Rather than the quiet life many of us want in the run-up to Christmas, the coming week instead comes as a final big push before we can ‘get Christmas done’.
Significant events include the UK general election, Federal Reserve and European Central Bank meetings, plus results and updates from the likes of Ocado, TUI, Balfour Beatty and Ted Baker.
“You thought maybe that as the year winds down you’d get a chance to relax. Well, that’s after this coming week,” says analyst Marshall Gittler.
“For now, the year is going out with a bang with a week filled with market-moving events.”
The big UK event next week is obviously the general election, with prospects for the populace, the economy, the pound and a host of different industries resting on the result.
Taking recent polling on face value, most analysts predict the first December election since 1923 will deliver a victory for the Conservatives and raises the chances that the Brexit process will be kicked off at the end of January.
Remembering back to 2017 should make forecasters aware of the distinct possibility for a surprise upset that could lead to another hung parliament or a Labour-led government.
If the Conservatives manage to eke out a majority, Friday’s session is likely to see gains for the pound alongside various companies.
Sectors expected to rally include utilities, such as water companies United Utilities PLC (LON:UU.) and Severn Trent PLC (LON:SVT) and power network National Grid PLC (LON:NG. that the Labour party has pledged to re-nationalise; and housebuilders, where the Tories have promised to cut stamp duty.
A “a sense of relief” may also pervade across markets, one analyst said, and possibly lead to a boost to pre-Christmas trading as consumers feel more comfortable loosening their wallets again, while others saw benefits for the wider property sector.
On the other side of the coin, the market is fearful of the possibility of a Labour government or a hung parliament, with the latter extending the Brexit status quo and uncertainty, hitting the pound.
However, the outcome for markets may not be as clear cut as ‘Conservative good, all others bad’, with analysts at finnCap saying that a Tory majority could “paradoxically bring about the worst Brexit option for business in the form of a ‘hard’ exit, either on 31st January or 31st December 2020 if no trade deal is agreed”.
A Labour win would rule out a hard Brexit and see a second referendum that features Remain as an option, plus the party’s promised investment in varios sectors, including renewables.
Fed and ECB week
Coming just before the UK election will be the US Federal Reserve’s policy meeting, though chief Jerome Powell’s less dovish language has made it fairly clear that the central bank is “on hold” as regards interest rates for a while.
The meeting “should come and go with little fanfare”, reckon economists at RBC Capital Markets.
“With financial conditions in ‘easy’ terrain and largely unchanged since the October meeting and a phase one trade deal still seemingly on the table, the Fed is unlikely to make any substantive changes to the forward-looking language in the statement,” is the RBC view.
While not many policy changes are expected from the week’s European Central Bank, there will be a fair amount of interest on new president Christine Lagarde at what is her first governing council meeting.
September’s meeting delivered a “comprehensive package” of measures so Lagarde will be closely watched for indications as to whether she represents continuity from the Draghi era as most market participants have assumed, says RBC, which suspects that her message “will not differ substantially from her predecessor”.
Ocado looks to keep investors on side following fundraise plans
The upcoming update may allow the firm the opportunity to address any questions about the gap between its insipid financial performance and sky-high valuation.
While the online grocery company’s shares have rocketed around 400% in the past two and half years since it started a winning run of overseas contracts for its technology, many see the stock yet to prove the economics of its core business.
Investors will be also be hoping to avoid any nasty surprises in full-year guidance for the firm’s joint venture with Marks & Spencer Group PLC (LON:MKS), which is expected to deliver full-year revenue growth of between 10% and 15%.
Last week the FTSE 100 company said the Ocado Retail JV’s revenue growth had softened to between 10% and 11% in the 13 weeks to 1 December from the 11.4% in the 13 weeks to 1 September.
One potential brighter spot is the company’s new one-hour delivery service, Ocado Zoom, which is expected to outperform retail revenue.
Has TUI spread its wings over Thomas Cook’s misfortune?
The loss of one major competitor may be a relief for the sector, with Barclays analysts estimating that if TUI managed to absorb £2bn of lost Thomas Cook revenue it could result in an additional 4% uplift to its underlying earnings (EBITDA) in the 2020 financial year.
Costs related to the grounding for TUI are expected to come in closer the larger end of its €50mln-€150mln guidance, with a later return to service potentially knocking profits by up to €350mln.
Hence, analysts at Morgan Stanley said the success of TUI's plan to increase 2020 capacity by around 10% by adding 1.5m extra holidays depends on consumer demand and how competitors respond.
