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BT to take centre stage as it reports full year numbers with dividend in focus

The week ahead includes updates from BT Group, Superdry, Morrisons, ITV, IAG, Barratt Developments, Direct Line, RSA Insurance and Imperial Brands

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The average analyst forecast for BT's dividend is 15.4p for the 2018/19 financial year

It is a short week ahead thanks to the May bank holiday on Monday but there is plenty on the corporate calendar to keep traders busy.

BT Group PLC (LON:BT.A) is among the raft of companies updating the market, reporting its full year numbers on Thursday.

There is a lot of investor expectation already resting on the shoulders of BT’s new chief executive Philip Jansen as he makes his public debut alongside the results.

Brought in to turn things around with the shares having halved over the past three years, the ex Worldpay boss got his feet under the desk in February and one big decision he and the board have to make is over the dividend. Some analysts are adamant that a cut is crucial while others see it as unnecessary.

The average analyst forecast currently points to a total dividend of 15.4p for the 2018/19 financial year, for which management said in January will see EBITDA “around the top” of its prior £7.3bn-£7.4bn range.

However, the City is expecting the fourth quarter to see EBITDA tumble 9% to £1.86bn as underlying revenues decline 2.8% to £5.78bn, giving an estimated full-year top line of £23.38bn, with £7.41bn of EBITDA and adjusted earnings per share of 26.6p.

UBS analysts said the results will potentially be significant as Jansen “will give a strategy update that could results in more upfront investment for the group/higher capex at Openreach in return for higher longer-term profits”, including potential further cost savings above the £1.5bn annual gross savings already announced. The Swiss bank also said current market estimates “are too conservative” as BT has beaten expectations for both the second and third quarters.

“However, any additional investment by the new CEO could put pressure on the dividend.”

Broker Numis believes Jansen “will likely be meaningfully positive” for a stock it sees as undervalued, though it believes he will not change BT’s strategy “because there is probably nothing radically different anyone can do with a business” that generates more than 90% of free cash from retail and wholesale connectivity in the UK.

Over at Berenberg analysts said a dividend cut was needed as Jansen should favour investment over shareholder returns to return the fallen beast to growth, seeing this as probably “right for the long-term” but aware that investors “will not like it”.

Superdry investors await new strategy under Dunkerton

Superdry PLC (LON:SDRY) investors are waiting to hear what co-founder Julian Dunkerton has planned for the retailer now that he is back in the driving seat.

A year following his departure, Dunkerton returned as chief executive of Superdry last month after convincing shareholders that he should be brought back to help turn around the coats and hoodies maker.

Superdry’s shares have plunged to 506p from 1,500p in the past year after two profit warnings and a weak set of third-quarter results in early February.

This decline spurred Dunkerton to push for re-election, saying “urgent action” was required to address the underperformance.

Dunkerton may update investors on his strategy for the business when Superdry reports a full-year trading update on Thursday.

UBS forecasts 4.6% group sales growth for the fourth quarter, including a 4% rise in retail sales and a 5% gain in wholesale sales.

“Given the recent change in management (2-Apr-19) we believe expectations for current trading a generally low and note the relatively small weighting of 4Q sales (4Q is 40% of 2H sales).

“The key focus for us will be commentary from the new management team on 1) the magnitude of possible near term investments; 2) the medium term outlook for a brand turnaround; and 3) any initiatives already underway (news articles suggest childrenswear and footwear licensing deals have been cancelled).”

Wholesale outperformance to drive guidance lift at Morrisons?

WM Morrison Supermarkets PLC (LON:MRW) bosses will no doubt have breathed a sigh of relief at the end of last month when regulators blocked Sainsbury’s and Asda’s merger.

But the supermarket group can’t stand still as pressure from Aldi and Lidl remains intense, while Tesco – the UK’s largest grocer – looks to have got itself firmly back on track.

Like-for-like sales will be closely watched when Morrisons updates on its first-quarter performance on Thursday following a decent showing over Christmas.

