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Can AstraZeneca, Barclays and RBS's numbers provide a shot in the arm?

Last updated: 06:00 10 Feb 2020 GMT, First published: 13:00 07 Feb 2020 GMT

AstraZeneca -

Barclays and RBS are the first two of the big banks report their final results, though strong numbers from drug behemoth AstraZeneca would give the FTSE 100 index a bigger shot in the arm as it is now the third-largest company on the index.

Among the notable macroeconomic news, there is a UK GDP update on Tuesday that analysts at RBC Capital Markets on described as very close to “irrelevant” as it covers the period mostly before the general election.

As well as Federal Reserve chair Jerome Powell giving his semi-annual testimonies on Capitol Hill amid low expectations for much change in monetary policy, attention on the US will also focus on politics as the latest primary election takes place in New Hampshire on Tuesday.

The market is also likely to be paying very close attention to the spread of China’s coronavirus outbreak, with the World Health Organization reporting the death toll in the country at 637 as well as a total of 31,211 cases of infection at the end of the preceding week.

AstraZeneca may be the market’s valentine

AstraZeneca PLC (LON:AZN), as it has a huge presence in China with around 16,000 people employed in the country, will certainly not try and ignore the virus.

Chief executive Pascal Soriot recently said the company had “plans for this kind of event”.

Looking back on the past year, AstraZeneca’s final results come out a week after competitor GSK disappointed investors with its numbers and outlook for the new year.

With AZ’s numbers coming out on Valentine’s Day, there may be more love for the Anglo-Swedish group especially as it has been churning out mostly encouraging updates on its medicines for some time, all part of Soriot’s big focus in recent years on replenishing its drugs pipeline.

It now has 164 treatments in various trial stages across its three core areas of oncology, cardiovascular, renal and metabolism (CVRM) and respiratory, which allowed the FTSE 100-listed firm to raise its 2019 sales growth outlook twice last year.

Investors’ revenue focus will be on its lead cancer treatments Tagrisso, Lynparza and Imfinzi, expected to post sales of US$925mln, US$359mln and US$456mln respectively.

AZ should meet the upper end of its guidance, said analysts at Deutsche Bank, reckoning management are likely to guide to high single to low double-digit product sales growth at constant exchange rates for 2020, with core EPS of $4.00-4.20, implying 10-20% growth.

The dividend is expected to remain unchanged from 2018 at US$2.80 for both 2019 and 2020.

AstraZeneca’s policy is to maintain or grow its dividend although some analysts do point out that earnings per share only cover the forecast dividend payment by 1.50 times, which is a bit lower than ideal,” said Russ Mould at AJ Bell.

“In addition, free cash flow cover is skinnier still so it would be nice to see growth here to give scope for dividend growth or even to make sure the current forecast payment is totally safe in the event of any unexpected setbacks.”

Barc worse than Bramson's bite?

Barclays PLC (LON:BARC) will be the first of the high street banking giants to report their results for last year, with its numbers on Thursday likely to need careful reading.

Last August, shares in the company fell to their lowest point since the financial crisis as worries about Brexit combined with a pre-deadline surge in applications for compensation for the industry’s mis-selling of payment protection insurance, plus renewed criticism from activist investor Edward Bramson.

The last we heard from Barclays was a nine-month update in October where the blue eagle bank beat expectations for profits, set aside a further £1.4bn to cover the PPI fallout and warned that the outlook for 2020 was “unquestionably more challenging … in particular given the uncertainty around the UK economy and the interest rate environment”.

The banking sector’s shares were given a boost by the Conservative party’s general election victory that was seen as “market friendly”, although this evaporated fairly quickly as the market factored in the potential for an interest rate cut from the Bank of England and continued angst about Brexit negotiations.

For the full year, Barclays is forecast to deliver pre-tax profit of £5.4bn compared to £3.5bn a year earlier, with the consensus estimate at £6.1bn for 2020.

