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BoE and Brexit conclude eventful week; including Shell, BT and Tesla earnings

A day ahead of Friday's Brexit day, comes the Bank of England interest rate decision plus company updates from Diageo, AG Barr, SSE and Hargreaves Lansdown

Brexit clock
The time for Brexit is ticking closer

The UK’s exit from the European Union at the end of the week should conclude a lively five days that also take in Bank of England and Federal Reserve meetings as well as company updates from Shell, Unilever, BT, Diageo and others.  

With Stateside earnings also from tech giants Apple Inc (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and Tesla Inc (NASDAQ:TSLA) midweek, it will be an “incredibly eventful week for markets” said Deutsche Bank, also citing “key” elections in Italy and GDP numbers for the US and EU.

Brexit Friday, even if only accompanied by the recorded sound of Big Ben’s bongs played on a speaker system rather than the real thing, will be the coming week’s “main event” said the Deutsche analysts.

Following ratification into UK law by MPs in the past week, the withdrawal agreement should be voted through by the European Parliament and European Council midweek before Brexit officially takes place at 11pm UK time on Friday 31 January – before we enter a transition period for 11 more months of negotiations on the future relationship and on trade needed to truly leave the EU on 31 December 2020.

Thursday is also a big one for the estimated half a million private investor who bought into Neil Woodford’s flagship investment fund, as they are due to start getting some of their money back.

BoE selector

Worries about how these negotiations will go, adding to weak economic data at the end of last year and comments from some members of the BoE’s monetary policy committee (MPC), have led to soaring market expectations for an interest rate cut, knocking all the froth off the pound had built up since the general election.

But with a boost to consumer and business confidence post-election expected by many, plus with this being governor Mark Carney’s last MPC meeting before the Bank welcomes back former deputy governor Andrew Bailey as the central bank’s top dog in March, this month does not seem a likely time for a move.

What’s more, in the past week we’ve had strong data on jobs and the housing market, and a “flash” purchasing managers index (PMI) survey that suggested the UK manufacturing and services saw their best month for more than a year in January.

On interest rates, economists at ING and Berenberg were among the majority expecting no change.

“We suspect the majority of the MPC will be comfortable with their cautious ‘wait-and-see’ stance adopted in November/December - and will opt against cutting interest rates next week,” ING said.

Berenberg’s economists see a 40% chance of a rate cut, versus the market’s 48% at the end of the week, saying, “we think there is enough good news in the recent batch of data to keep the BoE on hold before eventually turning hawkish in H2 2020 as the economic upswing gathers pace”.

Even Capital Economics, which in recent weeks felt the MPC decision was “a close call”, said after the PMI’s large rebound in January it will “probably be enough” to prevent the MPC from cutting rates.

“After all, it's the surest sign yet that the economy has turned a corner since the election.”

One of the exceptions was Barclays, which expect a cut “to insure the economy remains on the recovery path”, noting that the levels of the PMI remain at or below long term averages, “with no guarantee that the improvement will be sustained” into the second half of the year.

Fed’s dead, baby

In comparison with the BoE, the US Federal Reserve meeting is not a ‘live’ one.

No change in Fed policy is anticipated “for the foreseeable future”, says Capital Economics, after three rate cuts last year.

All eyes will be on Fed chair Jerome Powell’s press conference following the meeting to see if there is any new information.

“We expect to see very little changes to the broad economic assessment in the upcoming FOMC statement and expect chair Powell to continue to push a strong ‘on hold’ bias with regards to broad interest rate policy in his press conference,” said the economists at RBC Capital Markets.

The current stance is fairly certain to be unchanged, barring, Detusche Bank said, a “material reassessment to the outlook” said.

Shell shares lagging

Investors in Royal Dutch Shell PLC (LON:RDSB) will be hoping for a material revision in sentiment is sparked in 2020, as shares in the oil colossus have lagged both the FTSE 100 and the oil price over the past 12 months, despite the board’s promise to pay out US$125bn of cash in dividends and share buybacks by the end of 2025.

Military conflict and trade disputes continue to pull and push crude prices, and commodity market volatility will most likely be among the key features of the Shell story when it releases a fourth quarter update on Thursday.

The FTSE 100 heavyweight, where it’s A and B shares represent more than an 11% weighting of the London stock benchmark, could surprise the market with outperformance against previously lowered expectations, Berenberg analysts said recently.

“Shell still faces headwinds, with weak gas and LNG prices expected to persist through 2020. The company has also flagged weak Q4 earnings," the analysts said.

“We believe that much of this is now in the price and that the company has the opportunity to surprise positively, delivering the most substantial buyback programme and highest total shareholder return of the peer group, helped by an improving macro environment.”

