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Thursday preview: BoE, ECB, European Council, Bunzl, Ocado, Sports Direct

By Oliver Haill

Date: Wednesday 13 Dec 2017

LONDON (ShareCast) - (ShareCast News) - Thursday is a big day for the Brexit process as the European Council begins its two-day meeting in Brussels, while the Bank of England's and European Central Bank's rate setters are also convening and results are expected from the likes of Bunzl, Cussons, Ocado and Sports Direct.
Markets are pretty confident that there will be no major surprises from any of those three meetings, with the drama having emerged in earlier weeks and months.

After last week's on-off negotiations, last Friday Theresa May and the European Commission reach a deal on all first-phase Brexit issues, which needs to be ratified by the 27 member states at this week's summit.

European Union Brexit negotiator Michel Barnier will propose to the member states that talks can now enter the second phase and it is felt to be very likely this will be approved. Talks are therefore likely to move onto a transition deal early in the New Year and, after that, the longer-term trade issues.

As for the BoE, after November's first hike in a decade, this Thursday's event is likely to be a much more low key Monetary Policy Committee decision, despite the mixed data earlier in the week. The market is pretty confident of a 9-0 vote to maintain interest rates as they are at 0.5%.

"With the MPC's communication effectively being to endorse a market-implied path of two further 25bp rate hikes over the next three years, it seems unlikely that the minutes would signal intent to deliver a follow-up hike so relatively soon after the first move," said economists at RBC Capital Markets.

"The subsequent meeting in February, when more may be known about the status of Brexit negotiations is set to be more high profile, coming as it will alongside the next inflation report."

Policymakers are likely to reference the latest inflation, employment and pay figures, with Daiwa Capital Markets adding that, "while there is significant uncertainty about growth momentum in the current quarter, with business surveys and consumer spending indicators sending mixed signals and the NIESR GDP nowcast for the three months to November remaining at 0.5%3M/3M, they will expect GDP growth to have remained relatively subdued.

"In addition, while today's first-phase Brexit deal has reduced the tail risks of a disorderly Brexit, uncertainty related to the UK's future relationship with the EU persists. So, we do not think that recent developments warrant any additional hawkishness in the MPC's communication."

However, analyst Michael Hewson at CMC Markets said that barring any political intervention, the risk is that the market is under-pricing the risk of a further rate rise from the Bank of England in the near future.

Tuesday's release from the Office for National Statistics showed inflation is at a five-year high of 3.1% and, despite the BoE's persistent claims that we are close to the peaks, there have been a number of recent surveys suggesting prices could even move higher.

"We continue to hear the persistent narrative that the reason for current elevated levels of rising inflation is all as a result of the June 2016 Brexit vote," Hewson said. "It's imperative to underline how misleading that claim is, because while it is true that the decline in sterling as a result of the vote did push inflation up as the pound slid back, the Bank of England exacerbated the inflation shock by not only its reaction to that vote in August 2016, but also in its September 2016 forward guidance, when it stated that it was prepared to cut rates further.

"To pretend otherwise is sophistry of the worst kind and can be borne out by the chart below, in the context of an additional 8% decline in the value of the pound against the US dollar, in the aftermath of the August vote, and the dovish September follow-up."

Also on Thursday, the European Central Bank's governing council is also meeting to decide on its policy rates, but again no surprises are anticipated.

There's also flash PMI surveys in both Europe and the US, together with retail sales data for the UK and US. China's National Bureau of Statistics will publish figures on fixed asset investment, industrial production and retail sales too.


Bunzl, the highly acquisitive distribution and outsourcing company, will report a short trading statement ahead of its year-end.

In October, the FTSE 100 group said for the third quarter had increased 11% compared to the same period last year due to improved underlying growth of 5-6% and a 6% impact from acquisitions.

The increase in underlying revenue growth was said to be principally due to the previously announced additional grocery business won, albeit at lower margins, in North America late last year.

At that point, Bunzl had agreed to acquire 11 businesses so far this year for a total committed spend of approximately 550m and has since taken this to 13 and around 575m.

For the full year, UBS expects organic growth to slightly slow as a major US contract win annualises, but as ever see potential for further bolt-on M&A announcements.

The fourth quarter will see the start of lapping the large win from last year, so analysts expect circa 4% organic growth for the quarter - resulting in roughly 4% organic growth for the year overall.

Acquisitions should add another circa 5% to group revenues, driving UBS's full year revenue growth forecast of 9.4% at constant exchange rates.

"We foresee FY17 margins -18bps y/y due to the impact of the low-margin large new account win and margin pressure in the UK."

