Friday preview: UK GDP unlikely to be revised up

Friday's second reading of UK gross domestic product has the potential for the disappointing growth in the first quarter to be upgraded, though economists are not confident.

After economic growth crawled to a five year low of 0.1% in the first three months of the year from 0.4% at the end of last year, the Bank of England trimmed its growth forecast for the year and rowed back on its rate-hike plans.

The forecast is for Friday's second estimate of GDP at 0930 BST to remain at 0.1%, due to weak industrial and construction data in March, though the BoE is confident it will creep higher in coming quarters.

When providing the initial GDP reading, the Office for National Statistics commented that the weather played some part, "its overall effect was limited".

However, while the BoE, which has its own estimates of underlying GDP, put off a potential rate hike at its May meeting, it has stated a confidence that the slowdown would prove temporary.

"Indeed the Bank was quite bullish that the preliminary estimate was likely to have overstated the extent of the slowdown and would be revised up in subsequent releases," said economists at RBC Capital Markets.

"However, outside some upward revisions to construction output, there has been little in the data released since the ONS released its early GDP estimate to suggest a rebound in activity toward the end of the quarter which makes it difficult to make a strong case for an upward revision to the earlier estimate on this occasion."

Final results from Pennon are expected to show revenues of £1.4bn and operating profits around £320m.

The water and waste company's shares have bounced strongly from the lows in March and still offer an attractive yield of well over 5%.

Core revenues are tightly regulated, so there’s not much scope for results to stray too far from expectations, noted analysts at Hargreaves Lansdown, but there’s still plenty to keep investors interested, including management’s commentary on the upcoming changes to regulation.

"Ofwat’s price review, due to come in for 2019, will likely be more challenging. Look out for any knock-on impacts for investors, particularly if there’s any clues around the dividend."

With Pennon offering one of the most generous dividend policies in the sector, with an aim of increasing distributions four percentage points above the rate of RPI inflation every year, Hargreaves added that investors will be hoping to see a strong grip on costs, and a positive outlook for the smaller waste management division.

Analysts at Deutsche Bank believe that Pennon should be able to keep growing the dividend into the next price control period and said if political risks fade there could be 30-40% upside for the shares but around a 15% downside to a nationalisation bear case.

DB forecasts a 4% increase in EBITDA to £503m with improvements from both water and waste, with EPS rising 5% to 49.3p and a 7% increase in the dividend to 38.5p.

Friday May 25

INTERNATIONAL ECONOMIC ANNOUNCEMENTS

Durable Goods Orders (US) (13:30)
IFO Business Climate (GER) (09:00)
IFO Current Assessment (GER) (09:00)
IFO Expectations (GER) (09:00)
U. of Michigan Confidence (US) (15:00)

UK ECONOMIC ANNOUNCEMENTS

BBA Mortgage Lending Figures (09:30)
GDP (Second Reading) (09:30)
Index of Services (09:30)

FINALS

Pennon Group, SSE, Volvere

TRADING ANNOUNCEMENTS

Spectris

SPECIAL DIVIDEND PAYMENT DATE

Mondi

AGMS

Air China Ltd., Contour Global , Etalon Group GDR (Reg S), Ferrexpo, Hochschild Mining, Hydrogen Group, Informa, Keywords Studios, Spectris, TCS Group Holding GDR (Each Repr 1 A Shr) (Reg S)

FINAL DIVIDEND PAYMENT DATE

Antofagasta, BBA Aviation, Bovis Homes Group, Cello Health, Centaur Media, Central Asia Metals, Charles Taylor, Clarke (T.), EP Global Opportunities Trust, esure Group, Fevertree Drinks, Foxtons Group , Gocompare.com Group, Highland Gold Mining Ltd., Inmarsat, IWG , Just Group, Marshall Motor Holdings, Microgen, Mondi, Morgan Advanced Materials , Petrofac Ltd., Polypipe Group , Secure Trust Bank, Spirax-Sarco Engineering, Stock Spirits Group , Tribal Group, Vesuvius

QUARTERLY PAYMENT DATE

APQ Global Limited, Primary Health Properties, SQN Secured Income Fund