The financial calendar picks up steam again in the coming week, with several big macro events, a further steady stream of UK company announcements and the start of the next US earnings season.
Arguably biggest of all for global markets, on Wednesday the US and China are expected to sign a ‘phase one’ trade deal. Uncertainty still remains over the time scale for completion of the next phase, said Deutsche Bank, though the first phase is bringing some relief to investors.
The day before the trade deal is signed data on Chinese trade for December will provide an indication of how the economy has fared amidst the trade war, with fourth-quarter economic growth numbers due on Friday.
Inflation and implications for a UK interest rate cut
The latest UK growth data will kick off the week, in likely listless fashion, while UK inflation figures mid-week will perhaps be more telling and important for interest rates in the year ahead.
Economists are split over whether UK consumer price inflation will remain at the 1.5% for the three months to December as seen in November and October.
Analysts at RBC Capital Markets, for one, forecast inflation will have picked up to 1.6% and will average around 1.7% for the first quarter of 2020, while those at Pantheon Macroeconomics and ING see it remaining at 1.5% for the fourth quarter of 2019 but picking up to 1.8% and 1.9% respectively in the new year, while all expect CPI to drop sharply in the middle of the current year to reflect regulatory price changes in energy and water.
If inflation doesn’t pick up it adds to evidence against the Bank of England’s expectation in recent years that domestic inflationary pressures “are likely to build” and follow outgoing governor Mark Carney’s comments in the past week about the BoE’s debate over the “relative merits of near term stimulus”.
Already the market is factoring in a 50% probability of a cut to interest rates in the first half of this year, leaping up from 35% following Carney's speech, though there may be strong arguments to wait until the first monetary policy meeting under new governor Andrew Bailey on 26 March.
Primark's Christmas update from AB Foods
On the corporate front, retail will continue to dominate. Thursday will bring a trading update from Primark owner Associated British Foods PLC (LON:ABF), a company that has found success in recent years thanks to its somewhat odd combination of businesses that includes not only Primark but also and international sugar business and Twining’s tea among others.
ABF, or more specifically Primark, has managed to defy conventional wisdom surrounding ‘the death of the high street’ by turning a profit despite the absence of an online operation, instead relying on large numbers of customers flocking to its enormous high street stores.
Given that Primark contributed over half of its profits last year, investors will be hoping the firm has managed to continue moving against the grain over the crucial Christmas shopping period, particularly with high street footfall predicted to have been much lower than last year.
There will also be interest in how Primark’s overseas expansion is progressing, with the firm due to open stores in France and Spain, while any comments on the US market will also be noted.
Will Boohoo top Black Friday’s “record” sales?
The so-called ‘king of AIM’, or maybe it should be ‘queen of AIM’ due to their strong leaning towards female customers, Boohoo Group PLC (LON:BOO) will release an update on Tuesday covering third-quarter revenues as well as the run-up to Christmas.
The fast fashion retailer and Nasty Gal already flagged “record” sales across the Black Friday weekend in an unscheduled update at the start of December, adding its new ranges for Karen Millen and Coast had been “very well received”.
It also added full-year figures would be “comfortably in line” with forecasts, which include revenue growth of between 33% and 38%, so any comment on that will be watched closely.
Two days after the December update, Boohoo shares dropped on news co-founders Mahmud Kamani and Carol Kane had sold part of their stake in the company. However, the stock has recovered since jumping 13%.
“The company has consistently achieved strong growth in sales and profits, but there will be great interest in this trading update,” analysts at the Share Centre said in a note.
Wie geht in Germany for Whitbread?
A Thursday update will shed some light on Whitbread plc’s (LON:WTB) German Premier Inn hotel business alongside its overall third-quarter performance.
The FTSE 100 firm has set out to open 20 new Premier Inn hotels by the end of the year in Germany, where analysts say there is potential to build a network as large as the UK.
German operations are “a work in progress”, according to analysts at City broker Peel Hunt, but investors should be “paying attention now”.
Meanwhile, short-term performance is the main driver of the share price, the analysts said, although “it will probably be too early for hard evidence of a bounce”.
The hotels and restaurants owner got some respite from the weak UK hotel market after the December elections, with an upgrade from Barclays to ‘overweight’ from ‘equal weight’ based on “substantial upside” being in sight based on political clarity.
The bank’s economists now expect an orderly Brexit leading to a rebound in business investment of around 3.8% next year, making the UK the fastest growing economy of those of interest to the hotels sector.
