Wednesday preview: GSK, ITV results in focus ahead of GDP growth figure
On Wednesday the early focus will be on another busy day of results season and later a preliminary reading on UK economic growth and bank lending, before later in the day the US Federal Reserve will make a statement on monetary policy.
Blue chip companies reporting in London include Compass, Fresnillo, GlaxoSmithKline and ITV, together with mid-caps such as Britvic, Jupiter and Metro Bank.
Alongside BBA mortgage data, the Office for National Statistics will at 0930 BST reveal a preliminary estimate of UK gross domestic product, coming in the wake of the IMF's downgrade to its growth forecast from 2% to 1.7% for 2017.
For the first quarter, UK GDP grew 0.2% compared to the fourth quarter of last year, with annual growth of 2.0%.
The consensus forecast is for quarterly growth to improve to 0.3% and the yearly figure to ease to 1.7%.
The level of GDP growth will provide an idea of how the economy performed as the UK went to the polls to vote in the general election, and Brexit talks got underway in Brussels.
"The GDP growth number is very politically charged at the moment, because it acts as a scoreboard for Brexit," said analyst Laith Khalaf at Hargreaves Lansdown. "Expectations are for growth of just 0.3%, which if met would suggest a disappointing showing in the first quarter was not just a one-off blip."
He said growth of close to 0.3% could best be described as "muddling through" as it would be higher than the dire economic forecasts in the immediate aftermath of Brexit, but will make the latest Bank of England prediction for 1.9% growth this year "a bit stretched".
HSBC also forecast 0.2% growth, saying that "while the strong PMIs in April had initially suggested a good bounce in growth in the second quarter, the data since then have not backed this up" - specifically industrial production and construction.
Official data for April and May suggest that both industrial production and construction output fell by about 0.4% and 1.5%, respectively, economists at Pantheon Macroeconomics said, meaning these sectors collectively subtracted 0.16 percentage points from quarter-on-quarter GDP growth.
Retail sales picked up, however, implying that output in the distribution sector probably increased by 1.5% quarter-on-quarter.
With surveys of the rest of the services sector pointing to only moderate growth, Pantheon reckoned the overall services output will have increased by just 0.4% quarter-on-quarter.
As a result, they forecast that GDP likely increased by just 0.2% quarter-on-quarter in the second quarter, the same rate as in the first.
"Note that the MPC has never raised interest rates in the past 20 years when the latest estimate of quarter-on-quarter GDP growth has been lower than 0.5%."
GSK is due to report interim results, following a strong first quarter which showed sales better than forecast, up 19% thanks mostly to vaccines growth and currency effects or 5% with no currency benefit, while profit margins improved too.
New chief executive Emma Walmsley recently confirmed that she was looking at selling off its Horlicks business in the UK.
For the second quarter, analysts at Deutsche Bank forecast Glaxo to deliver around 12% revenue growth or 2% at constant exchange rates, with a reversal of the vaccine timing benefit from the first quarter dragging on growth.
"We expect a $130m R&D charge related to acquisition of a priority review voucher used for GSK's recent FDA filing of dolutegravir/rilpivirine to drag on EPS," they said, estimating adjusted EPS will be down roughly 5% at CER or up 10% at the reported level or broadly flat at CER excluding this charge.
"We expect guidance for 5-7% CER growth to be reiterated but with qualitative statements adjusted to reflect delayed generic Advair launches and the priority review voucher acquisition."
Catering giant Compass is scheduled to deliver third-quarter numbers, following a first half where underlying revenue rose 3.6%, operating profit 5.2% and earnings per shares 4.1%.
Barclays forecast organic growth of 3.2% that includes a circa-1% drag from the Easter timing shift and expect management to be upbeat regarding trends, "which may be reassuring after Sodexo’s recent miss" and confident in the further acceleration in growth into the final quarter and 2018 where it expects circa 5% growth in both.
ITV also reports interims just a few weeks after chief executive Adam Crozier stepped down a successful seven year tenure, with shares in the broadcaster also hit by some prominent analysts recently downgrading their expectations for European ad spending. New boss Carolyn McCall is not transferring from EasyJet until next year, however.
In next week’s half-year results, there will be close scrutiny of the health of its core UK market, which has come under pressure since the Brexit vote. The company has predicted net advertising revenue to be 8-9% down in the half compared to last year, with declines accelerating to 15-20% in June. Away from advertising, which was brought down by Crozier to just over half group revenues, the ITV studios content business has been subject to a phasing headwind during the half, broker Shore Capital noted, but was described in the group’s first quarter update as having a solid pipeline of new and returning shows and already secured 75% of management’s revenue expectations for the full year. "We will also look for updates on the potential to capture retransmission fees," ShoreCap said, following amendment of the Digital Economy bill.
