Tuesday preview: Cash return expected with Ferguson finals

Results from Ferguson will be under the spotlight on Tuesday as analysts predict a not-insubstantial cash return, while Greggs and Electrocomponents both provide trading updates.

For macro munchers, there is Australia's central bank policy decision overnight and UK construction data on Tuesday morning.

The Reserve Bank of Australia is expected to be firmly on hold in early October, said HSBC, ahead of the all-important third-quarter inflation numbers due later in the month.

"Growth indicators remain positive, with business conditions around decade highs and jobs growth picking up pace. We see this putting some upward pressure on wage growth and underlying inflation over time and expect a hike in early 2018," analysts at the bank said.

The UK construction purchasing managers' index is expected to drop to 50.8 from the 51.1 print a month ago.

This will add to disappointing manufacturing data that started the week, which is likely to add pressure to the pound.

COMPANY NEWS

Ferguson reports first results since dropping the Wolseley name in July.

The name change, which signals the increased emphasis on its largest market, the US, where 84% of trading profit last year came from its commercial and residential plumbing supplies division Stateside.

Aside from the numbers and guidance for the 2018 financial year, analysts expect a potential additional cash returns will wing its way to shareholders.

UBS forecast Ferguson to have net debt of £605m, or around 0.5 times EBITDA, with a sale of the Nordics valued at around £700m suggesting a net cash balance sheet.

"We think a £300-500m buyback/special dividend is realistic," analysts from the Swiss bank said, "assuming re-leveraging to the lower end of the target range of 1-2x net debt/EBITDA, with a quantum depending on the M&A pipeline. This does not include the potential sale of the Nordic business."

Barclays expects a capital return – either by share buyback or a special dividend – is "highly likely" even if the Nordics business is not sold.

"In the absence of the Nordics disposal, there could in theory be a return of up to £500m. This is likely to be more like £300m to £400m, in our view, to retain conservatism round the balance sheet and funds for potential bolt-on acquisitions."

As for the fourth-quarter, Barclays forecasts 6.3% like-for-like revenue growth for the group, a mild slowdown from the 6.6% in the third quarter, feeding to EBITA of £1.09bn and earnings per share of 299p.

Greggs is scheduled to produce a trading update, which should be fairly strong with LFL sales growing 3.4% at the first half of the year.

With 61 new shops opening in the first half, investors will be wondering if there’s room to step up the expansion plans, said George Salmon, an analyst at Hargreaves Lansdown.

"Any expansion might well look slightly different to the group’s traditional high street offering. Greggs is considering home delivery and hospital shops as possible sources of growth, as well as opening more drive-throughs.

"It’s not just the point of service that’s changing either. Greggs is increasingly offering a more ‘balanced choice’. New salads and drinks have been selling like hot cakes, while the coffee and breakfast options are also proving increasingly popular."

Electrocomponents has promised a trading update for the six months to end-September, ahead of its half-year results in November.

The first quarter to end-June saw the group increase sales 13%, accelerating from the 8% in the preceding quarter, though take away the three extra trading days and constant currency revenue growth was closer to 10%.

The Americas, Asia and emerging markets provided the fastest growth in the first quarter, while Europe strengthened too and a investment in digital marketing boosted ecommerce sales.

Tuesday October 03

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Producer Price Index (EU) (11:00)

UK ECONOMIC ANNOUNCEMENTS
PMI Construction (09:30)

FINALS
Blancco Technology Group, Ferguson, Revolution Bars Group, SCS Group , St Ives

TRADING ANNOUNCEMENTS
Electrocomponents, Greggs, ITE Group

INTERIM DIVIDEND PAYMENT DATE
Arrow Global Group, Croda International, Globaldata, Greencore Group, Jardine Lloyd Thompson Group, Rathbone Brothers

QUARTERLY PAYMENT DATE
Honeywell International Inc.

FINAL DIVIDEND PAYMENT DATE
WYG

AGMS
Hargreaves Services