The preliminary results are likely to indicate of whether this was too bearish a call, while shining some light on the actual opportunities coming from Thomas Cook’s fallout.
Where is Stagecoach going?
Broker Liberum downgraded the stock last week to ‘hold’ from ‘buy’, noting Labour’s policies pointed to “extensive intervention in bus services”, while the Conservative manifesto indicated “greater support for bus franchising and re-regulation” in contrast to the current ‘free market’ system.
The FTSE 250-listed transport firm has not had an enjoyable 2019, after losing its East Midlands rail franchise after 12 years and receiving a barring by the Department for Transport from bidding for the East Midlands, South Eastern and West Coast lines over its failure to comply with new pension requirements.
Stagecoach issued its appeal and said in an October trading statement the court hearing is due in early 2020, so investors will have to hold their horses on this one.
At this stage it seems the coach division is all that is left, although a strong performance in the London division came alongside a lower growth than expected in the regional operations.
Serco to buck UK outsourcing declines
There are also political angles for Serco PLC (LON:SRP) as it releases a trading statement on Thursday, which will reveal how the contractor is feeling about UK public services as sector-mates have struggled to keep things moving.
Its shares have cruised up 43% this year, helped by the firm’s acquisition of US defence contractor Naval Systems Business Unit which pushes the company further into the high-margin region.
Tough times for outsourcers saw Mitie’s and Babcock’s order books staying flat in their first-half results, but Serco has managed so far to outstrip its rivals with growth for the last 12 months and a strong order book.
The FTSE 250 company, which provides public services ranging from running prisons to operating ferries, as well as managing some NHS activities, said back in July that underlying trading profits had risen by 35% to £50.6mln, thanks to strong sales in North America.
This excluded a £19.2mln fine from the Serious Fraud Office back in July for fraud and false accounting over its electronic tagging service.
In recent years Serco has switched its focus abroad and cut costs to offset lower public outsourcing in Britain, which accounts for around 40% of its revenues.
“Among the contractors we believe that Serco provides positive momentum and growth,” said Liberum in a last month, though the broker warned that since the company is the biggest beneficiary of outsourcing among British contractors, its profits could be threatened if a Labour government takes power in Thursday’s general election.
“There is a risk that Corbyn will look to restrict UK outsourcing, under the plan, contracts that deal with people deemed to be ‘at risk’, and contracts that infringe on human rights or entail the use of ‘coercive powers’ cannot be outsourced,” said analysts at the Liberum, noting that the Labour leader has already said he looks to end the privatisation of military contracts on Armistice Day.
Build up or slowdown for Ashtead?
Shares in the FTSE 100 equipment company, which rents out equipment from diggers and cranes, to pumps and heating equipment, have been flying close to year-highs of 2,462p recently, as investors have shut their eyes to worrying signs of industry slowdown in US.
Manufacturing sector data in the US has been falling recently, and what’s more, the latest figures from the US commerce department revealed a drop of 0.8% in construction spending in October, which suggests tougher times for Ashtead, since 90% of its sales come from its US-based Sunbelt operation.
With its shares up more than 40% this year, “investors had better be right,” said AJ Bell’s Russ Mould, “because if they are wrong and a slowdown or recession comes around the corner that could leave Ashtead’s shares pretty exposed”.
Back in September, Ashtead’s overall revenues rose 17% but statutory profit before tax was up only 8%, the slowest rate of improvement since early 2017.
In the first quarter of the current year, organic rental revenues were up 12%, softening from the 15% in the second half of last year.
Peel Hunt noted that last year’s second-quarter revenues, against which this year’s will be compared, got a modest US$15-20mln boost from higher-margin clean-up work created by Hurricane Florence in US.
“The investor focus is likely to be on the outlook and if management chooses to be more selective re Sunbelt US fleet expansion (currently $1.0-1.1bn),” the analysts said.
Balfour Beatty’s order book may be an interesting read
Investor interest for Balfour Beatty plc’s (LON:BBY) trading update on Friday is likely to be focused on profit margins and the order book, as the construction group continues to enjoy the fruits of a turnaround strategy.
The FTSE 250-listed firm posted higher profits and revenues in its interim results published in August, alongside a 31% dividend hike.
Orders at the half-time stage stood at £13.2bn, up 5% from the end of 2018 after wins for the US construction business and the addition of the railway track renewal contract with Network Rail.
Management said it was on track to meet target of industry standard margins in all of its construction and service businesses, a statement investors will like to see reiterated.
It does however seem a tricky one as analysts point out that aiming for higher margins means bidding more selectively for contracts, which in turn makes it harder to grow the business.