Ocado will also give its final year-end update having in last month signed a deal to licence out its patented smart platform technology to Groupe Casino in France.

This followed September's third-quarter retail revenue growth of 13.1%, up from 12% in the second and above the industry average, though basket size fell 2.0% as food price inflation was more than offset by the impacts of Smart Pass and Mobile takeup as well as a modest increase in vouchering.

Ocado commented that, while it had doubled capacity at its fourth 'customer fulfilment centre' since the interim results in July, these investments would "increase some costs in the short term".

Analysts at broker Numis expect EBITDA of 90m, while those at Hargreaves Lansdown said further details on the Casino deal should not be expected at this stage.

"What we do anticipate in the Q4 update is further strong organic growth from the existing business. This may be less relevant to what the group's future looks like, but another quarter of strong growth could improve the prospects for more of those all-important deals," HL said.

Elsewhere on the FTSE 250, the always interesting Sports Direct will report interims fresh from a defeat at the previous day's shareholder meeting, where a proposal for boss Mike Ashley's brother to an 11m payout for his work as an IT expert was opposed by 70.7% of investors.

HL's Nicholas Hyett was hoping for an update the group's ambitious plans to transform itself into the 'Selfridges of Sport'. "Early store conversions have performed better than expected, and the group is optimistic about its full year target of 5-15% growth in underlying EBITDA," he noted, with a recent entry into the US another potential source of news.

"Ultimately though it's the core sports retail business that matters, and with margins under pressure improvements are needed."

Whitman Howard analysts said it was "always difficult knowing what is going on here", with "a lot of noise around SPD relating to areas that investors might not normally have to consider", such as Ashley's brother and other governance issues, or the move from a CFD investment to a full equity stake in Debenhams.

Trading numbers are "very opaque", with the last full year having "lots of very conservative accounting" and guidance that was thought to be easily achievable. Whitman is looking for underlying first-half EBITDA up 9% to 161m but said it was difficult to forecast accurately..

Noting that SPD has absorbed currency exchange impacts on its cost of goods sold earlier than other retailers as it was totally un-hedged on the US dollar, whereas others hedged forward 9-18 months, so "theoretically" the company should now be in better position now than competition. "But frankly who knows?"

A trading statement from PZ Cussons will cover the six month period to 30 November, though the company does not typically disclose any financials.

Numis expects the company remains on track to achieve full year profit expectations, forecasting 1% adjusted PBT growth to 104.6m and does not expect any major change in the trends or performance indicated at its first quarter trading update in September.

"In the UK the mass wash/bathing category is likely to have remained challenging with PZC's NPD launches helping to alleviate the pressure. We expect that the positive momentum in Australia will have continued.

"Good growth in Indonesia should continue to benefit from NPD launches in Imperial Leather and Cussons Baby. In Nigeria we do not expect a material improvement in the consumer back drop but the company's initiatives to drive growth should contribute to an improved performance as the business enters peak trading season. "

Thursday December 14

Vedanta Resources

Business Inventories (US) (15:00)
Continuing Claims (US) (13:30)
ECB Interest Rate (EU) (12:45)
Import and Export Price Indices (US) (13:30)
Retail Sales (US) (13:30)

BoE Interest Rate Decision (12:00)
Retail Sales (09:30)
RICS Housing Market Survey (00:01)

Jersey Electricity 'A' Shares, Titon Holdings

F&C Global Smaller Companies, Omega Diagnostics Group, ReNeuron Group, Sports Direct International, Tungsten Corporation

Bunzl, Centrica, Headlam Group, Ocado Group, Petrofac Ltd., Porvair, PZ Cussons

Ferrexpo, VinaLand Ltd

GVC Holdings

Pipehawk, Sareum Holdings, Upland Resources Limited (DI), Vernalis plc, VinaCapital Vietnam Opportunity Fund Ltd.

MJ Gleeson , Telefonica SA

Aeorema Communications, Associated British Foods, Carr's Group, JPMorgan Chinese Inv Trust, Marston's, Mitchells & Butlers, Numis Corporation, Oxford Metrics

3i Group, BCA Marketplace, Bonmarche Holdings, Brown (N.) Group, Charles Stanley Group, Circle Property , Clipper Logistics , Lazard World Trust Fund, Michelmersh Brick Holdings, Northgate, Severfield, Sirius Real Estate Ltd., Speedy Hire, Tatton Asset Management , Telford Homes, Vianet Group

Brunner Inv Trust, UIL Limited (DI)

Assura , Funding Circle SME Income Fund, Mercantile Investment Trust (The), Real Estate Credit Investments Ltd, XP Power Ltd. (DI)