However, Peel Hunt expects an update on this front in the fourth quarter. “As the UK general election took place during the quarter, it might be too early to see whether business confidence has been restored and the recent dip in bookings reversed,” analysts said in a note.
Housebuilders welcoming new friends
Three housebuilders will update on trading next week: Persimmon PLC (LON:PSN), Taylor Wimpey PLC (LON:TW.) and Vistry Group PLC (LON:VTY).
Ahead of the announcements, most of the sector’s analysts have been bumping up their ratings and share price targets for the companies and their peers.
Berenberg said that the sector was “open for business again” following December’s decisive election result and hiked target prices across the board, choosing Persimmon and Taylor Wimpey as two of its top picks.
“The weeks since that election result have been marked by optimistic comments from various estate agency and housing bodies, predicting a return to stronger house price growth and rebound in the UK property market”, Berenberg said, adding that there was “significant scope” for the sector to re-rate further if price growth began to accelerate.
Vistry, the new name for Bovis Homes after it acquired Galliford Try’s Linden Homes and social-housing focused Partnerships businesses, was upgraded to ‘buy’ from ‘neutral’ by analysts at Citi, who said there was still value in the sector, with Persimmon and Taylor Wimpey among its top picks too.
Citi believes the sector’s net assets are poised to grow circa 17% on an annualised basis over the next three years, supported by “modest volume growth, improving margin outlook and strong cash generation”.
For Persimmon, the recent focus has been on improving build quality and reconstructing its reputation since a swarm of customer complaints last year about shoddy workmanship in some of its new homes.
With December’s Home Builders Federation customer satisfaction survey making for happier reading, Nicholas Hyett at Hargreaves Lansdown said: “The group continued its move towards a coveted four-star rating in December’s release. All being well, we should see this confirmed in March’s full-year release for 2019.”
November’s third-quarter update showed boosts to quality have come at the expense of volume and profit, with forward sales retreating 3.8% to £950mln, 5% lower average active sales outlets and a 6% fall in completed sales volumes, with margins trimmed by extra investment in build quality.
Persimmon’s shares are flat over the past two years, while Taylor Wimpey is slightly lower after a strong recovery last year.
“Shares have done very well over the past 12 months, buoyed by its huge dividend yield, persistently low interest rates and hopes that a Boris Johnson-led Tory government will act to support the housing market, perhaps in the form of lower stamp duty,” said Russ Mould at AJ Bell, noting the shares are currently the second-highest yielding on the FTSE 100, according to analysts’ consensus forecasts.
For these year-end numbers analysts and investors will want to see how completions compared to the 15,275 houses sold at an average price of £302,000 in 2018, as well as guidance for the year ahead.
The market currently forecasts pre-tax profit of £820mln for 2019 and 2020, but investors may be more focused on comment about the company’s cash return policy, with the present plan being to return just over £600mln for last year, just over 18p a share.
How can Tullow follow-up bad decade's end
Tullow Oil PLC (LON:TLW) shares lost more than three-quarters of their value in the weeks after drilling offshore Guyana showed oil discoveries there comprised lower-value, heavy oil, with a near-20% cut to production forecasts for 2020 onwards following close behind.
The severe reduction in cash flows is not what the debt-laden company needed in the slightest, leading to long-standing chief executive Paul McDade and exploration director Angus McCoss both resigning.
Chair Dorothy Thompson is overseeing a review of this year’s production performance issues and its potential implications.
Tullow has proven pre-development projects in Uganda and Kenya, neither of which the company really will want to fund themselves, meaning partial or total divestments are probable.
With management changes and a likely emphasis on cost-cutting, Tullow also has a decision to make on its minority stake in an adjoining Guyana licence operated by Repsol, where premium oil has been found but in a small pocket of reservoir, requiring more drilling.
Looking back at the past two decades sees Tullow's shares soaring around 1,700% from 2000 to 2010, before reaching all-time highs above £15 in 2013, before the company ended the subsequent decade around an all-time low, falling to below 40p in early December.
Though the shares have rallied to 59p, analysts at JPMorgan see little upside from there, slashing their target price on the shares to 63p from 249p ahead of the update and said the “outlook deteriorated with its most recent update, and we suggest avoiding the shares in early 2020”.
