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GSK under the microscope in week ahead; BP and Royal Mail also eyed

Three housebuilders are also due to report on their numbers in the coming week: Barratt Developments, Bellway and Redrow

Boeing Co -

The first week of February keeps up the pace of company news, with updates from GSK, Vodafone, Barratt and Royal Mail, plus the dawn of a new month bringing a fresh raft of economic data that will see the week finish with the market's must-watch event of the US jobs report.

GlaxoSmithKline PLC’s (LON:GSK) finals on Wednesday contain an element of mystery as the pharma giant has not yet provided an update on fourth-quarter trading, with longterm investors also maybe anxious that the company is falling behind rival AstraZeneca.

While the shares have climbed to a 17-year high as chief executive Emma Walmsley's two and a half years in charge have seen a greater focus on pharmaceuticals and vaccines, with the consumer healthcare arm due to be spun out into a joint venture with Pfizer in around 2022, GSK fanboys have been a bit miffed to see AZN shares do even better.

In these results, the market will be looking for news on its injectable HIV drug and the Shingrix vaccine for shingles, as well as comment about future dividends.

The launch of the former had to be delayed due to a late response letter by the US authorities and now UBS expects a 2021 entry in the market. The supply of the latter is outstripping demand and analysts noted a “moderate” boost in production.

Sales are expected to fall sharply in 2019 for bronchitis treatment Advair, now off-patent and facing generic competition.

“To compensate for that, the company will be looking to show that its pipeline of new drugs is filling – it has 41 medicines and 17 vaccines in development, from Phase I to Phase III trials, and analysts will look for progress reports here and any new product filings,” AJ Bell’s Russ Mould said.

The analyst consensus points to full year earnings per share of 120p, around a 4% decline.

Although the company is unlikely to comment on it, one extra thing to watch out for is the general pressure on sector share prices that has been coming from US President Donald Trump’s proposal to lower drug prices.

According to Credit Suisse, passing legislation in an election year is “extremely challenging” but lowering drug prices remains a “key” priority among voters.

“We believe that the most likely outcome is a modest deal that caps out-of-pocket patient costs in Medicare Part D [a programme to provide prescription drug benefits] but which leaves any more contentious issues until after the Presidential election,” analysts said.

Brace for BP

No prizes for saying commodity price trends, profitability and asset divestment commentary will be key for investors reading BP PLC’s (LON:BP. update come Tuesday, as these rather obvious focal points are all crucial.

Prior warnings mean BP investors are likely to be braced for weak sentiments, and, results out of rival Shell won’t have provided comfort either.

“Shell’s profits undershot analysts’ forecasts in the fourth quarter and consensus earnings forecasts at BP have slipped relentlessly lower as commodity prices have weakened,” said Mould.

Others are looking at the potential for write-offs – particularly for the shale assets picked up from BP – along with a cautioning around broader crude market uncertainty.

After a surge in oil price volatility in recent weeks, as heightened tensions between the US and Iran subsequently tailed off sharply amid coronavirus fears, there will be many investors looking for some words of reassurance.

Others might be seeking an update on renewables strategy, with BP having so far invested in biofuels, biopower, solar energy and wind energy but being pushed to do lots more.

Building momentum at Barratt and Redrow?

Also on a busy Wednesday, housebuilders Barratt and Redrow will open the door on their latest half-year numbers over the week, following a host of upbeat comments on the sector since the general election, with peer Bellway's update scheduled for the end of the week.

Trading in the housing market so far in 2020 has been “encouraging”, struggling rival Crest Nicholson said in its results on Tuesday, while the latest research showed house prices have been given a leg up given by the Tory election win and mortgage data has reached a 29-month high.

Generally, analysts have been predicting that the election will uncork a mass of pent up demand, with a rebound in buyer confidence expected to drive volumes, although any updates on pricing and costs will be examined amid concerns about affordability issues and profit margins.