Drinks maker Britivc will update on its third quarter. Deutsche forecasts Q3 organic growth of +2.2% on the back of a good start to summer in GB and soft comparatives, partly offset by competitive pressures in the UK and Ireland. "Recently acquired operations in Brazil are growing real revenues considerably mostly due to pricing as volume performance continues to be challenging."
Fund manager Jupiter will report H1 results. Barclays forecast assets under management of £45.8bn, up 5% in Q3 from £43.5bn in March driven by £1.7bn of expected net flows and £0.58bn of market movement. The bank forecasts underlying PBT of £94.7m, underlying profit of £76.5m and adjusted EPS 16.7p, with an interim dividend of 5p a share.
Investec said this week that the Metro Bank journey so far has been "stunning", with its "refreshingly eccentric" management confounding its sceptics by achieving customer loans of £6.5bnm, and analysts predict sustained organic growth, supplemented by its £0.6bn portfolio acquisition, will drive loans to circa £7.7bn at Q2 -- almost at its 80% 2020 target already.
"However, we also believe that Metro needs one more capital raise to see it through to capital self-sufficiency in 2020e. We’d plan to wait for that before buying in."
FOMC TO TAKE SOBER LINE?
The Federal Reserves' will update on the Federal Open Markets Committee's policy decision and give a statement that will be hungrily pored over by investors and traders craving more details on balance sheet normalisation plans.
"September could be a reasonable date to start reducing the size of the Fed’s $4.47 billion worth portfolio," said Ipek Ozkardeskaya at London Capital Group.
"Lack of details could further dent the hawkish Fed expectations. The market assigns 42.3% chances for a December rate hike before the FOMC's July verdict.
"A more dovish than expected Fed statement could revive the appetite in the US stocks, based on the anticipation of a prolonged period of relatively cheaper borrowing rates in the US."
Rabobank's analysts continue to think that there will be not third hike by the FOMC this year, as inflation is moving away from its 2% target, which could also delay the Fed’s plan for balance sheet normalisation. "Indeed, unless we get a surprise twist at the meeting, there seems unlikely to be too much of a headache for markets, which will be able to keep gorging on more than ample central-bank liquidity for some time yet," the Dutch bank said.
"Nonetheless," they continued, "as with the participants at Lord Edmund Blackadder’s drinking party, the longer the liquidity flows, the larger the ultimate hangover is going to be. Thus we see central banks twist and turn like twisty-turny things, one day promising they will remain dovish (i.e., everyone except the Fed until recently); then all of a sudden pledging to get back on the wagon and get hawkish (in Sintra, Portugal a few weeks ago, doubly ironic because a Med summer break is usually when one starts drinking, not stops); then suddenly realise what the morning after is going to feel like."
A more sober prediction from Deutsche Bank's chief economist Peter Hooper made a similar point, as he agreed that the Fed is unlikely to take any action in a policy firming direction, partly due to inflation continuing to surprise to the downside of late.
"Indeed, with the 12-month rate of core PCE inflation likely to remain near current low levels this year and bottom during the first half of 2018, we now see the Fed pausing in Q1 after another hike in December, and then resuming a pace of one hike per quarter thereafter."
Wednesday July 26
INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Crude Oil Inventories (US) (15:30)
MBA Mortgage Applications (US) (12:00)
New Homes Sales (US) (15:00)
UK ECONOMIC ANNOUNCEMENTS
BBA Mortgage Lending Figures (09:30)
GDP (Preliminary) (09:30)
Capita, Centaur Media, GKN, GlaxoSmithKline, Hammerson, Huntsworth, International Personal Finance, ITV, Jardine Lloyd Thompson Group, Jupiter Fund Management, Metro Bank, Ooredoo, Quartix Holdings, Robert Walters, Shawbrook, Staffline Group, Tarsus Group, Tullow Oil, Unite Group
3i Group, Compass Group, Fresnillo, GlaxoSmithKline, Paragon Group Of Companies, PayPoint, Sage Group
Brewin Dolphin Holdings, Marston's
Alpha Returns Group, Axis Bank Ltd GDR (Reg S), Cropper (James), Evgen Pharma, Fidelity China Special Situations , Flybe Group, Freeagent Holdings, Graphene NanoChem, Halfords Group, Mitie Group, Motorpoint Group, Motorpoint Group, PayPoint, Polar Capital Holdings, Vertu Motors
FINAL DIVIDEND PAYMENT DATE
Chagala Group Limited (DI), Electrocomponents