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Wednesday preview: Fed hike and Trump tax speech expected; Dixons and Wood update

By Oliver Haill

Date: Tuesday 12 Dec 2017

LONDON (ShareCast) - (ShareCast News) - Retailer Dixons Carphone could offer early drama with an update after its summer profit warning, before attention move to UK labour market data and a later focus on the US as the Fed is a widely expected to hike interest rates and President Donald Trump to make a speech on his tax reforms.
The US Federal Reserve is almost completely nailed on to hike rates by another 0.25% rate hike, with Janet Yellen due to give her last press conference as chair. With a rate rise being priced at 98% odds by the market, analysts said the main source of interest will be whether there is any change to their current forecast for a further three hikes next year.

President Trump is also expected to give a closing argument for the tax reforms, with his recent social media output being rather upbeat messages about "getting closer and closer on the tax cut bill".

US consumer price inflation data will also be released on Wednesday, ahead of the Fed decision.

In the UK, a day before the Bank of England's Monetrary Policy Committee meets and a day after CPI has been revealed to exceed the 3%, November's employment data will reveal the extent that wages are still lagging and any changes to unemployment

After the level of employment fell by 14K last time, RBC Capital Markets said there will be a particular focus on how this series develops given the jobs-heavy and productivity-light nature of the UK "recovery".

"It does seem reasonable to expect that there might be a further decline in the level of employment on a quarterly basis this time round given the strength of the data over the summer."

The consensus is for the ILO unemployment rate to ease back to 4.2% from 4.3%.

Average earnings excluding bonuses are seen remaining at an annual growth rate of 2.2%, with the total figure strengthening to 2.5% from 2.2%, which would be the peak for 2017.


Although the timing of Dixons Carphone half-year results just before the crucial festive period renders them "a bit dull", as one analyst said, this year that changes somewhat due to the awful start to the year the retail endured.

In August, the Currys, PC World and Carphone Warehouse owner warned that its annual profits will be well short of expectations due the UK mobile phone market proving "more challenging", with higher handset prices and weaker handset launches, and because its Honeybee sales software division had moved to a new business model. Group like-for-like sales were up 6%, though, with continued strength in UK & Ireland electricals and the Nordics.

Headline profit before tax for the year to April will be in the range of 360-440m, chief executive Seb James said, versus a consensus forecast of close to 497m. The consensus for first-half PBT is now 63m.

James, who said the downturn in trading was due to consumers holding on to existing handsets for longer, and his CFO Humphrey Singer are now under significant pressure to hold onto their jobs, with reports that disgruntled investors felt James had "taken his eye off the ball" and "lost control of the company" in recent months.

Analysts at Whitman Howard said investors have become very cautious about both near term trade and the likelihood of further major store reductions from the 1,042 stores in the UK as of April, noting that profit warnings "tend not to come in ones in this space".

Possible newsflow, Whitman suggested, could include restructuring, disposal of the Greek operation, the departure of James and Singer - who look "very vulnerable - CFO maybe more so", with further revision to guidance possible too.

Broker Hargreaves Lansdown added: "That makes these half year results even more important than usual ahead of the crucial Christmas trading period. Investors will be hoping to see strong results from its big Black Friday sales push. Following recent weakness, and high profile launches from Apple and Samsung either side of this release, mobile sales will likely take centre stage."

Wood Group should also deliver a first trading statement following the completion of its acquisition of Amec Foster Wheeler in early October. Management may have some update on their targeted $170m in cost synergies from the merger.

Analysts at broker Numis were expecting only some qualitative full year guidance and commentary on how the various segments have performed so far this year.

"Once any confusion of FY expectations versus consensus is resolved, we expect the tone to be erring on the side of caution, with Wood facing a still uninspiring global activity outlook in oil and gas, apart from in West Texas where it has relatively low exposure. "

Travel operator TUI, the FSTE 100-listed owner of the Thomson brand, will report full year results.

Following a pre-close update in September, UBS forecasts total revenues of €17.9bn, with €15.5bn from source markets, €689m from hotels & resorts, €822m from cruises.

Underlying EBITA is predicted to be €1.12bn, up 12%, with €561m from source markets, €350m from hotels & resorts, and €241m from cruises. Adjusted net profit is seen reaching €655m, adjusted earnings per share €1.11, with a dividend of €0.65.

Serco will host its second capital markets day since it completed the "stabilisation" phase of its turnaround.

UBS was expecting a broad group update on the turnaround story, plus deep-dives on areas of growth potential, namely Justice & Immigration, and Defence.

"After the share price weakness since Oct-17 due to the weak outsourcing market environment (and political uncertainty), we look forward to seeing if Serco will reassure on its internal progress and potential for a return to growth by FY19e."

Housebuilder Bellway will release a trading statement alongside its annual shareholder meeting. Management's guidance for the year was set at +5% volume growth, with the average selling price expected to grow 8% to 280,000 with an operating margin of around 22% versus the 22.3% last time.

Final results in October were stronger than expectations, noted broker Numis, with a solid order book that should give Bellway a solid underpinning for 2018.

"We think that the focus of the update will be the rate of sale the group has managed to secure over the eight week period since the final results and how this has fed through to the forward order book. We continue to think that the risk to estimates is on the upside, which is in keeping with management's past form of underpromising and over-delivering."

Wednesday December 13

Consumer Price Index (GER) (07:00)
Consumer Price Index (US) (13:30)
Crude Oil Inventories (US) (15:30)
Industrial Production (EU) (10:00)
MBA Mortgage Applications (US) (12:00)

ILO unemployment rate (09:30)
Average earnings (09:30)
Claimant Count Rate (09:30)

TUI AG Reg Shs (DI)

Cohort, Dixons Carphone , OPG Power Ventures, Purplebricks Group

Bellway, Dixons Carphone, Serco Group

Alternative Liquidity Fund Limited, Avanti Communications Group, Bellway, BowLeven, BowLeven, Henderson Far East Income Ltd., Infrastructure India, Physiomics, Residential Secure Income, Volution Group (WI), World Careers Network

Aberdeen Frontier Markets Investment Company

Royal Bank of Scotland Ser 1 Non-Cum Eur Prf (144a)

M Winkworth, Unilever