Tesco to provide the nibbles as the markets continue to eye US trade and Tory leadership battles

Aide from Tesco's latest update, a number of lesser-known blue chip firms will also report in the Week Ahead including British American Tobacco, Ferguson, DS Smith, and Halma

Tesco store
Industry data from Kantar Worldpanel showed UK grocers’ sales fell 0.4% in the four weeks to May 19

The week ahead will undoubtedly be dominated, once again, by the big clouds surrounding President Trump’s ongoing trade battles and the Brexit-focused Tory party leadership battle, however, there will also be other factors to provide some diversion.  

The corporate news, while still fairly sparse, at least has updates from some blue chip beasts, notably supermarkets giant Tesco PLC (LON:TSCO), while the macro picture brings UK GDP growth and labour markets numbers together with US inflation and retail sales figures.

Tough comps to weigh on Tesco

Like the rest of the supermarket sector, Tesco’s first quarter sales last year were boosted by the wedding of Prince Harry and Meghan Markle, plus unusually warm weather and the FA Cup final.

These tough comparatives, coupled with fierce competition from discounters Aldi and Lidl, are therefore likely to drag on this year’s first quarter numbers, which Tesco publishes on Thursday.

Industry data from Kantar Worldpanel showed UK grocers’ sales fell 0.4% in the four weeks to May 19.

“Quarterly UK retail sales growth excluding fuel has a 79% correlation to Kantar data, and while Kantar and Tesco's periods do not perfectly overlap, Kantar suggests that Tesco will report +0.2% retail growth for the first quarter of 2020, close to our expectations,” Deutsche Bank said in a preview.

They added: “We expect the group to report 0.4% sales growth excluding fuel, with 0.7% like-for-like growth ex fuel.”

In the first quarter of fiscal year 2019, Tesco’s sales, excluding fuel, jumped 12.1% with like-for-like growth of 1.8%.

Next generation smoking key for BAT

While the tobacco groups have been great dividend payers their shares prices have languished as the number of traditional cigarette and pipe smokers diminishes, so the focus has shifted to next generation products.

British American Tobacco PLC (LON:BATS) reported a good set of full year 2018 results at the end of February and there is the hope and expectation that in first-quarter trading update, due on Wednesday, will again be the new generation of tobacco products, e-cigarettes that will drive sales.

Last year sales of these products rose by 95% so investors will be keen to see if the near doubling of sales for the FTSE 100-listed firm continues.

Investors will also expect an update on BAT’s appeal to a compensation claim amounting up to £6bn in Canada.

US exit rate a key focus for Ferguson

Ahead of its third-quarter trading update on Monday, Ferguson Plc (LON:FERG) shares were rallying as investors flocked to snap up big names with lots of dollar-denominated earnings such as the US-focused plumbing and heating products distributor.

In March, the FTSE 100-listed company - formerly known as Wolseley - disappointed the market when it warned that full-year profit was likely to leak out at the lower end of market forecasts, while also announcing plans to move its headquarters from Switzerland to the UK.

Underlying earnings for the year were guided to about US$1.58bn, the bottom of the range of analyst’s expectations, with second half organic revenue growth coming out at 3-5%.

With the latest update, UBS analysts said the key focus will likely be on the US exit rate from the year and whether drop-through rates can improve into the new year.

Material growth expected for Halma

Full year results from Halma PLC (LON:HLMA), due on Tuesday, should be as impressively boring as the smoke detector and lift door sensor company itself.

A pre-close update ahead of the March year-end indicated that the FTSE 100-listed firm trading was in line with expectations, with growth in its Infrastructure division strongest, while there was good growth from Medical and Environmental Analysis and a “satisfactory” performance for Process Safety.

Halma’s management’s guidance then was for adjusted pre-tax profit in the range of £240.1mln-£253.4mln.

After a strong run in 2019, Halma’s shares trade on a lofty p/e ratio of around 33.1 times forecast earnings, according to analysts at broker Numis.

“We continue to like the shares from a long term perspective, but near term valuation appears full and we await a better entry point,” the analysts said in a preview, adding that coming first-half comparatives could prove tough given the rarity of all four sectors delivering material profit growth at the same time.

Box prices key driver for DS Smith numbers

DS Smith PLC (LON:SMDS), the FTSE 100-listed corrugated cardboard packaging maker, will unbox its annual numbers on Tuesday, with its shares down by more than a quarter since its last final results.

The most recent updated from the group was an April update that confirmed trading remained in-line with management’s expectations in the second half of the year ending that month.

All regions provided growth though softer volume were evident in export-led markets such as Germany, analysts at broker Numis noted, and they “believe an update on current demand conditions will be a key influence on investor sentiment”.

