Wednesday preview: M&S results to determine FTSE fate, CPI and Fed mins in focus

Wednesday results from Marks & Spencer could determine the high street fixture's FTSE 100 status, while UK inflation data is likely to move the pound and Fed meeting minutes will be closely read and fairly certain to move the dollar.

M&S has been in the news for much of the past week, as a 12% rise in the company's falling share price since the start of April still leaves it in danger of dropping out of the UK's blue chip index if this week's results are poorly received. The shares have halved since hitting £6 in 2015, with the appointment of Steve Rowe as CEO early in 2016 and Archie Norman as chairman late last year doing little to arrest the decline so far.

In recent days the retailer's accelerated store closure programme has been leaked in the run-up to results, with 100 general merchandise-focused shops now set to close by the end of 2022.

The wider retail market has been especially tough in 2018, with the cold weather adding to rising prices, a slowdown in consumer spending and the structural shift online. M&S's own Achilles heel has been its GM business, what it calls Clothing & Home, which has seen several revival attempts fall flat, but with new divisional heads of GM and Food both appointed in the past year.

"M&S is in a particularly difficult position squeezed as it is between the presence of Zara and the recovery of Next in general merchandise, while also feeling the pressure from its food peers Waitrose and Tesco," says market analyst Michael Hewson at CMC Markets.

"Having refused to partake in last years end of year discounting the company had a disappointing Christmas period."

Alongside an expected 7% fall in underlying pre-tax profits to£573m, driven by a 1.1% drop in in-store sales of clothing and home products, Deutsche Bank said investors will be looking for a clearer idea of management thinking with respect to overall strategy and the 2019 outlook when this week’s numbers are released. EPS is expected to come in at 27.8p, with a total dividend of 18.7p.

"We forecast flat like-for-like sales in Clothing & Home and +1.5% in Food LFLs in the unreported Q4 period to end March, though both have modest downside risk given recent industry and market share data," Deutsche Bank said, adding that the there is a "modest risk" that the acceleration of transformation plans requires the dividend to be cut.

For the new year's guidance, DB assumed: "Clothing & Home margins rise 25bps with most currency tailwinds reinvested; Food margins decline 35bps, though arguably more price repositioning may be needed given recent weak performance; UK opex materially flat."

Water company Severn Trent will also report final results, with its shares until recently having dropped by a third over the last year, but having bounced 18% since the start of March.

Deutsche estimated that Severn Trent’s shares could have circa 20-30% upside if political risks fade, "although we see a similar amount of downside under a potential nationalisation bear case".

Great Portland will put out full year results following a solid January update, where there were a high level of lettings and a proposed return of £306m to shareholders.

UBS forecasts NAV of 835p, up by 3% from the first half and 5% on the year, with EPS at 17.8p and total dividend of 137.2p, comprising normal dividend of 11.4p and the special dividend of 125.8p already announced. "The London office market has not entered a melt-down phase as many feared given the referendum result, and to some extent we think is priced into the stocks. Great Portland's management had been on the more cautious end of the market, reducing leverage significantly following a number of years of net sales, and is now in a very flexible position."

A trading statement is due from Bakkavor ahead of its first annual shareholder meeting since floating last November.

Broker Numis said it was unsure of the level of detail to expect. "That said, we expect the UK performance to have been impacted by the poor weather in March. We are forecasting LFL growth of 2% in the UK for 2018. In its International business we expect the positive sales momentum will have continued."

Drinks group Britvic, where shares have also climbed in the past few weeks, is due to put out its first-half numbers.

Numis forecasts overall group sales growth of 3.5% to £727m, driven by another set of good performances in carbonated drinks in the UK and Ireland, with adjusted EBITA up 3.6% to £64.5m and EPS flat at 18.8p.

"Whilst we think that it is too early for the impact of the Sugar Tax, in the UK and Ireland, to be fully realised we will look for comments around the initial implementation and feedback from customers. Other key areas of focus are likely to focus on how the new Robinsons range extension has performed, an update on the progress of the US multi-pack Fruit Shoot penetration, the implications for H2 margins (if any) in light of recent moves in input costs, namely PET, aluminium and sugar and finally its view of the consolidation in the UK grocery retail market."

