Tuesday preview: Results from AB Foods, Imperial Brands, G4S, Direct Line, Hiscox
Tuesday offers up a fairly busy day of corporate results and trading updates, led by Primark owner Associated British Foods, tobacco giant Imperial Brands, plus insurers Direct Line and Hiscox, and the still-recuperating G4S.
For macrophiles, an Australian rate rise does not look on the cards and there are no major economic events or data on Tuesday, though UK house price data from Halifax and retail figures from the BRC and euro area retail sales will provide some grist for the market's mill, while Canada's chief central banker may do later.
Australia's Reserve Bank is not felt likely to move rates from 1.5%, even though consumer price inflation was below the bottom of the 2-3% target range.
Inflation is off the bottom and the labour market is seen as tightening up, the market expects wages and inflation to pick up over coming quarters.
ABF AND IMPERIAL BRANDS
AB Foods is not likely to spring many surpsises in its final results as it already provided a detailed pre-close update in mid-September.
Management said group operating profits will be "well ahead" of last year after its Primark clothing arm was able to reduce levels of price promotion, with the sugar business also adding a hefty spoonful to the bottom line.
The consensus earnings per share estimate points to 125.7p with a dividend at 42.2p, according to Reuters.
Year-end net cash was guided to circa £650m, although UBS noted just under half of this may already have been spent on the Acetum balsamic vinegar acquisition.
The focus will be on Primark margins, where guidance currently stands is for them to remain broadly flat.
Deutsche Bank felt "this could be conservative since there should be material currency benefits in H2".
UBS, which forecast pre-exceptional profits before tax of £1318m, EPS of 126.4p and a dividend of 42.0p, was looking for 2017 Primark like-for-like sales of 4.5% in the UK, within the overall guidance figure of 1%, with Europe down 2%.
UBS was not expecting much change to currency related comments, while looking at Primark margins, analysts said that this year may have been one of the best years on record for markdowns, so a reversion to the long term average could knock off up to 100 basis points from Primark's EBIT margin, offsetting potential benefits elsewhere.
"Other areas of interest will be comments on Primark's performance outside the UK, where we expect generally positive comments although with modest weakness in Germany and with any US rollout programme still hampered by the difficulty in gauging the long term viability of many malls.
"The outlook for sugar profits may also be deteriorating, with a lower EU price likely to roll through into FY19 without any commensurate FX transaction benefit."
Barclays was expecting the outlook for sugar profits to be broadly stable with sharply lower pricing offset by higher volumes and FX transaction tailwinds.
Deutsche agreed sugar was the other major "swing-factor", though it noted guidance already given for higher production levels should mean that profits remain steady in 2017/8 despite the end to the EU quota system last month.
Preliminary results from Imperial Brands come as the share sit more than 20% lower than April's 12-month high, with only half of that decline coming after US regulators said they planned to toughen nicotine restrictions in an effort to lower the number of tobacco-related deaths.
In September, Imperial assured that it remained on track to meet earnings expectations for the full year at both constant currency and reported exchange rates.
Tobacco volumes should fall around 4.8% year on year in 2017, forecast UBS, with growth markets down 3.8%, USA down 5.0% and returns markets down 5.3%. Analysts forecast tobacco constant currency net sales to fall 3.4%, with clean EBIT down 1.5%, and EPS of 273.5p.
Deutsche cut its forecasts after the recent update to £8.57bn revenue and 271.2p EPS.
RBC Capital Markets said in the summer that the stock's underperformance in the year-to-date means the upside implied by the average consensus price target is the highest it's seen it over the last five years, throwing up "an excellent buying opportunity".
RBC analysts said worries about Imperial’s ability to hit its medium-term target of organic revenue growth of 1-4% go a long way in explaining its weak share performance, with the FDA announcement on 28 July providing an extra leg down.
RBC said that while Imperial's market share in its key markets is up there with competitors, its portfolio is too fragmented, meaning that low penetration of its growth brands has been a substantial drag on organic growth.
The bank added that Imperial is doing the right things to fix its top line - it pointed to brand migration, SKU rationalisation and increased investments behind growth brands - but the share price is not giving any credit for it.
INSURERS AND G4S
Direct Line said at its interims in July that it was on track for stable underwriting margins and medium term business growth of 2-3%. Management is targeting a full year 2016 combined ratio at the lower end of the 93-95% range, normalised for weather.
Broker Numis noted Q3 survey data suggested motor rates flattened and suggested one area of interest will be to see if Direct Line experienced the same.
"Elsewhere we expect continued difficult trading conditions in home insurance and ongoing progress at building out the commercial insurance business."
UBS anticipated motor premiums will grow at a slower rate as it continues to de-risk, while it is expected to continue to pull back from home insurance to offset motor premium growth to a degree, leading to overall gross written premium growth of 6% to £938m.
An update from Hiscox may provide interest from any change in its estimated costs for hurricanes Harvey and Irma, having so far revealed an estimated $150m cost each for Harvey and Irma.
"This update will therefore also provide a further loss estimate for hurricane Maria and the Mexico earthquakes," said Numis.
Aside from this, Hiscox will also update on premium income growth and whether the company expects any improvement in rates following the Q3 catastrophe events.
For the full year Numis forecasting premium income growth of 14% net of reinsurance costs.
Last by no mean least is G4S, the restructuring security outsourcer that regained its place in the FSTE 100 in the summer.
G4S flagged at its interim results in August that organic growth would slow-down in the second half on the back of tough comparatives in North America. Chief executive Ashley Almanza expects full year revenue growth to be broadly in line with the medium term target of 4-6%, with continued growth anticipated in 2018.
But growth from the group may be weak for many months yet, some analysts predict.
UBS expects third quarter organic growth to screech down to around 2% versus 6.2% in the first half. "We expect North America to fall into slightly negative organic growth in Q3 while Middle East gradually recovers."
But analysts at the Swiss bank expect G4S to reiterate its guidance of being within its 4-6% organic growth range for the full year suggesting some gradual pick-up in North America for the fourth quarter.
Deutsche, however, predicted growth will remain weak for two to three quarters, with analysts cutting forecasts to 1.9% for the second half of 2017, from previous estimates of 3.2%.
But they are more optimistic once the first quarter of 2018 is out of the way, when they expect faster growth to return for the rest of next year at around 4.4% thanks to better year-on-year growth from its Cash360 business, alongside better overall expectations for emerging markets growth and in commodities.
"In the medium-term, selling cash solutions could provide capital to invest elsewhere," the analysts said, with Prosegur Cash and Loomis seen as potential buyers of some of some assets.
Tuesday November 07
INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Consumer Credit (US) (19:00)
Industrial Production (GER) (06:00)
Retail Sales (EU) (10:00)
FINALS
Associated British Foods, Imperial Brands , Up Global Sourcing Holdings
INTERIMS
Carclo, First Derivatives
TRADING ANNOUNCEMENTS
Cloudcall Group, Convatec Group, Conviviality, Direct Line Insurance Group, Hiscox, Jardine Lloyd Thompson Group, Tyman
AGMS
Papillon Holdings, Plutus PowerGen
INTERIM DIVIDEND PAYMENT DATE
Mears Group
QUARTERLY PAYMENT DATE
JPMorgan Asian Investment Trust