Experian’s new services on the spotlight
Experian PLC (LON:EXPN) is concluding the week with its quarterly update where analysts expect to read about consumer borrowing in the UK and the US, which are key drivers of revenue.
UK lending growth may be restricted due to uncertainty, while the US may post increased borrowing.
The consumer credit reporting company, which collects information on over 1bn people and businesses, more recently added to its portfolio anti-fraud and identity theft products as well as health and automotive finance sectors as well.
“Consumer credit is a cyclical business though, and more important in the long run is the progress the company’s making in its newer segments,” analysts at Hargreaves Lansdown said in a note, adding the new markets are “key” to Experian’s premium valuation.
“Recent history has led the market to expect further strong growth, but if the group trips up the knock-on effect on the share price could be very unpleasant.”
Gym Group to flex its muscles in trading update
Also on Friday, low-cost fitness chain The Gym Group PLC (LON:GYM) will be looking to keep investor’s hearts pumping when it delivers a pre-close trading update.
Half-year profits jumped 36% to £9.1mln in the group’s half-year results in August thanks to a rise in memberships to nearly 800,000, a barrier than analysts are expecting the firm to breakthrough by the end of its current year.
However, the area that will be of greater interest is the average revenue per member (ARPM), particularly as the company looks to attract more members to it premium LIVE IT offering, which offers customers discounts, the ability to bring friends and access to multiple gyms.
Analysts at the company’s house broker Peel Hunt are expecting membership numbers to have risen 10% year-on-year, while ARPM is predicted to have increased around 5% alongside a 21% increase in total revenue.
“With little evidence of any discounting, the benefits of estate maturity and LIVE IT are emerging”, they said.
Significant announcements expected for week ending 17 January:
Monday January 13:
Trading announcements: Ferrexpo PLC (LON:FXPO), XP Power PLC (LON:XPP)
Economic data: UK GDP, industrial production, UK trade balance
Tuesday January 14:
Finals: Watkin Jones PLC (LON:WJG)
Interims: DFS FURNITURE PLC (LON:DFS), Games Workshop Group PLC (LON:GAW), Gateley Holdings PLC (LON:GTLY), McBride plc (LON:MCB)
Trading announcements: Boku Inc (LON:BOKU), Boohoo Group PLC (LON:BOO), Taylor Wimpey PLC (LON:TW.), Grafton Group PLC (LON:GFTU), PageGroup PLC (LON:PAGE)
Economic data: US inflation
Wednesday January 15:
Finals: Provident Financial PLC (LON:PFG)
Trading announcements: Ashmore Group PLC (LON:ASHM), Diploma PLC (LON:DPLM), Hochschild Mining Plc (LON:HOC), Persimmon PLC (LON:PSN), Revolution Bars Group (LON:RBG), Ten Entertainment Group PLC (LON:TEG), Tullow Oil PLC (LON:TLW), Vistry Group PLC (LON:VTY)
Interims: Knights Group Holdings PLC (LON:KGH)
Economic data: UK inflation, US Empire State manufacturing index, US Beige Book
Thursday January 16:
Trading announcements: 4imprint Group PLC (LON:FOUR), Associated British Foods PLC (LON:ABF), Bakkavor Group PLC (LON:BAKK), Dechra Pharmaceuticals PLC (LON:DPH), Hays PLC (LON:HAS), Halfords Group PLC (LON:HFD), Ibstock Plc (LON:IBST), John Wood Group PLC (LON:WG.), Marshalls PLC (LON:MSLH), N Brown Group plc (LON:BWNG), Pearson PLC (LON:PSON), Rio Tinto plc (LON:RIO), Whitbread plc (LON:WTB), Workspace Group plc (LON:WKP)
Interims: Theworks.co.uk PLC (LON:WRKS),
AGMs: Mineral & Financial Investments Ltd (LON:MAFL)
FTSE 100 ex-dividends to knock 2.8 points off the index: SSE PLC (LON:SSE), Compass Group PLC (LON:CPG), Ashtead Group PLC (LON:AHT)
Economic data: UK RICS house prices, UK BoE credit conditions, US retail sales, US Philly Fed manufacturing index
Friday January 17:
Finals: GVC Holdings PLC (LON:GVC)
Trading announcements: Experian PLC (LON:EXPN), The Gym Group PLC (LON:GYM)
GM: Futura Medical PLC (LON:FUM)
Economic data: UK retail sales, China GDP, China retail sales, China industrial production