The tepid performance of Shell’s shares over the past two years is likely to be the result of three issues, says Russ Mould at AJ Bell: oil being “well supplied”, the sagging in natural gas price prices thanks to rampant output growth from shale fields in the US, and the gathering pace of “pushback” against fossil fuels and hydrocarbons.

Mould says fund managers and investors running environmental, social and governance (ESG) screens may start to avoid or sell shares in firms such as Shell.

The profit warning in late December was a recent factor, when the company followed other oil majors in cutting its oil products sales forecast and warning of a US$1.7-2.3bn asset writedown.

Full-year current cost accounting earnings, which adjust for movements in the value of inventory, are expected at around US$18.1bn, down from US$21.4bn a year ago before a bounce to US$20.5bn is forecast for 2020 on the assumption that Brent crude prices tick up to average around US$71 and gas prices remain flat around US$2.75.

Africa and Asia key for Unilever

Last month also saw disappointment for shareholders in another FTSE 100 giant, consumer goods giant Unilever PLC (LON:ULVR), which warned that it will fall short of guidance in 2019 and for the coming months.

Thursday’s final results from the maker of Lynx deodorant and Magnum ice creams are unlikely to hold too many surprises.

The decline was attributed to a slowdown in the group’s Asian and African markets, considered key sources of growth for the company due to their status as emerging economies, so investors will likely be eyeing any outlook statements on how these regions are expected to perform in the coming year.

Full year like-for-like growth is expected to be around 2.8%, below management’s 3-5% medium-term target range.

More important, felt analysts at Liberum, the company said neither earnings or cash are expected to be impacted by the slower top line, meaning “profit, margin and cash delivery” are the key factors to support the valuation in light of a slower top-line.

Indeed, while chief executive Alan Jope has yet to win the confidence of the market and chairman Marijn Dekkers upped sticks to run a biotech fund, Jefferies this month also saw the positives.

Analysts noted “signs of green shoots in key markets” and that the lower share price valuation may be a “spur to action” or “an invitation for activism”.

BT calls up with third quarter update

Enjoying a happier Christmas, BT Group PLC (LON:BT.A) breathed a sigh of relief on election night last month, with Labour’s defeat more or less saving its Openreach infrastructure unit from being nationalised.

What’s more, with the telecoms titan under some pressure over the costs of its broadband roll-out, regulator Ofcom said in the new year that it was “removing the roadblocks” for companies to invest in superfast broadband, unveiling proposals for regulation to “supercharge” investment in fibre-to-the-home internet infrastructure.

BT’s third-quarter update on Thursday will be eyed for any progress on the roll-out front as well as any indicators for how the consumer division has performed over the festive period.

The shares have also performed fairly poorly over the last 12 months, with key weights including its large pension deficit and an expected cut to the dividend next year, so any updates on these issues will also be watched closely.

Berenberg analysts expect revenue and underlying earnings (EBITDA) for the third quarter to decline by 1.7% and 3.7% respectively.

Their prediction of an otherwise “uneventful” update could be livened up if there is some comment on recent reports that the company is planning to sell its Champions League TV rights.

SSE-ing into the future

Fellow utility SSE PLC (LON:SSE) was another that skirted the question of nationalisation after the Tory election win.

Instead of being targeted by Jeremy Corbyn, the ‘big six’ energy company, which had the £500mln sale of its retail arm confirmed by regulators in the election week, is now a possible target for a takeover.

Now repositioned for future growth in a climate-change world through disposals and a shift towards renewables and networks, Goldman Sachs said there was a distinct possibility of a new wave of consolidation in the sector.

Analysts said 2019 saw “a major step-up in public awareness” of climate change issues and more countries outlining net zero policies, including the UK's net zero target by 2050, which is “likely to provide 30 years of growth and regulatory stability in climate infrastructure, with most of the growth concentrated in renewable activities”.

“We believe that SSE stands out as a possible target were we to see M&A in the sector owing to a favourable combination of high earnings exposure to low-risk, infrastructure activities (RES, grids) and its relatively small market cap.”

Despite all this, Goldman reckons the nuts and bolts of the business are not very exciting and so downgraded the shares ahead of Friday’s third-quarter trading update.

Diageo hopes punters still have the stomach for a snifter

On Thursday, Guinness and Johnny Walker maker Diageo PLC (LON:DGE) is due to report what could be an interesting set of interim results on Thursday.

Following a slowdown in Christmas from posh mixer maker Fevertree, investors will be wondering whether the trend toward premium spirits may finally be coming to an end, a fact that could also impact Diageo given that the two firms share a customer group.

The company previously said its expected sales growth for the current year of 5%, so any changes to this figure are likely to be watched closely.

