the firm to report sales of around US$1.6bn, down 6% organically year-on-year, with underlying earnings (EBITDA) of US$684mln.
Acquisition path eyed at DCC
The first quarter is a minor period for FTSE 100-listed acquisitive mini-conglomerate DCC PLC (LON:DCC), according to analysts at UBS, so the firm’s trading update on Friday will be eyed for future growth.
The Swiss bank’s analysts see significant opportunities for acquisitions by the Irish group in the US – in LPG, Technology, and Healthcare - and in Europe – in LPG, retail, and Technology - with around £350mln of annual spend at circa 7x EV/EBITA, driving about 10% consensus upgrades per annum.
“Without any further M&A spend, we estimate DCC would finish y/e Mar-20e with a net cash position and it currently has >£1.6bn in gross cash on its balance sheet,” the analysts added.
Brexit relief hoped for from Photo-Me
Photo booth kiosk operator Photo-Me International PLC (LON:PHTM) has already been hit by the Brexit gloom after cutting its profit expectations for the year due to worse-than-expected trading in the UK.
Therefore, investors will be hoping that the ongoing uncertainty regarding the UK’s exit hasn’t caused the group’s situation to deteriorate further when it delivers its final results on Tuesday.
Instead, the company may increasingly point to its better-performing operations in Japan following a restructuring as well as its more stable business in continental Europe.
Assets under management growing at Ashmore
UBS analysts expect the FTSE 250-listed firm to post AUMs of US$92.1bn, up 8.0% quarter-on-quarter and 24.7%year-on-year, with during the quarter of US$4.6bn, down slightly from the US$5.0bn of inflows seen in the previous quarter, which was Ashmore’s strongest quarterly inflow since 2013.
The analysts added: “We expect market performance to add another US$2.3bn to AUMs during the quarter, equal to 2.7% of AUMs.
“Going forward, we expect inflows to average US$3.0bn per quarter over Ashmore's FY 2020-21.”
Markets eye rate cut hints from Fed
The Federal Reserve may provide hints on its next move on interest rates when it releases the minutes of its June policy meeting on Wednesday.
The US central bank left interest rates on hold last month and indicated there would be no cuts this year and only one or two next year.
However, the Fed is widely expected to lower the benchmark rate by 25 basis points later this month to bolster the economy after recent data pointed to weak employment, low inflation expectations and a decline in consumer confidence.
“At the beginning of the year, the market thought rates would almost certainly be either unchanged or higher by the end of the year,” said Marshall Gittler, chief strategist and head of education at ACLS Global.
“Now that’s seen as having zero chance; the question is only how many cuts there will be. Right now a Fed funds rate of 1.75%, i.e. three more cuts, is seen as the most likely scenario.”
UK GDP expected to rebound in May
The UK economy shrank by 0.4% in April as the stockpiling of goods to deal with a disorderly Brexit slowed after the deadline date for the UK’s departure from the European Union was delayed.
The fall was worse than analysts had expected and marked the second consecutive month of contraction after a 0.1% decline in March.
The Office for National Statistics (ONS) estimated that UK economic growth eased to 0.3% in the three months to April from 0.5% in the three months to March.
Pre-Brexit stockpiling boosted the UK economy in January and February but the effects wore off in the following two months after the government pushed back its proposed Brexit deadline to October 31 from March 29.
Another major contributor to the weaker gross domestic product (GDP) in April was a drop in car production as manufacturers prepared for a no-deal Brexit by bringing forward annual shutdowns.
On Wednesday, the ONS will release its estimates for UK GDP in May and for the three months to May.
In a preview, economists at RBC Capital Markets pointed out that car production recovered by 45,000 to 116,000 units in May, which should give back some of the 0.2 percentage points it thinks the auto sector shaved off growth in April.
With an expected positive contribution from services, RBC’s economists expect to see a “sufficiently large” rebound in month-on-month GDP in May. They predict the UK economy grew by 0.1% in the three months to May, marking a slowdown on the previous month’s estimate.
Significant announcements expected for week ending July 12:
Monday July 8:
Economic data: US consumer inflation expectations; US consumer credit
Tuesday July 9:
Economic data: BRC UK shop price index; US JOLT job openings; US NFIB business optimism index
Wednesday July 10:
Economic data: UK monthly GDP estimate; UK trade; UK index of production; UK construction output; FOMC minutes
Thursday July 11:
FTSE 100 ex-dividends: None
Economic data: RICS housing market survey; US weekly jobless; US CPI
Friday July 12:
Economic data: US PPI