A final dividend of around 6p per share is expected following the 3p paid share at the half-year stage, though the BoE's latest stress tests implied that sector dividends might need trimming.

Other things to watch will be the performance of the corporate and investment bank (CIB), which is now Europe’s only investment bank in the heavyweight 'bulge bracket' following Deutsche Bank’s exit plans, and is also the unit that has been the main target of Bramson’s ire.

RBS’s Rose makes debut

Finishing up the week, Royal Bank of Scotland Group PLC’s (LON:RBS) full-year results on Friday will be the first for new chief executive Alison Rose at the 62.4%-taxpayer-owned bank.

Rose started in the role in October, having been promoted from CEO of the group’s commercial and private banking division, and will let the market know whether the disappointing third quarter before she took over was more of a glitch or a trend, following a strong performance in the first half of the year.

The third quarter saw RBS set aside an additional charge of £900mln, while both net interest income and net interest margin (NIM) both contract, while the cost:income ratio spiked to 93%.

This, says Richard Hunter at Interactive Investor, undid some of the earlier progress made on costs, while the PPI provision put a dent in the capital cushion, which fell to 15.7%.

“Total income was 20% lower year-on-year (and 29% lower quarter-on quarter), with NatWest Markets having had a particularly challenging time amid market volatility.”

Though noting that there were some positives including keeping the full-year targets for cost savings and profit before tax both on target, Hunter said: “It remains to be seen whether the third quarter was more of an anomaly than a trend”.

Other analysts have recently warned that forecast that RBS’s returns will “fade” due to pressure on NIM and other factors, that its long-awaited dividends will be slow to arrive and there is potential for major Brexit downside.

Rose could announce capital returns of “circa 30% of market cap” for 2020-2022, albeit the Barclays analysts said they expected the timing to be “back-end-loaded” as well as being contingent on external factors such as the propensity for the UK government’s investments arm UKGI to sell down its stake.

Ocado’s finals on the menu

Ocado PLC (LON:OCDO) is due to deliver preliminary results on Tuesday, not long after a December update on its UK joint venture with M&S.

The results will confirm how the FTSE 100-listed online grocery retailer is turning into an international player from its history as a loss-making partner for the likes of Waitrose and WM Morrison Supermarkets PLC (LON:MRW).

The focus will be on the Solutions division, where retailers pay Ocado to use its robot-operated warehouses and delivery systems, deemed a key source of future growth.

In November it signed a deal with Japan’s Aeon, which bodes well for the distant future but upped operating costs for 2019 by £25mln.

The analyst consensus is for sales to increase to almost £1.8bn from £1.6bn the year before, while pre-tax loss is expected to increase to £143mln due to costs associated with the new ventures.

While the shares have been trading largely sideways for the past 10 months, they are well above their ten-year average, analysts at Hargreaves Lansdown noted.

“That is a mark of confidence from the market, but also means the pressure is on to execute plans without any glitches.”

TUI cruising towards larger losses

A first-quarter trading update from TUI AG (LON:TUI) on Tuesday comes hot on the heels of the travel group’s spin-off of its German cruises arm.

On the downside downing of the Boeing 737 Max will brings cost headwinds and there is not expected to be the same hedging positives enjoyed this time last year.

Analysts at UBS forecast a group an underlying loss (EBITA) of €107m versus a loss of €83mln at this time last year.

“We expect the underlying tour operator business to show mid-high single digit bookings growth and low single digit pricing increase for the 2020 summer season leading to higher profits,” the analysts said forecasting flat profit in hotels and slight growth in cruise profits

They suggested key objects of investor interest will be underlying booking and pricing trends in the tour operator business post Thomas Cook's bankruptcy, cash burn during the quarter, updates on the 737 Max and the company’s strategy in terms of aircraft leasing, plus comments about potential regulation changes on the tour operator side of the business in the post Thomas Cook world.

“We believe the tour operators may need to increase the restricted cash associated with advance payments received.”

