Wednesday preview: Services PMI and builders Barratt and Berkeley under spotlight

Housebuilders Barratt and Berkeley continue the focus on construction this week, while there will be significant interest in surveys on the UK services sector and data for the Italian and Spanish economies.

Shares in housebuilders have been wobbling of late, not helped by reports that the government's Help to Buy scheme is facing the axe.

Ministers are planning a “fundamental review” of the policy, the Daily Telegraph reported earlier in the week, with the scheme potentially being replaced by one that is "more targeted on those it is meant to be helping" - ie lower income buyers rather than building companies.

Of those builders, Barratt Developments has already guided to most metrics for full year results, with PBT pencilled in for £835m.

Analysts at UBS predict "no incremental surprises" in the results, meaning focus will therefore be on trading since the 30 June year-end and guidance for the new financial year.

UBS expects sales per site per week over July/August to be "broadly flat" compared to last year, with 2019 guidance expected to see around 2.7% volume growth but a 3.9% fall in average selling prices due to London "unwinding", with operating margins expanding 60 basis points to 17.7% resulting in PBP of £855m.

The key swing factor for Barratt, in broker Peel Hunt's view, is the group's margin performance.

"It has a number of self-help measures underway and margins should be heading higher even if sector averages are peaking," analysts said. "Market conditions look to have been pretty robust in the past few months and there are some signs of recent activity picking up post the main summer holiday weeks."

London-focused builder Berkeley Group will provide a trading update alongside its AGM, having said in June that it expected profit to fall by 30% in its current financial year as the benefits of buying land at low prices fade.

Chief executive Rob Perrins said Berkeley’s performance resulted from buying sites from 2010 to 2013 when prices were low following the financial crisis. Berkeley’s profitability has peaked and profits will be about 30% lower from 2018/19, he said.

UBS again doesn’t expect a major change to the guidance and outlook provided in June, but expected confirmation that general market conditions remain subdued. "We expect an update on activity in the land market and sales environment."

Elsewhere water companies UU and Severn Trent will also be setting out plans to investors in conference calls on their regulatory submissions. Peer Pennon speaks to investors later in the week.

With broader UK political risks seen as "a concern", Deutsche Bank said it "remains to be seen how far Ofwat will push on costs and other factors" and whether the submissions from the non-listed companies "cause wider controversies around the review process".

MACRO DATA

July was not a good month for the services sector, according to the previous PMI from IHS Markit, suggesting that the rebound in domestic activity seen in May and June could have been temporary. Growth in output and new orders both decelerated, as did the rate of increase input costs although still at elevated levels.

This month the market expects the services PMI, due at 0930 BST bounce back slightly, though talk of the rising risk of a no-deal or at least hairy Brexit could see continued softness.

Away from UK's survey, there are the final PMIs for the major EU economies, starting with Spain at 0815 and culminating with the euro area at 0900.

While these final confirmations normally attract much less market attention than the ‘flash’ release, economists at RBC Capital Markets said on this occasion it may be worth paying closer attention to the final release than normal "because of what the earlier ‘flash’ PMIs pointed to in terms of Spain and Italy".

The initial release showed the composite euro area PMI ticking up to 54.4 from 54.3 amid stronger improvements in France and Germany.

"Of euro area member states we only get a ‘flash’ release for Germany and France. Barring revisions, the ‘flash’ therefore suggest a deterioration in the Italian and Spanish PMIs which we get a first look at this week."

Wednesday 05 September

INTERNATIONAL ECONOMIC ANNOUNCEMENTS

Balance of Trade (US) (13:30)

MBA Mortgage Applications (US) (12:00)

PMI Composite (EU) (10:00)

PMI Composite (GER) (08:55)

PMI Services (EU) (10:00)

PMI Services (GER) (08:55)

Retail Sales (EU) (10:00)

UK ECONOMIC ANNOUNCEMENTS

PMI Services (09:30)

FINALS

Barratt Developments, Frontier Developments, Haynes Publishing Group

INTERIMS

Anpario, Everyman Media Group, Frenkel Topping Group, Gem Diamonds Ltd. (DI), Location Sciences Group, Somero Enterprises Inc. (DI), Xaar

TRADING ANNOUNCEMENTS

Berkeley Group Holdings (The)

AGMS

Aberdeen New Dawn Investment Trust, Berkeley Group Holdings (The), British Smaller Companies VCT, Consort Medical, Empyrean Energy, IG Design Group, Myanmar Strategic Holdings Limited NPV (DI), Quiz, SRT Marine Systems, Triad Group, Walker Crips Group, Zanaga Iron Ore Co. Ltd (DI)

FINAL DIVIDEND PAYMENT DATE

Panther Securities, Puma Vct 11, Puma VCT 12

INTERIM DIVIDEND PAYMENT DATE

Inchcape, Man Group

QUARTERLY PAYMENT DATE

Unilever