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Friday preview: More Provident horrors to emerge on Friday 13th?

By Oliver Haill

Date: Thursday 12 Oct 2017

LONDON (ShareCast) - (ShareCast News) - Investors will be peeking between their fingers for any Friday 13th horrors from Provident Financial after plenty of bloodletting at the doorstep lender this year, while an already-spooked dollar could provoke some screams if US inflation data is a shocker.

While consumer price index figures will be closely watched, the impact of recent hurricanes is likely to distort September's reading.

A month ago headline CPI was up by 0.4% on the month and by 1.9% over last year, according to the Bureau of Labor Statistics.

The consensus forecast is for September's headline month-on-month figure to strengthen to 0.6% and the year-on-year to advance to 2.3%.

A sizeable monthly increase in the motor fuel prices are expected after average gasoline prices surged in early in the month due to disruption to refining capacity caused by hurricane Harvey.

Excluding food and energy, core CPI growth is expected to remain at 0.2% on the month and increase to 1.8% from 1.7% on the year.

"The biggest swing factor for the core CPI this month could end up being rental inflation," said HSBC, noting the owners' equivalent rent price index rose 0.35% m-o-m in August, a noticeable pickup from the softer readings seen earlier in the year.

RBC Capital Markets said core prices were likely to notch a decent 0.2% gain for a couple of reasons.

Firstly, "the elements that have plagued underlying CPI look to have abated with core services up sharply in August and breadth bottoming out in recent months" and also from the replacement impact in the aftermath of the hurricanes, "especially when we consider that the goods space where a lot of replacement purchases are likely to be made has seen considerable supply tightening via inventory/sales".

RBC noted that a first glimpse of the post-hurricane price pressures came from the recent ISM numbers, where the hurricane impact on supply chains was evident and is expected to bleed into end-user prices over the course of the next few months.

US retail sales are also due from the Census Bureau, with the consensus that the 0.2% fall a month ago will reverse to a 1.7% in September.

Excluding vehicle sales, retail sales are seen improving to 0.3% from 0.2%.

Auto industry data showed sales rose 15% on the month in September, the biggest monthly increase in over seven years, while meanwhile, average gasoline prices surged in early September, largely reflecting the disruption to refining capacity caused by Harvey.

"These two factors likely led to a sizeable increase in the dollar value of retail sales recorded for the month," said HSBC, forecasting total retail sales in line with consensus 1.7% and expecting ex-auto sales rose 1.2%.


Provident Financial's trading statement will be the first time management will update the market since August's second profit warning of the year, when the dividend was withdrawn and CEO Peter Crook resigned after changes he oversaw to the company's doorstep distribution model caused no little disruption.

At that time the company said it expected to make a pre-exceptional loss of 80-120m as debt collection rates from its Home Credit business had fallen to 57% versus 90% last year, while sales were around 9m per week lower than the comparative weeks last year.

Provident also said its Vanquis Bank arm was cooperating with the FCA investigation into its Repayment Option Plan product.

Barclays analyst Toni Dang said within the consumer credit division, he expects customer numbers to be down 15% on last year and risk-adjusted margin down to 40% from 57% at Q2 due to the disruption caused by the change in distribution model.

Dang expect Vanquis customer numbers up 12% to 1.65m and average receivables up 13%, forecasting Moneybarn customer numbers up 24% to 48K and receivables up 26% to 360m, together with good growth at Satsuma.

"The market will be keen on a further update on measures being taken to remedy the situation in the CCD business, an update on the FCA's investigation into Vanquis' ROP product and update on management changes," he said.

James Hamilton at Numis did not expect much on ROP, as when the FCA has reached a conclusion "we expect an immediate announcement from Provident" and a claim rate amounting no worse than a 108m cost.

As this will be the last timetabled update from Provident this year, Hamilton said he also saw potential for an IFRS9 update, which he forecasts will result in a balance sheet hit of 120m in 2018 and profitability to be reduced by circa 5% with the CET1 impact being spread over five years.

Key for him will be the performance of Home Credit only, though he is confident that the business "can be turned around and very high returns restored even if the business is much smaller".

Ashmore Group is due to provide an update on their first-quarter performance for the financial year to next June, with the consensus forecast pointing to $61.4bn assets under management, a 4.6% rise in the quarter.

Morgan Stanley forecast AUM will be $60.3bn, up 3% quarter on quarter after "slightly modest" $1bn of assets inflows and fund gains during the quarter.

Analysts were looking for management commentary about product and client mix and some picture of flows and performance.

Barclays' Dang forecast $1.5bn of net fund flows roughly in line with the $1.4bn in the third quarter to March 2017 and $1.2bn in the fourth quarter to June.

The analyst forecast positive investment performance of $1.2bn, bringing AUM to the consensus $61.4bn.

"The market will be keen on any management commentary around flow outlook for the rest of the year and specific product areas that are seeing client interest."

Hedge fund manager Man Group will issue a third quarter statement.

Morgan Stanley forecast AUM at $100.1bn, up 4% quarter on quarter, driven by $2.8bn of inflows during the quarter, supported by positive market performance.

Barclays forecast $99.5bn of AUM, with net flows of $1.5bn, slowing sequentially after $3bn in Q1 and $5.2bn in Q2, estimating $2bn of positive investment performance.

"The market will be keen on any management commentary around flow outlook for the rest of the year and specific product areas that are seeing client interest."

Friday October 13

Balance of Trade (EU) (11:00)
Business Inventories (US) (15:00)
Consumer Price Index (GER) (07:00)
Consumer Price Index (US) (14:30)
Retail Sales (US) (13:30)

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