Babcock changes ahoy

Moving from cruises to battleships, Babcock International Group PLC (LON:BAB) preceded its third-quarter update with news that chief executive Archie Bethel is planning to retire after 16 years working for the defence contractor.

With the process of appointing successor now underway, Bethel will leave only once a replacement is in place.

With its in-line interims in November, Babcock reaffirmed guidance for full-year revenue to fall around 5% to £4.9bn revenue, with underlying profit (EBITA) tumbling 11% to 515-535mln.

Stronger than expected trading in Marine and Land sectors is expected to offset weaker than expected trading at Aviation.

Broker Peel Hunt said this implies the second half revenue will fall roughly 6% versus the 5% in the first, with EBITA declines decelerating to 11% from the 15% in the first.

For the full year, the consensus forecast is for PBT of £441.4mln, feeding through to EPS of 71.1p.

No surprises for Dunelm

On Wednesday, Dunelm Group plc (LON:DNLM) will publish interims that are likely to make an unsurprising read after some detailed updates in recent months.

Analysts at house broker Peel Hunt do not expect any revisions for now but said the better margins suggest there is room for improvement.

The FTSE 250-listed home retailer said last month margins were higher in the quarter to 28 December because it did not resort to Black Friday and pre-Christmas discounting.

The seller of cushions and curtains has enjoyed a rally in online sales after launching a new website in December, which prompted management to plump full-year profit expectations for the fifth time in the year.

Significant announcements expected for week ending 14 February:

Monday 10 February

AGMs: Purecircle Ltd (LON:PURE)

Tuesday 11 February

Finals: Idox Group PLC (LON:IDOX), Ocado PLC (LON:OCDO), PJSC Polyus (LON:PLZL)

Interims: Diurnal Group PLC (LON:DNL)

Trading updates: AA PLC (LON:AA.), S&U PLC (LON:SUS), TUI AG (LON:TUI),

AGMs: BMO Capital & Income Investment Trust (LON:BCI), Keystone Investment Trust (LON:KIT), TUI AG (LON:TUI)

Economic data: UK GDP, UK industrial production, UK BRC retail sales, US NFIB smaller businesses confidence survey, US JOLTS job openings

Wednesday 12 February

Finals: Plus500 Ltd (LON:PLUS); Primary Health Properties PLC (LON:PHP)

Interims: Dunelm Group plc (LON:DNLM), Oncimmune Holdings PLC (LON:ONC)

Trading updates: Babcock International Group PLC (LON:BAB)

AGMs: RWS Holdings PLC (LON:RWS)

Economic data: US MBA mortgage applications, US crude oil inventories

Thursday 13 February

Finals: Bank Of Georgia Group PLC (LON:BGEO), Barclays PLC (LON:BARC), Churchill China PLC (LON:CHH), Coca-Cola HBC AG (LON:CCH), Indivior PLC (LON:INDV), Lancashire Holdings Ltd (PLC:LRE), Relx (PLC LON:REL)

Interims: Centrica PLC (LON:CNA), Grit Real Estate (LON:GR1T), MJ Gleeson PLC (LON:GLE)

Trading updates: Gem Diamonds Ltd (LON:GEMD), Great Portland Estates PLC (LON:GPOR), Safestore Holdings PLC (LON:SAFE)

AGMs: Chrysalis (LON:CYS), GCP Infrastructure Investments (LON:GCP), Oxford Metrics (LON:OMG), Paragon Group (LON:PAG), Tritax Eurobox PLC (LON:EBOX), Watkin Jones (LON:WJG)

FTSE 100 ex-dividends: BP (LON:BP.), Hargreaves Lansdown PLC (LON:HL.), Polymetal International Ltd (LON:POLY)

Economic data: RICS Housing Market Survey, US inflation

Friday 14 February

Finals: AstraZeneca PLC (LON:AZN), Royal Bank of Scotland Group PLC (LON:RBS)

Interims: SEGRO PLC (LON:SGRO)

Economic data: China industrial production, China retail sales, EU GDP, US retail sales, US industrial production, US consumer sentiment

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