Tuesday preview: UK inflation could top 3pc; results from Pearson, Merlin, Asos

UK and eurozone inflation will be the big focus of the day, while the new reporting season kicks in with Asos, Bellway, London Stocks Exchange, Merlin Entertainment, Pearson and Virgin Money.

Tuesday may wake to an update on Theresa May's attempted Brexit intervention via a private dinner in Brussels with European Commission head Jean-Claude Juncker and EU negotiator Michel Barnier in order to try and re-start talks for the second time in as many months, following her Florence speech in September.

After Barnier last week said that Brexit negotiations had reached “deadlock" over how much money Britain owes the bloc after its exit, May has felt it necessary to step in again to try and unpick the lock before the EU Council meeting at the end of the week.

Tuesday's UK consumer inflation data will begin a stream of official economic reports this week, followed by an update on the labour market, retail sales and public finances.

At 0930 BST the Office of National Statistics will publish the consumer price index and other price data for September.

A month ago CPI rose 0.6% on the month and 2.9% on the year, while CPIH, which also takes account of owner occupiers’ housing costs, was 2.7%, while core CPI, excluding food and fuel, hit 2.7.%.

For September, the month-on-month rate is forecast to ease to 0.3% but the annual figure is expected to hit 3% and 2.8% on a core basis.

HSBC forecast the headline rate will reach 3.1%; "This will require BoE Governor Mark Carney to pen a letter to the Treasury to explain the overshoot of the 2% inflation target by more than 1ppt."

The bank's economists said a variety of factors point to an increase relative to August, including: a 12.5% electricity price rise by British Gas, a circa 2% m-o-m rise in petrol pump prices, the possibility that Ryanair flight cancellations led to emergency bookings at inflated prices, and the ongoing pass-through of last year's falls in the pound.

COMPANY RESULTS - PEARSON & LSEG

Ahead of Pearson's update on its third-quarter performance, shares have been receiving from last month's nine-year low.

Barclays said the trading update is "critical to the story" as it will be "key to understanding FY growth in the most volatile division, North America Higher Education Courseware, and visibility is limited even towards the end of the quarter".

While they do not have much confidence in forecasts, given past volatility, analysts expect a drop of 7.5% in organic growth for North American higher education courseware, and a 6.0% fall for the year.

"We believe consensus is towards the bottom end of management's +1% to -7% FY range," Barclays said, while noting that if growth is better it will help the market overlook the long-term issues the company faces.

London Stock Exchange Group is also due to reveal its third-quarter progress, likely to cover revenues by business segment as well the firm's key performance indicators.

UBS was expecting quarterly revenues up 15% to £433.8m, which is flat on the second quarter, with total income including treasury and other income of almost £482m.

MERLIN, ASOS AND BELLWAY

Legoland and Madame Tussauds operator Merlin Entertainment will announce like-for-like sales and total revenue for the first 40 weeks of the year, including its important summer period.

The consensus is for LFL growth of 2.6% for the quarter, taking the year to date to 3.2%.

"It’s been a comparatively wet summer in the UK, with the result that the British business may well present a mixed picture," said analyst George Salmon at Hargreaves Lansdown.

"While Midway could enjoy a boost, welcome after the terrorist attacks in London earlier this year, the resort theme parks will likely have fared less well - although visitor numbers are still recovering from the rollercoaster crash in 2015, so could still be positive."

With over two-thirds of profits generated outside the UK, the success of the ongoing roll-out of Midway and Legoland attractions is likely to attract most attention, Salmon said, including the opening of the new ‘little BIG city’ concept in Berlin and an update on plans for a Legoland in New York.

UBS forecast LFL growth from the Midway brands of 1.0%, with Legoland Parks enjoying 6% LFL growth, and resort theme market up 5.0%, driving group LFL growth of 3.6%.

"We forecast total growth (including new business development) of circa 15%."

Barclays forecast 40-week LFLs of 2.7% with growth of 1.6% in the third quarter amid the numerous headwinds in the quarter.

"In light of these we do not view Q3 results specifically as a positive catalyst despite recent share price weakness. However, we do see scope for other positive announcements, e.g. NY Legoland, in coming weeks."

Asos, which with a market cap of around £5bn could have left AIM a few years ago, is reporting full year results.

As the online fashion retailer has only so far reported sales for the first ten months, there is some potential for a surprise, with the consensus pointing to £335m of quarterly revenues.

The consensus for full year earnings before interest, tax, depreciation and amortisation points to £126.9m, with profit before tax of £79.3m pencilled in.

While Deutsche Bank, which thinks the main focus will be on guidance for 2018, forecasts sales at constant currencies slowing slightly in the fourth quarter to 25% from the 26% achieved in the third, with the impact of clearance sales resulting in retail gross margins up 30 basis points for the half and and flat for the year despite price investment activities.

Management has consistently reiterated a PBT range of £78-80m as cash is ploughed back into driving growth, Deutsche forecast £79.5m "but would not get excited about any modest beat".

"The main focus for analysts and investors is likely to be FY18 guidance," the German bank said, with any qualitative comments on recent trading likely to be closely scrutinised given recent investor concerns of a UK slowdown.

The consensus for 2018 is for 26% revenue growth and PBT of £102m.

Barclays forecasts fourth quarter retail sales up 28.6% on a reported basis to £335.4m, bringing full year revenues to £1.9bn, with EBITDA of £125.3m and PBT of £79.5m.

"For FY18E we expect 27% revenue growth and PBT of £102m."

Housebuilder Bellway will report its preliminary results for the year to July following a pre-close trading update in August that showed volumes up 10.6% and an average selling price of up 3% to around £260,000 to drive revenue of £2.5bn, with operating margin in excess of 22%.

UBS forecast PBT of £544m, net income of £437m, EPS of 357p and dividend of 123p, with net cash of £16m.

"With a forward order book of £1,296m (+16% y/y), we'll be looking for an update on trading post year end and any further guidance on the outlook for FY18."

Tuesday October 17

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Capacity Utilisation (US) (14:15)
Consumer Price Index (EU) (11:00)
Import and Export Price Indices (US) (13:30)
Industrial Production (US) (14:15)
Wholesale Price Index (GER) (07:00)
ZEW Survey (EU) (11:00)
ZEW Survey (GER) (10:00)

UK ECONOMIC ANNOUNCEMENTS
Consumer Price Index (09:30)
Producer Price Index (09:30)
Retail Price Index (09:30)

FINALS
ASOS, Bellway, Bioventix, DotDigital Group, Genedrive , Orchard Funding Group

INTERIMS
B.P. Marsh & Partners

TRADING ANNOUNCEMENTS
Evraz, Mediclinic International , Merlin Entertainments , Moneysupermarket.com Group, Pearson, SEGRO, Virgin Money Holdings (UK)

DRILLING REPORT
BHP Billiton

GMS
Revolution Bars Group, SEC S.P.A. (CDI)

AGMS
Frontier Developments