“The focus for investors is understanding how material the post-election bounce has been and whether it is being sustained,” said Peel Hunt, adding that after Berkeley’s recent proposal to pay out £1bn of cash there will be “more pressure” on cash-rich builders to bump up shareholder returns.

At around £8bn, Barratt Developments (BDEV.L) is the second largest player in the sector by market cap, helped by a 60%-plus increase in its share price last year.

The first-half performance and outlook for the coming year are expected to be reassuring, said analysts at Citigroup even though they downgraded Barratt to a ‘neutral’ rating.

Profit before tax should come in at £391mln, Citi reckons, as completion volumes grow 2.5% and average selling prices (ASPs) pick up 3% to produce revenues of £2.09bn and oodles more cash.

Over at UBS they expected ASPs to be flat but that completions will be stronger, up 3.3% to produce revenues of £2.19bn, PBT of £412mln and an interim dividend of 9.7p.

Both sets of analysts predicted guidance for 2020 will be for volume growth of around 3% along with further underlying margin improvement.

At FTSE 250-listed Redrow plc (LON:RDW), the board flagged last year that results for 2020 will be more skewed to the second half due to the strong first half last time when it delivered a bumper crop of London apartments in one go, with the outlook for profit margins to decline 20-50 basis points.

Reporting on the same day as Barratt, completions for Redrow in the past six months are expected by UBS to tumble 10.5% to around 2,657 units, with ASP dipping 1.4% to £319,000 to produce a 12% fall in half-year revenues to £853mln.

The Swiss bank expects a tightening in operating profit margins to 18.1% leading to PBT falling to £152mln from £185mln the prior year but the dividend being nudged up to 10.7p compared to 10.0p last time.

However, Redrow's equity valuation “continues to make it look attractive relative to the peer group,” said Peel Hunt, as the shares are trading on a 25% discount to the sector average in terms of the price/NAV ratio despite the company’s “very strong and conservative track record”.

Bellway on the verge of the big time

On Friday, it will be Bellway’s turn, with the builder’s 50% share price rise last year putting it on the verge of promotion to the FTSE 100, well deserved as the UK’s fourth-largest housebuilder by volume.

This is despite the company’s cautious statement alongside final results in October that it anticipates facing “more pronounced” pressure on profit margins in the current year due to flatter house prices and rising costs.

Although of course this was well before the election, Bellway said completions were likely to moderate slightly from last year’s 5.7% growth.

A more recent update concerning the company in January revealed that it had joined big players Barratt and Persimmon in agreeing a listings deal with the OnTheMarket online portal.

Citi has pencilled in PBT of £290mln as operating margins shrink due to product mix and flattish house prices, with no big capital returns expected as net cash is just estimated at around £71mln.

“Investors are likely to focus on lead indicators around enquiries and visitor levels to gauge the strength of sentiment.”

Vodafone also looking to build

Vodafone PLC (LON:VOD) is due to report on its third-quarter performance, with investors looking for updates on the recently troublesome overseas markets of Spain, South Africa, Italy and India.

In November’s second quarter update, the telecoms giant revealed organic service revenue was up 0.4% in the first half of the year, returning to growth of 0.7% in the second quarter after a decline of 0.2% in the first.

Revenues were boosted by two months’ contribution from the €18.4bn acquisition of European cable businesses from Liberty Global, while a loss before tax of €1.9bn reflected a licence ruling from India’s Supreme Court against the local telecoms industry that means the Vodafone Idea joint venture is liable for “very substantial demands”.

Chief executive Nick Read said he expected to “build on” the return to top-line growth in the second half of the year in both Europe and Africa, saying a “fast start” had been made on integrating the Liberty cable businesses.

Vodafone’s gigantic debt pile of €48.1bn, swelled by the acquisition and purchases of mobile spectrum, will be under scrutiny, though it is being chipped away by asset sales in New Zealand, Malta and Egypt.

Another quarter of 0.7% organic service revenue growth is expected by the market.