UK INFLATION AND FED MINUTES

Consumer prices are due from the Office for National Statistics at 0930 BST, with the market expecting CPI to remain at 2.5% in April after surprising to the downside last time with the second fall in a row, down from 2.7% from February.

Pantheon Macroeconomics was one swimming against the tide, predicting a fall to 2.4% in April as motor fuel and core goods inflation rise but airline fares inflation plunge due to this year's early Easter, and electricity price inflation will fall too.

Economists at RBC Capital Markets recalled that last month's fall was a second consecutive month in which CPI inflation fell but we look for the rate to hold at 2.5% on this occasion. Falling fuel prices have helped inflation fall more than expected in recent months but that effect looks to have reversed in April with pump prices rising 1.6% m/m. That will have placed upward pressure on headline last month though that is likely to be countered on this occasion by the downward effect of Easter falling in April last year compared to March this year.

The ONS will also release official house price data for March at the same time.

At 1100 BST the CBI will put out its distributive trades survey, covering the retail industry. Warmer recent temperatures are expected to lift the balance of reported sales to about +5 in May, from -2 in April.

Minutes from the Federal Reserves last policy meeting are due at 1900 BST.

The US dollar is "beginning to exhibit signs of rally fatigue", said analysts at TD Securities, "The upcoming Fed minutes are likely to contain dovish undertones and could be a tipping point for the USD. With the Fed priced to perfection and appreciable backup in yields, the USD may have exhausted the 'divergence' narrative."

RBC reminded clients that the Fed was "much gentler" with their inflation tweaks than they could have been in the May statement as policymakers do not want the market to read too much into changes that are coming at a non-press conference meeting.

"That said, the mark-to-market on inflation continues to trend up. Look for the minutes to reflect a more hawkish slant on this front. The other area of focus should be on the discussion around neutral rates."

RBC thinks a re-pricing to a steeper tightening path will continue to play out in the months ahead.

Wednesday May 23

INTERNATIONAL ECONOMIC ANNOUNCEMENTS

Crude Oil Inventories (US) (15:30)
Gross Domestic Product (GER) (07:00)
MBA Mortgage Applications (US) (12:00)
New Homes Sales (US) (15:00)

UK ECONOMIC ANNOUNCEMENTS

Consumer Price Index (09:30)
Retail Price Index (09:30)

FINALS

Assura, Dairy Crest Group, Great Portland Estates, HICL Infrastructure Company, Marks & Spencer Group, OptiBiotix Health, Severn Trent, Vedanta Resources

INTERIMS

Britvic, easyHotel, Hollywood Bowl Group, Ixico, Sanderson Group, Stride Gaming, ZPG Plc

TRADING ANNOUNCEMENTS

Bovis Homes Group, Hilton Food Group, Keller Group, Softcat

SPECIAL DIVIDEND PAYMENT DATE

AIREA, Glencore

AGMS

Access Intelligence, Allied Minds , Antofagasta, Bakkavor Group , Boku, Inc (DI) Reg S, Bovis Homes Group, Cabot Energy, Central Asia Metals, Ferguson, Fundsmith Emerging Equities Trust , Gamma Communications, Golden Prospect Precious Metals Ltd., Hilton Food Group, ICG-Longbow Senior Secured UK Property Debt Investments Ltd, Keller Group, Lamprell, Medica Group , Mercantile Investment Trust (The), MTI Wireless Edge Ltd., N4 Pharma , NAHL Group, Norish Units, Polypipe Group , Restaurant Group, Satellite Solutions Worldwide Group, Smart Metering Systems, St James's Place, STM Group, Xeros Technology Group , XLMedia

FINAL DIVIDEND PAYMENT DATE

Capital & Counties Properties , Chesnara, Eurocell , Hunters Property , Pendragon, Polymetal International, Rotork, SafeCharge International Group Limited (DI)