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RBS update to follow banking rivals amid 'challenging' market, while BT first quarter 'should be ok'

An update is also scheduled from British Airways owner IAG

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Analysts expect BT to re-iterate its full year guidance for adjusted revenue

Friday brings a bit of a let-up at the end of a busy week for blue chip news, but there's important updates due from Royal Bank of Scotland Group PLC (LON:RBS) and BT Group PLC (LON:BT.A).

RBS is the fourth of the FTSE 100 banks to post numbers this week, with its rivals variously reporting larger than expected PPI mis-selling provisions and a “challenging income environment”.

Following a first quarter that was down less than forecast, UBS expects the state-owned bank to report adjusted pre-tax profit of £1.3bn for the second quarter, down 17% year-on-year, as RBS continues to face extra challenges from a net interest margin much lower than its peers.

"We expect the firm to announce interim dividend per share totalling 7.5p, 2.5p ordinary and 5p special, leaving CET1 ratio at 16.6%," UBS analysts said.

Some investors will also be looking out for a potential announcement on the next chief executive to replace Ross McEwan.

McEwan is leaving to become the boss of the National Australia Bank but he has a 12-month notice period extending to April 2020 and will remain in the role to ensure an orderly handover to his successor.

He has led RBS through a restructuring that has resulted in a return to profit and the restart of dividend payments, though the bank remains 62%-owned by the government since its £45.5bn bailout in 2008.

Like the rest of the UK’s high street banks, its shares have struggled to make much headway amid concerns about Brexit uncertainty, tough competition in the mortgage market, low interest rates, a slowing housing market and legacy issues.

So, whoever takes over the reins from McEwan will be under pressure to improve the share price.

BT posts quarterly update as it focuses on fibre roll-out

With a later start to its financial year, BT will be ringing up its first-quarter numbers, with the telecoms giant’s shares down 20% since the start of the year amid a mix of news.

Grasping the nettle at the group’s annual general meeting last month, chairman Jan du Plessis said that the company will consider reducing the dividend in “a year or two in the future” in order to ease the funding of its roll-out of ‘fibre to the premises’ broadband.

Good news for BT’s finances in recent months has included a £100mln towers sale and leaseback deal in Spain, the disposal of its London headquarters for £209mln and reports that talks are in progress over a potential sale of its Spanish operations.

New chief executive Philip Jansen, who joined at the start of the year, has already increased BT’s target for investing in laying superfast broadband from 3mln to 4mln homes and businesses by March 2021, with an “ambition” to reach at least 15mln premises by the mid-2020s.

The consensus forecast for the first quarter is for a 2.2% drop in revenue to €5.6bn and underlying earnings (EBITDA) to fall 4% to €1.9bn.

Analysts expect BT to re-iterate its full year guidance for adjusted revenue and adjusted EBITDA to fall 2% and free cash flow to equity of £1.9-2.1bn.

Apart from maybe an official confirmation that a dividend cut is possible in a year or two, most analysts do not foresee a dividend cut any time soon.

This does not necessarily include Deutsche Bank, however, which recently downgraded the shares of what they said was “one of the least attractive” stocks in the sector, seeing the broadband rollout as requiring rising capex and hitting the earnings recovery, with a dividend cut anticipated to 10.3p “from FY21”.

However the analysts said the first quarter "should be ok".

IAG to prove doubters wrong

International Consolidated Airlines Group SA (LON:IAG) shares are down almost 40% over the past year as returns are deteriorating at most major airlines around the world.

There are a few analysts that see value at IAG, including JP Morgan, which believes investors are overlooking IAG’s attractions, “high pre-tax profit margins…a diversified portfolio that should mean more resilient earnings than in the past; strong market positions; a strong balance sheet; and rising cash returns to shareholders”.

Credit Suisse also cut its forecasts across the sector but IAG remains well liked given analysts confidence in “its ability to maintain more control over margins than peers, and the level of distress that we believe is already priced into the share price due to UK concerns despite it having the most attractive exposure to a strong US market”.

JP Morgan acknowledged that it was not possible to rule out near-term downside, mainly due to Brexit uncertainty, “but we believe IAG has robust long-term prospects and is significantly undervalued”.

The Anglo-Iberian airline operator’s shares were also hit last month by the £183.4mln fine imposed by UK Information Commissioner's Office over the hacking of British Airways customers’ personal details data from its website last year.

The ICO warned IAG that it plans to impose a penalty of 1.5% of BA’s global turnover for 2017.

Friday August 2:              

InterimsBT Group PLC (LON:BT.A), Royal Bank of Scotland Group PLC (LON:RBS), International Consolidated Airlines Group PLC (LON:IAG), Essentra PLC (LON:ESNT), Millennium & Copthorne PLC (LON:MLC), Airea PLC (LON:AIRA)

Economic data: US non-farm payrolls, US factory orders and durable goods orders, University of Michigan sentiment index

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