The broker, which forecasts revenues of £6.243bn, adjusted pre-tax profit of £556mln and £2.2bn of net debt, believes the near-term direction of box prices “will be the key driver of ours and consensus earnings estimates, and share price direction, following the release of results”.

In a recent note, analysts at UBS highlighted falling input prices but felt selling prices of corrugated packaging will be “relatively resilient” and only decline around 2% this year and next.

The Swiss bank told clients that following the acquisition of €1.9bn Europac last summer, DS Smith was likely to “take a pause in its acquisitive growth strategy, but longer term continue to consolidate the market”.

Bellway and Crest Nicholson tackling cost pressures

Away from the blue chips, low interest rates and the government’s Help to Buy scheme have shielded housebuilders against the impact of Brexit uncertainty to a certain extent.

But house prices have cooled as consumer confidence remains subdued while a Brexit-driven decline in the value of the pound means cost pressures are rising.

Investors will be keen to see how well housebuilders Bellway plc (LON:BWY) and Crest Nicholson Holdings PLC (LON:CRST) have managed these challenges when they both update the market on trading on Tuesday.

Bellway has been trying to lower costs by improving building efficiency and taking a more cautious approach to land buying.

The cost cutting programme should be key focus of Bellway’s update along with any changes to its full-year guidance.

UBS expects Bellway to see 4.5% growth in annual volume to 10,775 units and a 2% rise in average selling prices to £209,700.

“Operating margins have previously been flagged to moderate to 21.5%, resulting in overall operating profit of £678mln and pre-tax profit £662mln,” the Swiss bank said in a preview.

“In terms of trading, we expect a similar pace in reservations to the earlier part of the year, namely a 4-5% increase in total

sales, driven by an increase in site numbers which trended up 8% in the early parts of the year,” they added.

Margin pressures evident at Crest

Rival Crest Nicholson reports its first-half results after publishing a trading update in May which flagged up some of the numbers.

That trading update showed Crest’s sales per outlet week (SPOW) was 0.78 in the half year to April 30, the same rate as a year earlier.

Forward sales on residential properties totalled £500.5mln, up 11% on the year-ago period.

UBS expects Crest’s completions to fall by 5% to 1,188, with the average selling price to be flat at £272,000.

The bank predicts operating margins to drop 2.5 percentage points to 14.7%, resulting in a pre-tax profit of £67mln.

“Key, in our view, will be that guidance for 2019 is held (consensus forecast for pre-tax profit of £150mln),” UBS;s analysts said.

“Given management transition we do not expect an update to strategy at this stage.”

In March, Crest revealed that it had hired the chief executive officer of construction firm Galliford Try, Peter Truscott, to take over as its boss from September.

Will Boohoo cry tears of joy or sorrow?

Boohoo Group PLC’s (LON:BOO) full-year figures at the end of April beat expectations with revenue and profit rising sharply as it continued to benefit from the growing shift to online shopping.

The online fashion retailer said in the results that trading in the first few weeks of the new financial year had been “encouraging”.

For the year ahead, it forecast revenue growth of 25% to 30% and an adjusted underlying earnings (EBITDA) margin of around 10%.

Investors will be hoping for more strong figures from Boohoo when it posts a trading update on Wednesday.

They will also be interested in any updated guidance for the year.

SThree hopes to dodge Brexit storm once again

Recruiter SThree PLC (LON:STHR) will post a second quarter trading update on Friday, and investors will be looking for the group to have continued to avoid any ill effects from the ongoing Brexit uncertainty.

In a first quarter update in March, the company said the UK’s ongoing RU exit process had hurt its UK division, although this was offset by the fact that 85% of its gross profits are generated elsewhere.

Analysts at Numis are predicting SThree will report like-for-like net fee growth of 9% in the quarter, the same as the previous three month period, with conditions expected to have remained the same. Overall, the broker is expecting the firm to deliver a “solid” performance.

PZ Cussons looks to avoid slippage

Imperial Leather soap maker PZ Cussons PLC (LON:PZC) won’t be expected to slip up when it issues a trading update on Thursday.

A very brief trading update in April said the FTSE 250-listed group’s profit expectations remained in line with previous guidance, although that guidance constituted a profit warning when it was delivered in January so investors will be hoping for no more downward movement in the forecasts.

Numis’ analysts expect Cusson’s latest update to follow a similarly brief pattern, with much more detail on the group’s ongoing restructuring likely to appear with its results in July.

Motorpoint Group to keep ticking over

New and used car retailer Motorpoint Group PLC (LON:MOTR) will be hoping to prevent its shares reversing when it delivers full-year results on Tuesday.

The group already warned investors that a slower second half had put more pressure on its sales and margins in an April trading update, although it still expects to deliver a pre-tax profit increase of 10%.

The company’s bosses had also stayed cautious on the outlook for the current year, so investors will be hoping conditions have picked up in the first weeks of the new financial year.

