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Tuesday preview: Bank stress tests and financial stability report; results from Shaftesbury, PETS

By Oliver Haill

Date: Monday 27 Nov 2017

LONDON (ShareCast) - (ShareCast News) - Banks will be in focus on Tuesday as stress tests results are revealed for the seven largest high street lenders receive from the Bank of England, which also publishes its financial stability report accompanied by a speech from governor Mark Carney.
Companies reporting results on Tuesday include Shaftesbury, Cranswick, Pets at Home and, on the verge of promotion to the FTSE 250, BCA Marketplace. Meanwhile, many investors are keen to hear what Shell says at its 'management day'.

The semi-annual financial stability report will be published at 0700 GMT and alongside it will come the results of the bank stress tests for Barclays, HSBC, Lloyds Banking Group, Nationwide Building Society, Royal Bank of Scotland, Santander UK and Standard Chartered.

Two scenarios are being tested on this occasion, the usual annual 'cyclical scenario' that looks at how banks would cope with a severe and synchronised UK and global macroeconomic and financial market stress, together with a second test a new biennial 'exploratory scenario', which will consider how the UK banking system would perform in conditions of weak global growth, persistently low interest rates, stagnant world trade amongst other headwinds.

Investors will also keep a close eye on the confirmation hearing for incoming Fed Reserve Chair nominee Jerome Powell, a day before outgoing chief Janet Yellen give a testimony on the US economic outlook before the Joint Economic Committee of Congress.

Economic releases in Europe include October money and credit aggregates data for the Euro area and German and French consumer confidence.

Later in the US, there will be reports covering consumer confidence, advance goods trade balance, wholesale inventories, a couple of house price indices, and the Richmond Fed manufacturing index.

With the recent positive outlook for growth dominating over many uncertainties regarding politics and policies around the world, Barclays noted that the Fed "continues to signal caution beyond a very likely December hike, while the ECB minutes reveal an internal debate over its policies, which is likely to intensify as the economy strengthens".

Barclays's forecast is for US rate-setters to hike rates in December and then twice more in 2018 but with a pause after next month in order to better gauge just how structural, or not, recent low inflation readings truly are.


Shell management days "are not full scale strategy updates but rather an opportunity to focus in more detail on individual business segments", said UBS.

With the company having updated on chemicals in October, analysts we expect the focus to rest primarily on upstream, integrated gas, oil products and perhaps renewables/new technologies/strategies for the energy transition.

Shaftesbury, the West End property developer, is due to release its final results, having warned two months ago that decision-making for larger properties in the area was being hit by the lack of political and macroeconomic certainty, though demand for smaller spaces was good.

For example, occupiers have yet to be found for its large Thomas Neal's Warehouse in Seven Dials, near Covent Garden, a year after being completed.

But the FTSE 250 developer, which stressed that the West End continued to be underpinned by an ongoing appeal to locals and domestic and international visitors, had kept itself busy with a bond issue to repay bank facilities and cancelled its remaining legacy interest rate swaps at a one-off cost of 58m. All in all it was left with 305m available to invest further in the portfolio and cutting the cost of debt by 40 basis points to 3.3%.

At the half-year stage, EPRA net asset value per share stood at 912p. Since then the other major news of note, is that Hong Kong billionaire Sammy Tak Lee now owns 25% as of 23 November.

UBS does not think Thomas Neal's has yet been let, "but commentary will be of note", while EPRA net asset value per share is forecast to edge down slightly to 907p by the year end, expecting on one hand portfolio valuation growth of 1.2%, slightly behind Capco's half-year 1.5% growth at Covent Garden, while on the other hand including the 58m cost of swap cancellation, which was equivalent to EPRA NAV reduction of 21p per share.

For operating results analysts forecast gross rental income up 10% to 107.9m, with adjusted EPS at 16.1p, a 15% increase from last year on higher rents.

Cranswick, the meat products producer, will also be churning out interim numbers to the end of September.

In its first quarter sales increased 27%, with like-for-like revenue increasing 21% and growth said to be driven by strong domestic volume growth, with all product categories making a positive contribution.

Cranswick has been facing rising input costs, which it has managed to "partially mitigate" to enable the full year outlook to remain unchanged.

Sales should have grown 20% in the half, forecast broker Numis, thanks to new business wins and higher inflation.

However, the higher cost of pigs, which rose by 28% during the first half, will likely reduce margins and limit adjusted PBT growth to 8%, to 41.1m with adj EPS rising by 13.5% to 65.7p.

"We think the focus will be on the extent that margins can recover in H2, the development of the poultry business and progress with current investment projects."

In August, Pets at Home reported a solid first quarter trading update, showing encouraging improvements as the retailer's management took action after a disappointing previous period, and interim results are

Group revenue in the 16 weeks to 21 July climbed 5.0% to 256.5m as like-for-like revenue swelled 2.7% thanks to strong growth in specialist referral vet services and 2.8% growth in merchandise to 216.4m, with merchandise LFL growth accelerating to 1.5% thanks to some investment in price.

Services revenue galloped up 18.8% to 40.1m, including joint venture vet practice income up 19.7% to 16.2m.

Numis was said total sales growth in Q1 reflected a slower space contribution, with only 2 Vets and 6 Groomers opened during the period -- though Q1 tends to be seasonally lighter.

For the half year, the broker expects PBT in the region of 39m, moving towards a full year estimate of 85.2m, with the consensus forecast for just above 83m.

BCA Marketplace is due to report interim results on the day when it's promotion to the FTSE 250 could be confirmed, unless the numbers are awful.

A trading statement on 7 September indicated that growth had been in line with management's expectations, including double-digit growth in the vehicle buying division.

BCA's UK auction price data for the six months to September suggests that average vehicle prices are up around 8.5% on the prior year, said broker Numis. "This is clearly encouraging, although we note that the profitability of BCA's Remarketing business is more sensitive to volumes than vehicle prices."

Numis added that the used car pricing at auction was at odds with Pendragon's comments on used car pricing in its profit warning on 23 October, and is more consistent with the positive update provided by Lookers in its update on 9 November.

The broker forecasts EBITDA up 16% to 74.7m, PBT up 20% to 55.7m, EPS up 17% to 5.5p and a dividend of 2.48p per share.

Tuesday November 28

GFK Consumer Confidence (GER) (07:00)
House Price Index (US) (13:00)
M3 Money Supply (EU) (08:00)

Index of Services (08:30)
Nationwide House Price Index (07:00)

PJSC Centre For Cargo Container Traffic Transcontainer GDR (Reg S)

Gooch & Housego, Greencore Group, ITE Group, Sanderson Group, Shaftesbury, Topps Tiles, Treatt, UDG Healthcare Public Limited Company, Urban&Civic

Acal, Alpha Financial Markets Consulting, BCA Marketplace, Cranswick, D4T4 Solutions, GB Group, IG Design Group, KCOM Group, Park Group, Pets at Home Group , Scholium Group, Scholium Group, ULS Technology

Berkeley Energia Limited (DI), Blancco Technology Group, City Natural Resources High Yield Trust, Clinigen Group, Ferguson, JPMorgan Smaller Companies Inv Trust, Scotgold Resources (DI), Surface Transforms, Town Centre Securities, Wilmcote Holdings NPV, Wolf Minerals Limited

Canadian General Investments Ltd.