Friday preview: BT, Pearson and RB reports in focus, US GDP later
Friday ends in relatively becalmed fashion after previous days' barrage of results but there are still numbers worth watching from BT, Pearson and Reckitt Benckiser, while the important macroeconomic news will be the US gross domestic product report.
The advance reading of US GDP is expected to show growth has picked up smartly in the second quarter after a pretty lacklustre start to the year, with the consensus expecting an annualised rate around +4% quarter-on-quarter at the 1330 BST release.
The bulk of the advance is expected to come from a stronger consumer profile, with capital expenditure also poised to contribute.
But, said economists at RBC Capital Markets, there is a risk that capex has tapered off a bit in June on the heels of multiple tariff tantrums. "A very firm GDP print (4%+) is widely anticipated and thus the risk here is asymmetric."
TD Securities said the GDP reading "may offer a more interesting event risk for FX markets in what has otherwise been a quiet trading week...With relative growth expectations repriced and well advanced, the USD may be more responsive to a downside surprise."
Looking at the euro-dollar, Ken Odeluga at City Index said: "If the print is in line with robust inflation, labour and output, the euro may not immediately seek out $1.16 from earlier in the month. But that’s chiefly because of protracted selling and crowded positioning after a year of compression. Our best guess is that any snap higher to realise gains will be limited to Thursday’s highs. Magnetic attraction towards last week’s $1.572 spike low will follow."
Last month BT axed chief executive Gavin Patterson due to pressure from major shareholders and later that month reiterated its guidance for full year underlying revenue to fall circa 2%, adjusted EBITDA in a range of £7.3-7.4bn, capital expenditure of around £3.7bn and normalised free cash flow of £2.3-2.5bn.
The former monopoly also said it would change the financial and operational key performance indicators that it would provided alongside financial results.
Although BT shares have rallied 8% since the start of June, after a near-50% fall since the highs of early last year, RBC's telecoms analysts saw few catalysts for the shares in the coming months and said the new KPIs, which will not include either broadband or mobile net adds, "may cause concern, given the widely held sceptical view that companies tend to obfuscate bad news".
However, RBC analysts said BT has successfully dealt with a number of issues that have been overhanging the stock for the past 18 months, including settling the dispute with the Ofcom over the separation of Openreach, the triennial pension review, defusing the long-running battle with Sky over TV sports rights via a wholesale deal, and pivoting to a 'full fibre first' strategy, in line with government and regulators' wishes, which saw an government announcement earlier this week that it will spend up to £5bn to bring full-fibre broadband to all parts of Britain by 2033.
"Having done the 'hard yards', and with a 7% dividend, one could expect some easing of the environment and a potential relief rally (especially if defensive stocks come back into vogue). However we are hard pressed to find any catalysts that could cause the market to reassess BT's prospects in the next 12 months." Moreover, as revealed at the full year results, the next three years are likely to see £1bn headwind coming from regulation, up from the £500m seen over the past few years.
Pearson's first quarter saw underlying revenues edged up just 1% in the first quarter, with growth in North America and the core business offset by a drop in Pearson’s 'growth' segment due to the phasing of sales in its South African school courseware business.
Chief executive John Fallon maintained guidance for 2018 operating profit of between £520m and £560m, adjusted earnings per share of 49p to 53p and cash conversion in excess of 90%, saying the group was on track to deliver cumulative savings of £95m by the end of this year.
Fallon also told analysts: “Our confidence is probably that little bit higher than it was at the start of the year” and Deutsche Bank said with the shares up more than 20% in 2018 the stock would require further bullishness from Pearson management at the interim results.
"However, ahead of the key August-to-October College textbook selling season, there is a limit to what they can say. We expect management to continue to sound bullish, but not change guidance," analysts predicted, forecasting 1.5% organic growth in the seasonally smaller half and £103m operating profit and 6.3p of earnings.
The other important topic will be the K-12 business, which was been classified as an asset held for sale in the FY17 results, with Deutsche lookig for a £378m sale and a share buyback with the proceeds.
Reckitt Benckiser's own first quarter was seen as disappointing as the Durex, Dettol and Strepsils maker net revenue of £3.1bn in the first three months of the year, up 23% on last year thanks to the acquisition of infant formula and child nutrition business Mead Johnson Nutrition, but up just 3% on a proforma basis.
Analysts at Hargreaves Lansdown said investors' expectations for the half year numbers were dampened, but the hope is that management will not reduce their guidance for the full year’s revenues of between 2-3%. "However, currency tailwinds turning into headwinds will make this task more difficult. Investors will expect a progress report on the preparations to split the group into two separate divisions, Health and Hygiene and an update on the integration of the Mead Johnson acquisition."
Friday July 27
INTERNATIONAL ECONOMIC ANNOUNCEMENTS
GDP (Preliminary) (US) (13:30)
Personal Consumption Expenditures (US) (13:30)
U. of Michigan Confidence (US) (15:00)
UK ECONOMIC ANNOUNCEMENTS
Nationwide House Price Index (07:00)
FINALS
Premier African Minerals Ltd
INTERIMS
Equiniti Group , Greencoat UK Wind, Hutchison China Meditech Ltd, Jardine Matheson Holdings Ltd (Singapore Reg), Jardine Strategic Holdings Ltd. (Singapore), Jupiter Fund Management , Reckitt Benckiser Group, Rightmove, UK Mail Group
TRADING ANNOUNCEMENTS
BBVA S.A., CYBG
GMS
Bank Audi S.A.L. GDR (Repr 1'Com'Shr Lbp1650)(Reg S)
ANNUAL REPORT
Premier African Minerals Ltd
SPECIAL DIVIDEND PAYMENT DATE
Bisichi Mining
EGMS
Bank Audi S.A.L. GDR (Repr 1'Com'Shr Lbp1650)(Reg S)
AGMS
Arricano Real Estate (DI), Emmerson, Gear4music (Holdings), Hansa Trust, MobilityOne Ltd., MobilityOne Ltd., Nature Group, Polemos, Powerhouse Energy Group, Redt Energy , United Utilities Group
FINAL DIVIDEND PAYMENT DATE
Anpario, Biffa, Big Yellow Group, Bisichi Mining, Braemar Shipping Services, Montanaro UK Smaller Companies Inv Trust, Morses Club , Nex Group , Prime People, Renewi , Scisys, Steppe Cement Ltd, Vianet Group
INTERIM DIVIDEND PAYMENT DATE
Character Group, Dunedin Smaller Companies Inv Trust, Gooch & Housego, Paragon Banking Group, Up Global Sourcing Holdings
QUARTERLY PAYMENT DATE
Aberdeen Diversified Income and Growth Trust , Brunner Inv Trust, Land Securities Group, Real Estate Investors, Standard Life Private Equity Trust, Value and Income Trust