Tuesday preview: Royal Mail volumes eyed, TalkTalk has chance to impress
Tuesday will give investors an opportunity to catch up on developments at Dairy Crest, Galliford Try, Royal Mail, SSP and TalkTalk, while later jobs data will be important ahead of the Bank of England's meeting in a fortnight.
Starting with the FTSE 100, Royal Mail, which made it back into the blue chip index in the first quarter reshuffle after a near-40% gain since Christmas to hit an all-time high above 632p in the run-up to May's results for the year to 31 March. However, the shares have since lost almost a quarter of their value.
With the introduction of the GDPR data protection regulations Royal Mail warned this could disrupt advertising mail in the short term and letter volumes are expected to fall by between 4-6% this year, putting more pressure on the parcels business.
Ongoing business uncertainty means it’s like to be at the upper end of that range, said broker Hargreaves Lansdown. "Meanwhile labour costs are expected to weigh on margins in the international business and a highly competitive UK parcels business means pricing is tough."
Under CEO Moya Greene, who is stepping down in September, the group has cutting costs, avoiding £642m in annualised operating costs over the last three years. "Cost reduction will remain a key focus this year, but with the group only just preventing industrial action last Christmas, it looks like future savings might not be as easy to deliver," Hargeaves said.
UBS analysts noted that the first quarter of the company's financial year is a fairly small quarter for Royal Mail but volume guidance will be under the microscope. They forecast a fall of 6% for underlying letter volumes for the full year and 5.3% for parcel volumes over the full year.
TalkTalk's shares have been even more battered, down 7% since May's finals, 46% since November's interims and 72% lower since 2015's highs. The lows have attracted hedge fund Toscafund Asset Management to up its stake in Talktalk to 16.2% as rumours swirl the telecoms firm could be put up for sale, with founder Charles Dunstone also recently upping his personal stake to 28.5%.
The broadband and telecoms services provider, which also had to cancel the £175m sale of its business-to-business unit to Daisy Group, will release a first-quarter statement a day before its annual general meeting, where directors are likely to face questions about February’s £200m fundraising, as private investors did not get the chance to participate. Shareholder advisory service ISS has called on investors to vote against the reappointment of founder and executive chairman Charles Dunstone.
Deutchse Bank said the market may find around 3% on net revenue growth in the first quarter pleasing after the drop of 2.8% in the fourth quarter, though this reflects the company's recent investment in subscribers and business simplification.
Deutchse expects strong subscriber growth to continue this quarter of around 70k net adds, driven by wholesale, and supportive for full year guidance of 150k subs, with 15% EBITDA growth.
Elsewhere, Dairy Crest has relatively outperformed, with its shares down only 19% since the start of the year.
Analysts at Peel Hunt expect good growth from the key brands, with Cathedral City cheese seeing high single-digit growth given improving volumes and higher pricing. The spreads brands are seeing continuing to perform well in a tough market.
The company will be benefiting from improved performance in infant formula due to higher proportion of sales of infant formula grade and increased sales to the major infant formula branded businesses.
Galliford Try last updated the market in May, when management announced that a further exceptional charge in relation to the Aberdeen Western Peripheral Route project is likely in a range of £10-20m.
Broker Numis said investors will be looking for clarity here, both in terms of the incremental charge and the contract overall, while its discussions with management led it nudge full year forecasts down 2% to reflect more prudent assumptions in regards to construction and housebuilding.
"Indeed, we now forecast lower volume growth in Linden Homes, which reflects our perception of increased management caution and, in our view, this could lead to the group reassessing its FY21 volume target for the division in due course. In contrast, Partnerships continues to perform well and this is expected to remain the case, although we would note that this division only represents c.12% of group EBIT."
A third-quarter update is also due to be served up by SSP, the operator of food and drink franchise outlets in airports and stations, having reported sales growth of 9.8% in the six months ended 31 March, with like-for-like sales up 2.8%.
UBS forecasts quarterly revenue growth to slow to 4.3%, with like-for-like growth of 2.1%, with the earlier benefit of currency swings reversing for a hit of 0.8% from FX.
MACROECONOMIC NEWS
UK jobs market data on Tuesday and inflation numbers the day after are the last major data points before the Bank of England's monetary policy committee convenes on 2 August. Tuesday will also see BoE Governor Mark Carney and colleagues Jon Cunliffe, Andrew Bailey and Elisabeth Stheeman answer questions from the Treasury Committee at 0900 BST.
Unemployment data, scheduled for release from the Office for National Statistics at 0930 BST, will provide an update for May after April saw year-on-year wage growth cool a little to 2.5%, including bonuses, while three-month average, unemployment rate held steady at 4.2%.
The headline unemployment rate is expected to stay unmoved in May, though some economists see it rising to 4.3% as February’s bumper monthly employment gain moves out of the three-month calculation, while economists at Pantheon Macroeconomics noted that employment intentions have deteriorated recently, while job vacancies have plateaued.
They predicted that the headline rate of year-over-year growth in average wages including bonuses will rise to 2.6% in May, from 2.5% in April. The consensus forecast is for the figure to remain at 2.5% with the figure excluding bonuses to fall to 2.7% from 2.8%.
Economists at RBC Capital Markets forecast earnings growth will slow slightly, to 2.4% and 2.7% depending on bonus, though they said that the MPC appear to be looking at a wider range of information on wage developments than just the ONS earnings series, with chief economist Andy Haldane relatively bullish on the prospects for wage inflation despite what he referred to as "undulations in shorter-run measures".
Later in the day, US Federal Reserve Chair Jerome Powell will give his semi-annual testimony to the Senate Banking Committee, with another to the House Financial Services Committee coming a day later.
This usually garners a significant level of fanfare but RBC did not expect Powell to break new ground in any meaningful way, noting that he gave an interview last week where he highlighted that economic growth is robust and the prospects look good for inflation to stabilise near the 2% target.
"This suggests a steady course in terms of the prescription for continued gradual rate increases (we think two more this year and four in 2019)," RBC said. That said, the tariff tantrum is likely to be at the forefront of the discussion in this typically highly politicized event. While Powell has not altered his baseline view given recent tariff actions, he did highlight that a significant intensification of trade frictions could be detrimental for the economy."
Tuesday July 17
INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Capacity Utilisation (US) (14:15)
Industrial Production (US) (14:15)
UK ECONOMIC ANNOUNCEMENTS
Claimant Count Rate (09:30)
FINALS
Gateley (Holdings) , Ideagen, NCC Group
INTERIMS
Amino Technologies, Arbuthnot Banking Group, Etalon Group GDR (Reg S), Hydrogen Group, Synectics
TRADING ANNOUNCEMENTS
City of London Investment Group, Galliford Try, Hydrogen Group, Petropavlovsk, Royal Mail, Scapa Group, SSP Group , TalkTalk Telecom Group
DRILLING REPORT
BHP Billiton, Rio Tinto
AGMS
British Land Company, Brown (N.) Group, Dairy Crest Group, FirstGroup, GoldStone Resources Ltd, HICL Infrastructure Company Ltd, Perpetual Income & Growth Inv Trust
FINAL DIVIDEND PAYMENT DATE
Pets at Home Group