There has also been a row over a US Air Force base management contract, where there are allegations that Balfour Beatty falsified maintenance records at Oklahoma’s Tinker base in order to help it secure contract bonuses.
“Despite the ballast provided by the investment portfolio and US military contracts, Balfour’s construction business can be cyclical,” said analysts at Hargreaves Lansdown.
“Any economic commentary will be worth keeping an eye on, as it may give us a better idea of the future direction of travel.”
Superdry to update on Dunkerton's reset
Shareholders will be eager to get more details on how Superdry PLC (LON:SDRY) plans to recover from massive mid-year losses in its interims on Thursday after the company's returning founder Julian Dunkerton announced a two-to-three year reset phase to get “full control of the product and costs” in November.
This year, Superdry posted an £85.4mln loss in the 12 months to the end of April, compared with a profit of £65.3mln a year earlier.
The shares, which lost around three quarters of their value in 2018, climbed away from their lows in January but gone roughly sideways since.
A half-year update revealed it was the plan to keep price tags intact that hit half-year group revenue, with an 11% year-on-year drop to £368mln, although this led to store gross profit margins gaining 320 basis points to 71%.
Analysts at Liberum said in a note that half-year loss should not detract from the forecast recovery beginning from the second half onwards, with potential to double profit over the next two years.
"H1 is a 'clean-up' period as historic strategic mis-steps are addressed and there is no change to our forecast of an H1 underlying PBT loss of circa £7m," said the broker.
Nevertheless, shareholders will be holding their breath hoping that the company’s “cautious” outlook in November on challenging market conditions over the peak trading period, was overplayed.
Ted's not-so-little black number
The discovery by new chief financial officer Rachel Osborne was even less welcome as the retailer approaches the one-year anniversary of the departure of founder Ray Kelvin under a cloud of allegations of “forced hugging” and “a culture that leaves harassment unchallenged”.
New chief executive Lindsay Page, who was promoted from CFO in March, had hitherto been TED’s finance chief for the previous 22 years.
Osborne found that value of inventory held on the company’s balance sheet has been overstated, but the board believed that any adjustment now will only relate to prior years and will not have a cash impact.
More details may be expected in this coming announcement, though maybe not as lawyers Freshfields Bruckhaus Deringer have been hired along with an accountancy firm to launch a comprehensive review.
The previous update from the group showed a swing to losses before tax of £23.0mln from a £24.5mln profit a year ago, partly due to exceptional costs of £17.4mln from the Kelvin’s exit and £11.8mln for restructuring in Asia.
At the top line things were not so bad, dipping just 0.7% to £303.8mln, with North America sales providing some respite to offset the disappointing revenues from the UK and Europe, rest of the world and e-commerce.
Significant announcements expected for week ending December 13:
Monday December 9:
Tuesday December 10:
Economic data: UK GDP reading, UK industrial production, UK manufacturing, UK construction orders, UK balance of trade
Wednesday December 11:
Finals: Autins Group PLC (LON:AUTG)
AGMs: Aberdeen Latin American Income Fund (LON:ALAI), Amedeo Air Four Plus Limited (LON:AA4), Axa Property Trust Ltd (LON:APT), Bowleven PLC (LON:BLVN), Falcon Oil & Gas Ltd (LON:FOG), Minds + Machines Group Ltd 9LON:MMX), Westmount Energy Ltd (LON:WTE), YouGov PLC (LON:YOU)
Economic data: US inflation, Federal Reserve interest rate decision
Thursday December 12:
Interims: Dixons Carphone PLC (LON:DC.), Fuller Smith & Turner PLC (LON:FSTA), ), Purplebricks Group PLC (LON:PURP), Polar Capital Technology Trust PLC (LON:PCT), Superdry PLC (LON:SDRY), Versarien PLC (LON:VRS), Vianet Group PLC (LON:VNET)
AGMs: Amiad Water Systems Ltd (LON:AFS), Bacanora Lithium PLC (LON:BCN), Bioventix PLC (LON:BVXP), Blanco Technology Group PLC (LON:BLTG), Fidelity Special Values PLC (LON:FSV), Lok’N Store Group PLC (LON:LOK), Orchard Funding Group PLC (LON:ORCH), Pipehawk PLC (LON:PIP), Volution Group PLC (LON:FAN), Wilmcote Holdings PLC (LON:WCH), Zinc Media Group PLC (LON:ZIN)
Economic announcements: UK general election, ECB interest rate decision, US jobless claims
Friday December 13:
Economic data: UK general election result, US retail sales