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Thursday preview: ONS retail sales and results from Royal Mail, British Land, Qinetic

By Oliver Haill

Date: Wednesday 15 Nov 2017

LONDON (ShareCast) - (ShareCast News) - Thursday's UK retail sales numbers are not expected to provide any filip to the beleaguered sector, while the reporting season has not fully tailed off yet, with results due from 3i, British Land, Qinetiq, Assura Investec, Mediclinic, Royal Mail and Ted Baker.
History and logic would indicate month-to-month retail sales volumes will rebound after September's 0.8% drop, but many aspects of the economy are not obeying the usual laws in 2017.

Recent surveys, including from the British Retail Consortium, CBI and BDO, indicated October's numbers may even disappoint the 0.1% consensus forecast for monthly growth. Compared to last year, the consensus is for retail sales to fall 6% as October last year saw strong growth.

But as shown in this week's numbers from the Office for National Statistics, slow pay growth continues to lag well below five-year-high inflation, meaning real pay continues to fall and squeeze household finances, which clearly impinges on the retail sector.

On the back of these ongoing conditions and the recent survey data, economists at Pantheon Macroeconomics were looking for a 0.5% month-to-month decline.

Morgan Stanley forecast a fall of 0.2% on the month, predicated on the continued backdrop of negative real pay growth.

"This weakness is directionally consistent but less dramatic than the weaker October sales indicated in the BRC survey and the BDO survey.

"Fundamentals remain challenging for the consumer. Real pay growth remains firmly in negative territory and we see reduced scope to smooth consumption, with a low savings rate and increased regulatory restrictions on consumer borrowing."

However, the bank's analysts noted that retail sales is a volatile series, and a rebound after last month's decline is also possible. "More generally, we would be cautious in reading too much into any one month's data."

But that wouldn't make much of a preview, would it?


Despite being demoted from the FTSE 100 in the summer reshuffle, Royal Mail remains a fixture for many retail investors and half-year results will be headline news.

The letter and parcel delivery group recently averted the threat of industrial action in the run up to Christmas, but the dispute with its union over changes to the pension plan still lingers.

"Given that disruption, we'd be very happy to see a 'business as usual' set of results on Thursday," said broker Hargreaves Lansdown.

"Declines in letter volumes have been right at the top end of expectations, so a moderation here and steady performance from UK parcels should be enough to keep shareholders happy," analysts wrote, expecting a further boost from the GLS international parcels business and updates on cost cutting.

Credit Suisse last week predicted weakening mail and higher labour costs that drive its view that there is 16% and 28% downside risk to consensus estimates for the 2019 and 2020 financial years.

Analysts from the Swiss bank said these results are "key catalysts", specifically better-than-expected mail revenues or labour terms, with potential updates from labour negotiations between now and Christmas 2017 also a key factor.

British Land is not as familiar a name in the public psyche but the owner of Sheffield's Meadowhall and Glasgow's Forst shopping park, plus the likes of Broadgate and Paddington Circus in London is one of the country's largest property developers.

The group announced a 300m share buyback back in the summer as it said while there was strong demand for its assets, it had limited opportunity for reinvestment at attractive values and its shares were trading at a discount to net asset value.

"Given that fairly pessimistic outlook, the group's commentary on Brexit and market conditions will be watched with interest," said HL's Nicholas Hyett.

"Last time out rental performance remained robust, and with the huge London campuses still to be let, continued progress will be important. That is especially true given the potential headwinds posed by a Brexit process that threatens to hit demand for British Land's super-prime London office space."

Since May's full year results, the group has also recouped 575m from its share of the Leadenhall Building sale, with 135m assets sold by July's trading update and a further 88m under offer. Its EPRA net asset value per share was 919p at the March year end.

UBS forecasts it will have risen 2% to 930p and revenues down 9% to 298m mainly due to disposal of the Leadenhall Building, with adjusted diluted EPS down 5% to 18.3p.

Analysts wrote: "The UK property market has not entered the meltdown many feared given the referendum result. British Land had been on the more optimistic side throughout this period, and this view has so far been vindicated. We look for an update on market view, particularly on the London office market and its implications for the speculative development/refurbishment British Land has ongoing, while on retail we believe commentary may be subdued given the cyclical and structural headwinds facing the sector."


