Please remember the value of your investment can go down as well as up and you may not get back the full amount you invest. We don't provide advice so if you are in any doubt about buying and selling shares or making your own investment decisions we recommend you seek advice from a suitably qualified Financial Advisor.

Wednesday preview: Budget, OBR forecasts, results from UU, SSP, Sage

By Oliver Haill

Date: Tuesday 21 Nov 2017

LONDON (ShareCast) - (ShareCast News) - Chancellor Philip Hammond's Budget will dominate the UK headlines on Wednesday, with a moderately busy corporate diary not including results from United Utilities, Thomas Cook, Sage and SSP.
Overseas, there will be minutes from the last US Federal Open Markets Committee as well as data on durable goods orders and the University of Michigan's consumer sentiment survey.

Alongside the Budget, the Chancellor will reveal the Office for Budget Responsibilities new forecasts for borrowing.

The OBR is expected to revise down borrowing forecasts this year and next, but is has also been heavily signalled that productivity growth forecasts will also be cut, which will increase borrowing in future years.

Overall, after policy changes, Morgan Stanley said it expects the OBR to forecast unchanged total borrowing over the period to 2020, "but better near-term, and worse further out".

As for the Budget, as a minority government that is struggling to pass tough decisions, Hammond is expected to deliver a pre-election-style easing budget rather than a typical post-election tightening budget. With GDP growth slowing and the outlook uncertain, there is ample reason for extra fiscal support, Morgan Stanley said, with the deficit tracking 18bn below the OBR's March forecast for the fiscal year creating headroom for some fiscal giveaways.

"Given the political context and better numbers, we think Chancellor Hammond will seek to avoid any painful or controversial decisions, such as major tax increases. Instead, we expect increased spending on key pressures, including health and housing," economists at the bank said.

The second Budget of 2017 won't be easy for the government, said RBC Capital Markets, expecting the OBR changes to result in "generally unfavourable revisions" that will result in a 58bn increase to government borrowing referenced in the fiscal rule, the 'cyclically-adjusted' deficit, over the five-year horizon.

"That though will make it harder for the Chancellor to claim he has much headroom versus his fiscal rule to respond decisively to a Brexit shock in the future."

For the Gilt market, RBC said the news might not be quite as painful as, although an increase in headline borrowing of a cumulative 24bn is anticipated out to 2021-22, that is probably not as bad as many had feared a few weeks ago.

No major surprises are expected to come from the minutes of the FOMC's last meeting.

"The November statement had little new to say about the balance sheet normalisation programme initiated by the Fed in October," said HSBC. "However, the minutes of the meeting are likely to show some discussion by the Fed staff and policymakers regarding how the programme is proceeding so far."

Barclays said: "We believe there is a consensus within the committee for a third rate hike this year in December and look for the minutes to provide confirmation of this intended action. That said, we also believe there is willingness by some committee members to pause and assess where inflation trends are before signaling confidence about the appropriate policy path next year."


United Utilities is due to report first-half results.

Deutsche Bank forecast flattish earnings with operating profit growth offset by higher financing costs.

A 9% increase in operating profit to 341m (from 313m) with a greater weighting of profits to this half than usual due to seasonality, is expected to be offset by higher inflation indexation of the company's inflation linked debt, leading to EPS up 1% to 22.5p from 22.2p.

"Following a significant drop in its share price United Utilities trades on only a 9% premium to RAB. This could prove an attractive entry point into the stock," Deutsche said.

"While we should receive an initial view from the regulator on the industry cost of capital in December, the rewards (or penalties) associated with spending and operational incentives are likely to prove an important differentiator."

Accounting software group Sage will report full year results, having guided for an acceleration in the fourth quarter to around 7% growth.

Management said they expect to exceed 6.0% organic growth in the year and indicated that a better US trend and a more meaningful contribution from the cloud-based version of Sage 50/200 and from SageOne would drive this improvement.

Profitability outlook is likely to be key, said UBS: "Having initially indicated that FY 18 might be the start of a period of acceleration and margin expansion, we think that the Intacct acquisition means investors are now not expecting any margin expansion".

Analysts said a flat outcome would probably still be well-received after CFO Steve Hare said the margin will remain at least 27% and both he and CEO Stephen Kelly "are committed to looking to enhance that margin" though increased investment in accelerating the growth of Intacct, or indeed Sage People might take precedence.

Food outlet operator SSP Group will serve up full year results, having reported good like-for-like sales in the fourth quarter.

For the twelve months to 30 September, total group revenues are expected to increase by around 11.4% on a constant currency basis, including LFL sales growth of roughly 3.0%. At actual exchange rates, revenues are expected to increase by approximately 19.3% year-on-year. The trends seen in the operating margin in the first half of the year were said to have broadly continued during the second half.

UBS forecast underlying EBIT of 156m, underlying EPS of 19.3p and DPS of 6.9p.

Business publishing and events group Euromoney is another reporting full-year results, having already released a pre-close trading update that indicated reported revenues will have grown 6% or fallen 1% on an underlying basis, with adjusted profit before tax expected to be no less than 105m.

Wednesday November 22

Zhejiang Expressway Co 'H' Shares

Continuing Claims (US) (13:30)
Crude Oil Inventories (US) (15:30)
Durable Goods Orders (US) (13:30)
Initial Jobless Claims (US) (13:30)
MBA Mortgage Applications (US) (12:00)
U. of Michigan Confidence (US) (15:00)

Tejoori Ltd

Cambria Automobiles, Countryside Properties, Euromoney Institutional Investor, Sage Group, SSP Group , Thomas Cook Group

Accsys Technologies, Biffa, Charles Stanley Group, Creightons, Eckoh, HICL Infrastructure Company Ltd, NewRiver REIT, Quiz, Syncona Limited NPV, United Utilities Group

Breedon Group , Forterra, Hill & Smith Holdings, HSS Hire Group

Base Resources Ltd , CSF Group, F&C UK Real Estate Investments Limited, Finsbury Food Group, Ovoca Gold, Pantheon International , SCS Group , UIL Limited (DI)

Galliford Try, Henderson EuroTrust, Ideagen