“Vodafone has lacked earnings momentum for some time now,” said Berenberg in its preview. “Even though revenue growth and cost-cutting have improved over the past two quarters, free cash flow upgrades have been lacking due to a need to rebase dividends and recharges from the Indian operating companies to zero given the operational difficulties in that market.”

For 2020 there are still “some blind spots”, the analysts said, eyeing South Africa and Germany in particular, “but we view these as tail risks”.

Royal Mail posts after tense Christmas

After letter and parcels group Royal Mail PLC (LON:RMG) successfully blocked strike action by its workers over Christmas, investors will slice open this post-festive trading missive on Thursday to see what the effects have been.

How Royal Mail performed over December is crucial, as the company ships piles of greetings cards and parcels across the UK and internationally.

In the first half of the year to the end of September, parcel deliveries were reported to have been offset by the ongoing decline in letters revenue, a trend the company is aiming to maintain through bolstering its online proposition and by trying to take a larger share of online shopping deliveries.

There will also be interest in any changes to previous guidance from chief executive Rico Back, who said in November that revenue and cost headwinds could potentially result in “a break-even or loss-making position for the UK business in 2020-21”.

Since reaching an all-time high above 630p in early 2018 not long after agreeing a payment and productivity deal with workers, RMG shares have lost two thirds of their value, with the strike action at the heart of the issue, as industrial relations have deteriorated with leadership changes and ambitious productivity and cost-saving targets not being met.

Smurfit Kappa to unbox final results

Another outfit hoping to boost its fortunes amid the rise in online shopping is packing group Smurfit Kappa Group plc (LON:SKG), which will deliver its final results on Wednesday.

The Dublin-headquartered group, which primarily focuses on cardboard boxes, is also poised to benefit from the ongoing backlash against plastic packaging.

A prior trading update showed the firm had delivered good organic growth and earnings in its corrugated cardboard boxes in the first nine months of 2019, so investors will be hoping such momentum has continued for the final three months.

Analysts at UBS are expecting the firm’s fourth quarter revenues to rise 4% year-on-year to €2.46bn with adjusted earnings (EBITDA) of €420mln.

Porvair to start the week in a good mood

Filtration specialist Porvair PLC (LON:PRV) is scheduled to release its annual results on Monday, with investors likely to want to hear news on the acquisition of Dutch filtration firm Dahlman Group and how the group is getting on with stricter emissions regulations expected in the future.

The share price has rallied by 28% since its last update in December when it flagged earnings for the year would come in higher than expectations.

Revenue growth for the year to 30 November is expected to be around 13% driven by “strong” growth in the aerospace and industrial division, management said.

“We consider Porvair to be amongst the highest quality industrial stocks due to its ability to grow revenue (85% of which is recurring) and its ability to provide solutions to long-term environmental issues,” Shore Capital's analysts said.

However, they downgraded the stock to ‘hold’ from ‘buy’ in advance of the results, due to the recent rise in the share price combined with risk from economic uncertainty.

Micro review in focus

IT group Micro Focus International plc (LON:MCRO) is due to provide a preliminary update on its strategic review alongside Tuesday’s finals.

There is a “potential for disposals to be announced”, analysts at UBS suggested, or maybe “incremental investments to maintain the relevancy and competitiveness of its products” in either its testing or security arms, perhaps.

Last summer the group said it would accelerate the business review to focus on “what in addition to execution improvements are required to optimise the value of our broad portfolio of products.

In November it said net debt was around US$4.3bn at a leverage multiple of approximately 3.2 times underling profits (EBITDA) for the period to the end of last October.

Cash flow levels will therefore be “important” said UBS, “and so the impact of any investments on margins, the status of the HPE integration exercise, sales efficacy and the outlook for revenues in 2020 are all factors that investors will focus on”.

In 2020 the analysts are looking for a 5% sales decline to US$3,163m and EBITDA of US$1,355m.