A half-year update is also due from defence technology group Qinetiq, which said in September that the outlook for the full year was unchanged.

The company also indicated that the second quarter had seen improved order intake, leading to Barclays being one of those that nudged up interim expectations. The bank expects EBITA of 52m but has not changed its full year estimates.

"We hope that QQ can report a second consecutive period of OCC sales growth and will look for any evidence of management's investment for growth bearing fruit, including international growth.

Premier Oil's trading update will be watched for an update on Catcher startup planned by year end, said Deutsche Bank, as well as for news about the potential for drilling and development plans at Zama, updated spending guidance and funding progress on the Sea Lion project.

"Investor sentiment has much improved since the world class Zama discovery offshore Mexico in 3Q, but appraisal drilling is not expected to recommence until 2H18. Investment risks remain on Sea Lion, and we would still prefer a farm-down of its 60% equity stake, but if Premier is able to attract alternative sources of financing for the project then the industry (and consensus) may start to attribute more value to the project."

Merchant bank Close Brothers will put out a trading statement ahead of its annual general meeting.

Broker Numis said the group is likely to have continued to enjoy only modest balance sheet growth due to the competitive landscape and the group's operating model "where growth is an output variable as opposed to an input variable".

Analyst James Hamilton expect market share to be particularly weak in the competitive car loans segment, while credit quality is expected to remain "exceptionally benign" but he does expect impairment to be growing faster than the group's loan book growth. "We expect continued modest net inflows within the asset management business and trading conditions at [market makers] Winterflood are also expected to be reasonable."

Hamilton was also looking at Investec, which he forecast would report a strong increase in pre-tax operating profit of 26.9% to 367.7m with loan book growth of 12.5% and assets under management up 9.7%.

"Overall income is expected to increase 18.9% and impairment is expected to increase by 64.8% from an exceptionally benign period in H1 last year."

Safestyle's like-for-like growth rates have been slowing trend in 2017 with the growth reducing from 4.9% in the first quarter to 2.3% in the third.

Numis's Robert Duncan noted that occupancy can suffer towards the end of the fourth quarter as a lot of the summer lets are vacated, principally relating to students.

"That said, occupancy started at a healthy level (72.5%) which tends to set the tone from a revenue perspective. It will be interesting to see whether the recent trends of 'flat-ish occupancy but growing rate' in London vs 'rising occupancy but flat-ish rate' in the regions is continued."

Thursday November 16

Capacity Utilisation (US) (13:15)
Consumer Price Index (EU) (10:00)
Continuing Claims (US) (12:30)
Import and Export Price Indexes (US) (13:30)
Industrial Production (US) (13:15)
Initial Jobless Claims (US) (12:30)
Philadelphia Fed Index (US) (12:30)
Wholesale Price Index (GER) (06:00)

Retail Sales (09:30)

Nanoco Group

Assura, British Land Company, Dart Group, Investec, Mediclinic International, Norcros, QinetiQ Group, Royal Mail, Young & Co's Brewery 'A' Shares, Young & Co's Brewery (Non-Voting)

Close Brothers Group, Coats Group, Genus, Keller Group, Premier Oil, Regional REIT Limited, Regional Reit ZDP, Safestore Holdings, Ted Baker, Vitec Group

Societatea Nationala De Gaze Naturale Romgaz S.A. GDR (Reg S)

Close Brothers Group, El Oro Ltd, Genus, Prairie Mining Limited

Hansard Global, Haynes Publishing Group

Abcam, Aberdeen Frontier Markets Investment Company, Genus, Jupiter European Opportunities Trust, MJ Gleeson , New Star Investment Trust, Sanditon Investment Trust, Sherborne Investors (Guernsey) 'B' Limited, Swallowfield, Tristel

Anpario, Bunzl, Diversified Gas & Oil, First Derivatives, London Security, Marks & Spencer Group, Prime People, Rotala, Sainsbury (J), Scottish Mortgage Inv Trust, Sophos Group , Spire Healthcare Group, Wynnstay Properties

Merchants Trust

Impact Healthcare Reit , M Winkworth, MedicX Fund Ltd., NextEnergy Solar Fund Limited Red, Premier Global Infrastructure Trust, Royal Dutch Shell 'A', Royal Dutch Shell 'B', The Renewables Infrastructure Group Limited