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Thursday preview: UK GDP, ECB minutes, results from Centrica, Cineworld, Severn Trent

By Oliver Haill

Date: Wednesday 22 Nov 2017

LONDON (ShareCast) - (ShareCast News) - Thursday's market volumes will be thinner as the US gets fatter on Thanksgiving, while the UK chews over the second reading for gross domestic product and likely further analysis of the Chancellor's Budget, while corporate results include Centrica, Severn Trent and Cineworld.
With it being Thanksgiving in America, both bond and stock markets will remain closed Stateside but Europe's business diary is fairly packed, with minutes from the last European Central Bank policy meeting, German GDP and November flash PMI surveys for the eurozone, including individual reports for the likes of Germany and France.

The second estimate of third-quarter UK GDP is not expected to result in a revision to the initial reading of 0.4% quarter-on-quarter growth but the report from the Office for National Statistics will provide expenditure breakdown this time.

Since that preliminary estimate, the incoming information has revealed industrial production to have been stronger than initially thought and construction to be weaker.

Barclays expects the expenditure breakdown to show subdued consumption and investment growth, while net exports finally benefit from past sterling depreciation and global trade momentum.

"The latest activity data highlight the trend of a rotation away from construction in favour of manufacturing, as FX depreciation and Brexit-related uncertainty have likely facilitated the shift. We expect a slower pace of consolidation to be announced in the 2018 Budget, reflecting both structural difficulties to execute as well as the necessity to avoid weighing excessively on an already weak growth outlook."

RBC Capital Markets said the contribution of consumer spending has been weakening in 2017 and, having seen some of the early indicators of retail activity for October coming in on the soft side, we would caution against reading too much into any potential improvement in Q3 as far as consumption is concerned."

Moving to European PMI reports, the composite reading of the eurozone fell to 56.0 in October from 56.7 in September and remained in line with its third-quarter average.

"That, combined with a rise in new orders, suggested that the euro area's growth momentum remained in place at the beginning of Q4," said RBC.

For November the consensus view is for the composite to remain at 56 for a tenth consecutive month as manufacturing eases to 58.3 from 58.5 and services strengthens to 55.1 from 55.0.


Interim results are due from Severn Trent, a period in which the water and waste group agreed the sale of its North American business.

In July the group said it had made a "good start" towards its target net reward for 2017/18 outperformance of 'outcome delivery incentives' of around 23m, whilst also working towards delivering total expenditure efficiencies of 770m in the current regulatory period.

A "solid set of results" was expected by Deutsche Bank, with favourable weather perhaps allowing management to lift guidance for ODI incentive income, especially as last year saw 47.6m.

"While Severn Trent's share price has dropped sharply, in our view this reflects the likelihood of sharp cuts to its returns after the regulatory review and rising political tail risks," analysts said, warning the results may be overshadowed by shifts in the regulatory and political backdrop.

Severn Trent is expected to report a 6% increase in earnings per share to 66.0p and a 7% increase in dividend per share to 34.9p from 32.6p in-line with the policy to target RPI plus 4% each year through to 2020.

Centrica is scheduled to deliver a third-quarter trading update, fresh from announcing the withdrawal of its standard variable tariff and issuing a rallying cry to the government, energy industry and regulator to make various changes to "create a market that works for everyone".

The third-quarter update "does not normally bring much added detail" said UBS, but coming as it does close to the end of November it is normally a time when management can confirm EPS expectations for full year.

UBS currently expects 15p EPS for 2017 having revised forecasts downward since the start of the year.

Cineworld is likely to report trading up until 19 October, which broker Numis said will mean it includes the first two weekends of Paddington 2, where total box office expectations are for 40m, and the first week of Justice League, where forecasts are for 33m.

The timing of these two blockbusters is key, analysts said, given the admission data reported by the industry in July+7%, August down 20%, September down 8% and October down 25%.

Numis forecasts total revenue growth of 7%, versus the 12% growth in the first half, and imply circa 30% revenue growth in the last 6 weeks of the year "which is stretching", but will benefit from the release of the eighth Star Wars film, The Last Jedi, which opens on 15 December, after the seventh in the Star Wars series was the all-time top grossing film in the UK in 2015 with 123m taken at the box office.

A quarterly update is also due from Rotork, after an interim update where LFL sales growth was flat with order input up 4.8%, rising from 2.7% in the first quarter to suggest the second was saw growth more like 7%.

An H1 operating margin of 18.2% declined from 18.9% as cost growth is spread more evenly over the year versus sales and also cost savings being more weighted to the second half.

UBS forecast a slight second half improvement in sales growth with its full year expectation for +2% organic and operating profit at 127.8m implying operating margin slightly down year on year.

"Recent order numbers from peers in the valve sector were weak in Q3 which could suggest some downside risks on orders. However, Weir pointed to a bottoming of its business, which sits with our expectation of lower single digit growth over the next 1-2 years."

Thursday November 23

Gross Domestic Product (GER) (07:00)

CBI Distributive Trades Surveys (11:00)
Gross Domestic Product (09:30)

Mitchells & Butlers, Paragon Banking Group

Caledonia Investments, CMC Markets, First Property Group, Greencoat Renewables, Hogg Robinson Group, Liontrust Asset Management, Majestic Wine, Mothercare, Severn Trent, Shires Income, TR Property Inv Trust, Worldwide Healthcare Trust

Centrica, Empiric Student Property , Menzies(John), Rotork

Atlantis Japan Growth Fund Ltd.

CAP-XX Limited, Crystal Amber Fund Ltd., Hotel Chocolat Group , Netcall, Thorpe (F.W.)

AIREA, Jupiter Dividend & Growth Trust, Jupiter Dividend & Growth Trust Common, Jupiter UK Growth Investment Trust, Mulberry Group

AB Dynamics, CVS Group, Edinburgh Dragon Trust, Finsbury Food Group, Hotel Chocolat Group , JPMorgan Japanese Inv Trust, London Finance & Investment Group, Northern Venture Trust, River and Mercantile Group , Smart (J) & Co., St Ives, Tiso Blackstar Group SE, Volution Group (WI), World Careers Network

Plus500 Ltd (DI)

3i Infrastructure, B&M European Value Retail S.A. (DI), Castings, DCC, Downing Three VCT F Shs, Downing Three VCT H Shs, Downing Two VCT F Shs , Downing Two VCT G Shs, Great Portland Estates, Helical, Mckay Securities, National Grid, Octopus Apollo VCT, TalkTalk Telecom Group , Ten Entertainment Group , Triple Point Income VCT A, Vedanta Resources, Vodafone Group, Young & Co's Brewery 'A' Shares, Young & Co's Brewery (Non-Voting), Yu Group

Fair Oaks Income Limited 2014 Shs NPV

Blackrock North American Income Trust , BlackRock World Mining Trust, Carnival, HICL Infrastructure Company Ltd, Regional REIT Limited

Oxford Technology 2 VCT, River and Mercantile Group , Sportech