Investors may also be eyeing any impact of global trade tensions on the company’s whisky exports, as well as its Asian market and the bourbon business in the US.

Diageo may also provide an update on its £4.5bn return of capital programme which was originally announced last July.

December to remember for Fuller

Sticking with the strong stuff, Fuller, Smith & Turner PLC (LON:FSTA) trading announcement Thursday is expected to reveal a high-strength quarter, with the performance led by the group’s big presence in the capital city’s boozers.

After a weak November, the London pub and bar market performed well in December despite the rail strikes, analysts at Peel Hunt said.

The first half saw flat adjusted profit at £17.9mln for revenues up 6% to £174.8mln.

“We believe there is upside to both like-for-like sales and margin forecasts over the next two years, as well as expansion if Fuller’s chooses to utilise its £120-150m of financial firepower,” analysts at Peel Hunt said in a note.

“The shares should be underpinned by asset values and the potential for faster growth deriving from a more focused and expansive retail operation.”

AG Barr opens the full-year can

For investors with a taste for softer, fizzier drinks, earlier in the week there should be a year-end update from AG Barr PLC (LON:BAG).

The manufacturer of Scotland’s bright orange pride and glory, Irn Bru, had a tough first half, with declines in both revenues and profits, as it compared against an “unprecedented” long, hot summer in 2018.

However, management has hopes of putting the fizz back in by launching three new version of its Rockstar energy drink, which is produced under licence, as well as improving recipes for its Rubicon juices.

Last month, the FTSE 250 group released an 'old and unimproved' version of Irn Bru in a limited edition 75cl glass bottle – producing as many as the population in Scotland, 4.4mln.

“At a retail sales price of £2, this has potential to contribute up to £4.4mln to AG Barr's net sales before the conclusion of Jan full years in 2020 assuming a 50% retailer take,” analysts at Liberum said in a note.

“It looks to us like a solid offering out of AG Barr, which should resonate strongly in the mind of the consumer.”

Friday flow show for Hargreaves

Ending the week, Hargreaves Lansdown PLC’s (LON:HL.) will be putting out interim numbers on Friday that will reveal whether the second quarter has picked up after a weak start to its financial year.

The FTSE 100-listed investment platform group flagged that new business was hit by “weak investor sentiment” in the three months to 30 September.

Boris Johnson’s election win should benefit the financials sector, said analysts at Peel Hunt, as rising asset prices help managers and improve confidence in new investment.

In particular, HL should see increased flows from clients, particularly in the run up to the tax year end, with little impact from foreign exchange movements as it is largely a domestic player.

Chief executive Chris Hill said in October’s update the firm would continue to invest at a “deliberately moderate” pace as it remains “mindful” of the wider market.

Significant announcements expected for week ending 31 January:

Monday January 27:

Finals: SThree PLC (LON:STEM), Global Invacom Group Limited (LON:GINV)

Interims: ITM Power PLC (LON:ITM)

Trading announcements: Petra Diamonds Limited (LON:PDL)

Tuesday January 28:

Finals: Crest Nicholson Holdings PLC (LON:CRST), McCarthy & Stone PLC (LON:MCS)

Interims: PZ Cussons PLC (LON:PZC), NWF Group plc (LON:NWF)

Trading announcements: AG Barr PLC (LON:BAG), UDG Healthcare PLC (LON:UDG), DP Eurasia NV (LON:DPEU)

Economic announcements: US consumer confidence

Wednesday January 29:

Interims: Hargreaves Services Plc (LON:HSP)

Trading announcements: Wizz Air Holdings PLC (LON:WIZZ), Fresnillo Plc (LON:FRES)

Economic announcements: Federal Reserve policy decision, UK house prices

Thursday January 30:

Finals: Unilever PLC (LON:ULVR)

Interims: Diageo PLC (LON:DGE)

Trading announcements: BT Group PLC (LON:BT.A) Royal Dutch Shell PLC (LON:RDSB), Fuller, Smith & Turner PLC (LON:FSTA), Evraz PLC (LON:EVR), St. James’s Place PLC (LON:STJ)

Interims: Rank Group PLC (LON:RNK), Renishaw plc (LON:RSW), Haynes Publishing Group Plc (LON:HYNS), Best of the Best PLC (LON:BOTB),

Economic announcements: Bank of England policy decision, US jobless claims, US GDP

Friday January 31:

Finals: Premier Veterinary Group PLC (LON:PVG)

Interims: Hargreaves Lansdown PLC (LON:HL.)

Trading announcements: SSE PLC (LON:SSE), Talktalk Telecom Group PLC (LON:TALK)

Economic announcements: UK consumer confidence, US personal spending, US Chicago PMI

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