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.
Murmurings of a broadband collaboration between rivals Sky and Virgin Media have further heaped pressure on the former state telco.
So, Thursday’s third-quarter update 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.
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.
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”.
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.
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