Morrisons did warn back then that shoppers were seeking out value more than ever before, so it will be interesting to see if bosses have seen any further “changes in customer behaviour”

As for the wholesale business, which is expected to generate annual revenues of £1bn+ in the not-too-distant future, investors will want to see that its strong start has continued. If it has, analysts at Hargreaves Lansdown think there’s a chance guidance could be upgraded.

Adverts take main focus but content also eyed at ITV

Advertising revenue will be taking centre stage when FTSE 100 broadcaster ITV plc (LON:ITV) delivers a first quarter trading update on Wednesday, with investors watching closely for any deviation from the predicted drop of 4%.

There has been a glimmer of hope, with some analysts pointing to a read-across from Scottish broadcaster STV, which reported a better-than-feared drop in national advertising revenue in its own first quarter update on 23 April.

Aside from advertising, investors will also be keeping a close eye on the group’s content production arm, ITV Studios, as the group is attempting to wean itself off its reliance on advertising in favour of producing content for license.

Any updates on ITV’s new partnership with the BBC to launch Britbox, a joint-streaming venture that was announced earlier this year, will also be eyed.

Cost rises eyed at Barratt

Barratt Developments PLC (LON:BDEV) is expected to report “robust trading and positive market conditions” when it updates the market on Thursday.

That’s according to analysts at Numis, who expect the FTSE 100 housebuilder to report stable sales rates, alongside a 3-4% rise in price and cost inflation.

Keep an eye on this, though, as rival Taylor Wimpey PLC (LON:TW. recently warned its costs had risen more than expected.

Demand for new homes has been propped up in recent years by the Help to Buy scheme – or Help to Profit as some detractors call it – as well as cheap mortgages.

That helped Barratt to report a pre-tax profit of £408mln in the first-half of its financial year – a £60mln year-on-year increase.

With Brexit having been pushed back, there are also signs that the UK housing market is starting to find its feet again, which would only be good news for Barratt and its peer group.

Brexit impact spied at IAG

What effect is Brexit having on International Consolidated Airlines Group PLC (LON:IAG)? That will be the question on investors’ lips on Friday, when the British Airways owner updates on first quarter-trading.

Consumer confidence is low at the minute, not just in the UK but in other countries as well, so it will be interesting to see if people are still prepared to fork out for holidays.

Businesses are also suffering a crisis of confidence, so that too could hit demand for lucrative business class airfares.

The sharp rise in oil prices over the past six months has raised concerns about fuel costs for airlines, which could put extra pressure on margins.

An update on guidance for the year will also be eyed. While the outlook given in February was better-than-feared, it was hardly scintillating, with bosses forecasting flat profits.

Robust RSA results expected 

RSA Insurance Group PLC (LON:RSA) updates on its first quarter on Thursday, with the statement expected to focus on profitability and or capital as well as growth in net written premiums.

For the full year UBS forecasts premium growth of 1% and expect management commentary around profitability to be “robust and in-line with management expectations”. 

Regarding the loss environment, we understand UK and Scandi have been relatively benign, with Canada slightly above average. Solvency ratio at Dec 2018 was 170%; we forecast ~173% at 1Q19. There is a conference call at 8:30am UKT: Dial-in +44 33 3300 0804, pin code 31259867

Numis said: "We expect premium income to be broadly flat with modest growth in Scandinavia and Canada likely to be offset by reduced UK income. Given the unexciting top line story the market is likely to focus on any  comments relating to underwriting performance in Q1. 

"In particular the market will be looking for signs of improvement in the UK division following poor results in 2018." 

Following above-average weather and large loss activity in 2018, Numis thinks there is scope for a modest relief rally given that loss experience in the first quarter of this year is unlikely to have been worse than last year.

Direct Line navigates uncertain motor pricing and FCA probe

Direct Line Insurance Group PLC (LON:DLG) issues a trading update on Wednesday ahead of its AGM, with shares down more than 11% since going ex-dividend in early April, with investors also concerned about the Financial Conduct Authority’s pricing investigation, which has seen the regualtor putting pressure on insurers ahead of the release of its findings. 