Analysts at Numis are expecting Motorpoint to deliver few surprises in the annual results, instead they will eye any possible updates on the firm’s 13th site, which is due to open in the second half of 2019, as well as any comments on market trends and future capital allocation.

UK growth and jobs in focus

On the macro front, UK monthly GDP growth figures will be parsed on Monday for any signs of a further slowdown in the domestic economy.

The month-on-month figure in May showed a –0.1% decline, worse than the flat reading expected.

Neil Wilson, chief market analyst at Markets.com commented: “PMI surveys show the UK economy remained close to stagnation through the second quarter, so we expect another soft reading.”

But he thinks sterling should be relatively immune as Brexit risks trump anything else and the market still thinks the next move from the BoE is more likely than not to be up.

The latest UK labour market figures will also be released on Tuesday, with the 3 month average ILO unemployment rate expected to hold steady at 3.8%, according to economists at ING.

However, they forecast the more eagerly eyed weekly average earnings growth number, excluding bonuses, to dip to 3.1% for the latest three month period to end-April, down from 3.3% growth in March.

US inflation, retail sales data to fuel Fed rate cut talk

Across the Atlantic, with markets still expecting the Federal Reserve to cut rates this year, attention will be on US May CPI inflation numbers on Wednesday and the latest retail sales figures on Friday.

Neil Wilson of Markets.com noted that the latest prints for both the CPI and PCE suggest inflation is ticking higher.

The April CPI increased by 0.3%, after gaining 0.4% in March, and in the 12 months through to April, CPI increased by 2% after advancing 1.9% in March.   

Meanwhile, US retail sales slipped by -0.2% in April, albeit after a blowout showing in March when they jumped +1.7%.

However, the year-over-year retail sales figure remained firm at +3.1% in April, and with wage growth picking up, despite markets fretting over trade, the US consumer looks to be remaining very resilient, Wilson noted.

Significant announcements expected for week ending June 14:

Monday June 10:

Trading update: Ferguson Plc (Q3) (LON:FERG)

Interims: Codemasters Group Holdings PLC (LON:CDM)

Traffic figures: International Airlines Group PLC (LON:IAG)

AGMs: Angling Direct PLC (LON:ANG)

Economic data: UK industrial, manufacturing production; construction output; UK monthly GDP; UK balance of trade

Tuesday June 11:

Trading update: Bellway plc (LON:BWY)

Interims: Crest Nicholson PLC (LON:CRST), RWS Holdings PLC (LON:RWS), Oxford Metrics PLC (LON:OMG)

Finals: Halma PLC (LON:HLMA), Motorpoint Group PLC (LON:MOTR), Trifast PLC (LON:TRI), Oxford Instruments PLC (LON:OXIG), CML Microsystems PLC (LON:CML), Iomart PLC (LON:IOM), IG Design Group PLC (LON:IGR), BP Marsh & Partners PLC (LON:BPM), Augmentum Fintech Plc (LON:AUGM)

AGMs: Optibiotix Health PLC (LON:OPTI), Primary Health Properties PLC (LON:PHP), SigmaRoc PLC (LON:SRC)

Economic data: UK unemployment, average earnings data; US PPI

Wednesday June 12:

Trading update: British American Tobacco PLC (Q1), (LON:BATS), Boohoo Group PLC (LON:BOO), Summit Therapeutics (Q1) (LON:SUMM)

Finals: Enteq Upstream PLC (LON:NTQ), Castings PLC (LON:CGS), Norcros PLC (LON:NXR), Park Group PLC (LON:PARX), Ramsdens Holdings PLC (LON:RFX), Elektron Technologies PLC (LON:EKT)

AGMs: Aminex PLC (LON:AEX)

Economic data: US CPI inflation

Thursday June 13:

Trading update: Tesco PLC (Q1) (LON:TSCO), PZ Cussons PLC (LON:PZC)

Finals: DS Smith PLC (LON:SMDS), Volex PLC (LON:VLX), Consort Medical PLC (LON:CSRT), OnTheMarkets PLC (LON:OTMP), John Laing Environmental Assets Group Limited (LON:JLEN)

AGMs: Concepta PLC (LON:CPT), Shield Therapeutics PLC (LON:STX), Sirius Minerals PLC (LON:SXX), Taptica International PLC (LON:TAP), Union Jack Oil PLC (LON:UJO)

Ex-dividends to knock 4.54 points off FTSE 100: 3i Group PLC (LON:III), NMC Health plc (LON:NMC), Persimmon PLC (LON:PSN), Severn Trent PLC (LON:SVT), WPP PLC (LON:WPP)

Economic data: US weekly jobless claims

Friday June 14:       

Trading update: SThree PLC (LON:STHR)

Economic data: US retail sales; US industrial production, capacity utilisation; University of Michigan preliminary consumer confidence index

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