Compass offers cost chops on the menu

Catering giant Compass Group PLC (LON:CPG) is releasing a quarterly update on Thursday, when the annual general meeting is scheduled.

The FTSE 100-listed company will release some updates on its cost-cutting strategy and the impact of macroeconomic uncertainty on its global operations, in particular Europe where analysts remain cautious.

UBS forecasts the three months to 31 December will see group organic growth at 5%, led by the US at 7% and rest of the world at 4%, while Europe is set to remain flat.

Macro fun

The first Friday of the month will bring the usual batch of US non-farm payroll data, with analysts at Capital Economics predicting that January will see an acceleration in jobs growth to 185,000 from 145,000.

However, analysts at the research consultancy said the figures could mask a struggling US manufacturing sector, which saw 15,000 job losses last month with further declines expected in January, particularly as suppliers to aircraft maker Boeing Co (NYSE:BA) are forced to layoff staff amid the suspension of production of its troubled MAX aircraft.

Back in the UK, Monday, Tuesday and Wednesday will bring the latest PMI data for manufacturing, construction and services respectively.

The data will be eyed to see if the Conservative election victory and Brexit clarity have indeed produced a bump in activity in the new year.

“There are already some tentative signs of improvement in ‘soft’ indicators such as the latest Nationwide house price survey, the most recent bank mortgage approvals data and also Confederation of British Industry’s survey of 300 manufacturers, which in the three months to January showed the fastest rise in business optimism since spring 2014 and hints that companies were looking to invest more”, said AJ Bell investment director Russ Mould.

“Economists, politicians, investors and the Bank of England will all doubtless be hoping to see some signs of improvement, especially those investors who are buying into the bounce theory and feel there is value in UK domestic stocks like banks, house builders, construction plays (and maybe even downtrodden retail and real estate stocks) as a result”, he added.

Significant announcements expected for week ending 7 February:

Monday February 3:

Finals: Porvair PLC (LON:PRV)

Trading announcements: Ryanair Holdings plc (LON:RYA)

Economic data: UK manufacturing PMI, US manufacturing PMI, 

Tuesday February 4:

Finals: Micro Focus International plc (LON:MCRO), RM Plc (LON:RM.), St. Modwen Properties PLC (LON:SMP)

Interims: Genedrive PLC (LON:GDR), K3 Capital Group PLC (LON:K3C), Mattioli Woods plc (LON:MTW)

Trading announcements: BP PLC (LON:BP.), Electrocomponents PLC (LON:ECM), Glencore PLC (LON:GLEN), Larsen & Toubro Limited (LON:LTOD)

Economic data: UK construction PMI, US factory orders

Wednesday February 5:

Finals: GlaxoSmithKline PLC (LON:GSK), Smurfit Kappa Group plc (LON:SKG),

Interims: Barratt Developments PLC (LON:BDEV), Frontier Developments PLC (LON:FDEV), Redrow plc (LON:RDW)

Trading announcements: Vodafone Group plc (LON:VOD), Domino’s Pizza Group PLC (LON:DOM), Grainger PLC (LON:GRI), 

Economic data: UK services PMI, UK composite PMI, US ADP employment, US balance of trade, US services PMI, US composite PMI

Thursday February 6:

Finals: Beazley PLC (LON:BEZ),

Interims: Ashmore Group PLC (LON:ASHM), Filtronic PLC (LON:FTC), Supermarket Income REIT (LON:SUPR)

Trading announcements: Compass Group PLC (LON:CPG), Tate & Lyle PLC (LON:TATE), Cranswick PLC (LON:CWK), Royal Mail PLC (LON:RMG), Superdry PLC (LON:SDRY), Victrex plc (LON:VCT)

FTSE 100 ex-dividends to knock 0.48 points off the index: Sage Group PLC (LON:SGE)

Economic data: US jobless claims

Friday February 7:

Trading announcements: Bellway PLC (LON:BWY)

Economic data: US non-farm payrolls, US unemployment

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