This has contributed to a softer motor insurance pricing backdrop, with claims elevated and companies’ margins under pressure, UBS said, which downgraded its rating on the shares to ‘neutral’ ahead of the results due to “an increasingly uncertain motor pricing and FCA investigation backdrop”. 

Numis expects a “modest” decrease in premium income and flat policy numbers overall as small growth in motor is offset by reductions in home and other.

Imperial Brands earnings to fall on poor tobacco revenue

Cigarettes maker Imperial Brands reports its first half numbers on Wednesday and analysts at UBS expect a “relatively weak” reading.

UBS said it sees tobacco revenue declining marginally below the 1% “normal” level due to a 1% headwind from a difficult comparison in the US.

In vapour, the investment bank predicts revenue to rise 2.8% to £170mln at constant currency.

“We expect a £140mln year-on-year headwind on operating profit due to £40mln of sale gains last year and an incremental £100mn investment in next generation products this year. As a result, we expect EPS to be down 4% year on year.”

UBS expects Imperial Brands to reaffirm its targets for constant currency revenue growth at or above the upper end of its 1-4% guidance range and constant currency earnings per share growth of 4-8%.

 

Significant announcements expected:

Monday May 6:

MAY DAY BANK HOLIDAY

Tuesday May 7:

Trading update: Domino’s Pizza PLC (LON:DOM), Hiscox Ltd (LON:HSX), Vivo Energy PLC (LON:VVO), Verona Pharma PLC (LON:VRP)

Finals: Faron Pharmaceuticals OY (LON:FARN)

AGMs: African Battery Metals PLC (LON:ABM)

Economic data: Halifax UK house prices; US JOLTS jobs; US consumer credit

Wednesday May 8:

Trading updates: ITV plc (LON:ITV), Direct Line Group PLC (LON:DLG), JD Wetherspoon PLC (LON:JDW), Travis Perkins PLC (LON:TPK), SIG PLC (LON:SHI), OneSavings Bank PLC (LON:OSB), Rathbone Brothers PLC (LON:RAT), Apax Global Alpha LIMIted (LON:APAX)

Interims: Imperial Brands PLC (LON:IMB), Elegant Hotels Group PLC (LON:EHG)

Finals: CyanConnode Holdings PLC (LON:CYAN. Keystone Law Group PLC (LON:KEYS), Osirium Technologies PLC (LON:OSI), Smartspace Software Plc (LON:SMRT), Vertu Motors PLC (LON:VTU)

AGMs: Cello Health PLC (LON:CLL), Caledonia Mining Corp. (LON:CMCL)

Economic data: US MBA mortgage applications

Thursday May 9:

Trading updates: Wm. Morrison Supermarkets PLC (Q1) (LON:MRW), Barratt Developments PLC (LON:BDEV), RSA Insurance Group PLC (LON:RSA), Superdry PLC (LON:SDRY), BAE Systems PLC (LON:BA.), IMI PLC (LON:IMI), Mondi Plc (LON:MNDI), Beazley PLC (LON:BEZ), Derwent London PLC (LON:DLN), National Express PLC (LON:NEX)

Finals: BT Group PLC (LON:BT.A), 3i Infrastructure PLC (LON:3IN), Air Partner PLC (LON:AIR), Akers Bioscience Inc. (LON:AKR)

Interims: Cambria Automobiles PLC (LON:CAMB)

AGMs: Crossword Cybersecurity Plc (LON:CCS), Horizonte Minerals PLC (LON:HZM)

FTSE 100 ex-dividends: BP PLC (LON:BP.), Admiral Group PLC (LON:ADM), Centrica PLC (LON:CNA)

Economic data: RICS UK house price index; UK industrial, manufacturing production; US weekly jobless claims; US PPI

Friday May 10:        

Trading updates: International Consolidated Airlines Group PLC (LON:IAG), BBA Aviation PLC (LON:BBA), Millennium & Copthorne PLC (LON:MLC)

Economic data: UK quarterly GDP estimate; UK trade data; UK construction output; US CPI

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