Tuesday preview: WPP to remain under pressure, BP's spill costs banished?

With its shares down almost a third since issuing a cautious advertising outlook in March, investors will be hoping WPP's trading statement on Halloween Tuesday is not a horror show, while a busy day for economic data will keep the market busy ahead of bigger events later in the week.

Apart from the one or two bolt-on acquisitions it makes each month, WPP has not been heard of since August, when the advertising and marketing giant announced a disappointing set of first-half results.

But the market's doubts began in March, when boss Sir Martin Sorrell cited "tepid economic growth" and "highly competitive" market when he said that budgets for 2017 were being set "conservatively", knocking the shares from their all time highs.

August's top-line numbers was slightly weaker than expected due to lower client spend, especially from fast-moving consumer goods companies, leading to guidance for full year like-for-like sales being cut to 0-1.0% from 2% in February, which was down from 3% in December.

"This update will provide a useful opportunity to assess the group’s performance against an unsettled advertising spend environment featuring contrasting performances from its peers," said analyst Roddy Davidson at Shore Capital, pointing to third quarter numbers from Omnicom and Publicis coming in respectively better than and below market expectations, together with ongoing uncertainty around the marketing plans of large consumer advertisers such as Unilever, Nestle, and Reckitt Benkiser following weak trading updates.

Davidson, who said a challenging rather than calamitous quarter would be unlikely to surprise the market as a greater degree of caution has already been baked into consensus forecasts, will be looking for updates on short-term pricing pressure from clients and competitors, the frequency of client review activity, net new business wins, whether new entrants offering a lower-cost services are proving disruptive, and for information on the group’s acquisition pipeline and share buy-back activity.

Analysts have been divided over how quickly Sorrell can get the huge WPP vessel back on course.

Morgan Stanley's Patrick Wellington forecast the third quarter will see net sales fall 1.5% with all three months negative year on year - though for the fourth quarter growth of 0.9% was predicted thanks to easier comparatives from last year, which would bring the year to -0.4%, still behind guidance.

Although there are fears over whether WPP can maintain its medium-term 10-15% EPS growth target, Wellington and his colleagues are still confident about the ad industry's prospects however. "We think the industry slowdown is mainly the function of low GDP growth and the FMCG (and some other sectors) pressure on marketing expense. This has led to the associated procurement pressure on suppliers, including agencies, and some consequent price indiscipline among competing agencies."

With July down -2.6%, August better than July, but not necessarily positive and September usually representing 40-50% of the quarter, UBS was expecting quarterly net sales organic growth of -1%.

UBS expect growth from M&A of +1.8% and FX tailwinds of +1%, leading to reported net sales growing +1.8% to €3.17bn.

Third quarter results from BP are expected to show adjusted earnings per share improve on last year and sequentially from the second quarter, which was hit by a large non-cash exploration write-off and weaker than expected oil trading earnings.

Also, costs from the Deepwater Horizon oil spill in the Gulf of Mexico, which have dogged the company since 2010's ecological disaster, should fall significantly from here.

The consensus is for a jump to $0.0802 from $0.0347 in the second quarter.

Barclays said the sharp recovery in earnings in part reflects the absence of exploration write-offs but also the benefit of higher prices, refining margins, lower costs, and ramp-up of higher margin projects offset in part by outages in Gulf of Mexico from hurricanes.

Costs from the Macondo spill "are likely to materially fall q/q and we expect BP to be broadly cash flow neutral excluding movements in working capital", the bank's analysts said.

Hargreaves Lansdown analyst George Salmon said that as well updates on hurricanes and the impact of the oil price, investors will want to hear about progress on free cash generation and cutting its sizeable debt pile.

UBS predicted operating cashflow would be "robust" and noted production guidance was for a flat quarter, while BP has no refining exposure in the Gulf of Mexico region but some chemicals manufacture.

"Delivery of projects on time and under budget might suggest some downside risk to that as the year closes out. We expect a pick-up in Rosneft equity earnings as Downstream results recover from 2Q and it takes some benefit from duty lag."

ECONOMIC DATA

For the UK, there's a consumer confidence index from GfK for October. The consensus is for a worsening to -10 from the -9 a month earlier, but it is highly unlikely anything can detail the Bank of England from the interest rate path will debate at this week's meeting.

In a busy week for central banks, Tuesday sees the Bank of Japan's monetary policy meeting and the release of an outlook report for the quarter and following press conference, following the hand-strengthening general election for Shinzo Abe, followed later in the day from a speech from the Bank of Canada governor.

For China there's the October purchasing managers' index and some hard data for the eurozone, with initial estimates consumer inflation data and GDP being released mid-morning, while in the US, the the employment cost index, Chicago PMI, consumer confidence and S&P/Case-Shiller house price index is amongst the data due.

Tuesday 31 October

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
GDP (Preliminary) (EU) (10:00)
Unemployment Rate (EU) (10:00)

FINALS
Earthport, Egdon Resources

INTERIMS
Great Eastern Energy Corp Ltd. GDR, Ryanair Holdings

TRADING ANNOUNCEMENTS
BP, Croda International, DS Smith, Just Eat, Nostrum Oil & Gas, Plus500, Weir Group, WPP

GMS
Altona Energy, Puma Vct 8

AGMS
Angle, JPMorgan Mid Cap Inv Trust, Kodal Minerals , Maxcyte (DI), Terra Catalyst Fund (DI)

INTERIM DIVIDEND PAYMENT DATE
BioPharma Credit , Cambian Group, John Laing Infrastructure Fund Ltd, NAHL Group, Old Mutual, Wynnstay Group

QUARTERLY PAYMENT DATE
F&C Commercial Property Trust Ltd., Funding Circle SME Income Fund, Middlefield Canadian Income PCC, Real Estate Investors, Schroder Income Growth Fund