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Thursday preview: TalkTalk and Kingfisher results under scrutiny

By Oliver Haill

Date: Wednesday 23 May 2018

Thursday preview: TalkTalk and Kingfisher results under scrutiny

(Sharecast News) - Retail figures on Thursday will be more widely studies than usual as the market seeks reasons for the Bank of England to regain confidence over the economy, while company news includes closely watched results from Kingfisher and TalkTalk.
Giving himself ample opportunities to control the narrative around monetary policy, BoE Governor Mark Carney is speaking twice on Thursday, at 0900 BST at the Bank of England markets forum and again at the Society of Professional Economists annual dinner.

The Office for National Statistics will publish retail sales data at 0930 BST. The market expect month-on-month retail sales growth to have recovered to 0.7% in April from the 1.2% decline in March. Excluding fuel, growth is expected at 0.4% from a fall of 0.5% fall before.

"Following the weather related weakness in the March retail sales, we expect a bounce back in April," said Barclays, "however, we expect the underlying structural weakness to continue".

Economists at Pantheon Macroeconomics forecast retail sales volumes rose by about 1.0% month-to-month in April, partly due to a recovery in motor fuel sales after the snow disruption. "Even so, the 1.0% month-to-month rise in sales volumes we expect won't completely reverse the previous month's 1.2% decline."

"The underlying trend in retail sales volumes still is broadly flat, and the recent rise in oil prices will temper the forthcoming fillip to real disposable incomes from falling imported inflation," Pantheon said.

Company news will also show evidence of the effect of snow on retailers, with B&Q and Screwfix owner Kingfisher publishing first-quarter results.

The external market pain in the first quarter is not likely to have eased up, with sales likely to have been hammered by two bouts of snow in Northern Europe, and an early and cold Easter, said UBS, with the temperatures improving since but seemingly "unlikely to have offset these trends". UBS forecasts an 8% drop in like-for-like sales in the quarter at B&Q and just 5% growth at Screwfix.

The group had started 2018 in very cautious mood as last year ended on a low note, with an 8% fall in the 's annual profits on flat sales as chief executive Véronique Laury completed the second year of her five-year overhaul. One of her chief aims this year is to complete the roll-out of the group's unified IT platform across its UK and French chains, as well as extracting around £30m of savings. On year-three of her One Kingfisher plan Laury said the pace of change will be "quick and impactful but necessary", though the market outlook was mixed, with the UK seen as "more uncertain", France "encouraging yet volatile" but Poland "supportive".

Deutsche Bank forecast group sales of £2.86bn in the quarter, with group LFL sales down 3.5%, of which UK & Ireland is seen down 4.9%, France 4.3% and Poland up 2% despite the introduction of new Sunday trading laws in March.

"We assume that the drag on sales from disruption of the ONE Kingfisher plan remains at circa 100 basis points as in H2 17/18. The extra buffer inventory accumulated at the end of the last financial year should help in this respect by improving availability," DB said, looking ahead to a strategic review from Homebase owner Wesfarmers on 7 June that "could very likely free up market share in the UK for B&Q".

Shares in TalkTalk, which publishes final results on Thursday, have recovered around 30% since hitting an all-time low in February after cutting its dividend "temporarily" to 2.5p a share and asking shareholders for £200m to strengthen its balance sheet and invest in fibre-to-the-home (FTTH) broadband. TalkTalk cut its guidance for 2018 adjusted earnings to £230-245m, down from November's guidance for at least £270m.

Investor attention may be on net customer additions and profits before likely sizeable costs, but Numis said it was focussed on EBITDA after sizeable costs, free cash flow and net debt, with the placing likely to see the group finished its financial year with net debt three times the size of EBITDA.

"Overall, we note that TALK's poor FCF performance to date is due to its own mistakes but also because its main rivals are much bigger and better armed," Numis said, with BT, Sky and Virgin Media together serving 80% of the market to TalkTalk's 13% retail share. "Even if TALK stops stumbling, we believe BT, Sky and Virgin Media have not finished making its life ever more difficult. Separately, if only because of its several profit warnings to date, we believe TALK must add consistency to its disclosure and it must ensure its guidance on FCF drivers is reliable."

Since February the company has been moving to invest in a fibre network that will supply high-speed broadband to up to 3m homes and businesses, with a joint venture former with Infracapital and reported to be working on a deal with Virgin Media to share the cost of new ultrafast broadband networks.

Deutsche Bank noted that recent sentiment has also been helped by news that BT's wholesale fibre charges will fall 33% lower by 2021, the potential for M&A after purchase of CityFibre by infrastructure funds and comments from mobile network operator Three's interest fixed-line, together with weak subscriber momentum for BT.

"TalkTalk has suffered disappointing financial reporting of late, though in March we pondered whether the Q3 trading update guidance cut was 'the last reset'," DB said.

"It's still hard to be certain as the UK market remains febrile, but there is evidence that TalkTalk's broadband momentum is stronger and we increasingly view TALK as somewhat of a 'kingmaker' when it comes to FTTH," analysts said, as the company can offer customers to a network builder for good wholesale terms or can join with like-minded ISPs to participate in a self/externally funded build.

Electrical product distributor Electrocomponents last month said that full-year results were likely to be ahead of its previous expectations following continued "strong" revenue growth and better gross margins, with pre-tax profit expected to come in "slightly ahead" of the £171m top end of market forecasts. Having completed the first phase of a performance improvement plan, with cumulative annualised savings of £30m, management were looking at ways to generate more efficiencies.

The consensus forecast is for 28.0p of EPS.

Analysts at UBS said one area likely to attract investor attention is the exact gross margin as well as the usual focus on the outlook, specifically whether double-digit LFL growth can be sustained and any new cost initiatives.

Brick maker Ibstock will report on trading for the first four months of the year, with newly promoted CEO Joe Hudson having moved from the cement and concrete business into the top office in early April. Industry statistics pointed to a 6% decline over the first quarter due to the cold snap.

But as Ibstock will include April in its reporting, UBS expected only a modest volume decline "which should be caught up over the coming months as backlogs get executed", while pricing trends are also expected to be confirmed at the previous growth run-rate of 5%. "Overall, we expect that the outlook is consistent with our FY18 EBITDA expectation of £133m".

Intertek will also be updating on the year-to-date trading, with broker Numis expecting a continuation of the trends seen in the last two months of 2017, where the improvement in the Resources business "should turn positive" during the period and another solid trading period forecast for the Products division of circa 5.5%.

"The Trade business offers the greatest risk of volatility," analysts felt, with momentum having slowed in the end of 2017 due to issues in transport, causing a sales decline of 2%. "We also look for an update on its M&A activity. The balance sheet has de-geared to a net debt / EBITDA of 1.0x, well below a target range of 1.5-2.0x, and we believe larger deals are likely during 2018."

Thursday May 24


Continuing Claims (US) (13:30)
Existing Home Sales (US) (15:00)
GFK Consumer Confidence (GER) (07:00)
House Price Index (US) (14:00)
Initial Jobless Claims (US) (13:30)


Retail Sales (09:30)


Caledonia Investments, Electrocomponents, Helical, Mediclinic International, NewRiver REIT, PayPoint, QinetiQ Group, Renewi, TalkTalk Telecom Group, Tate & Lyle, United Utilities Group, Wizz Air Holdings, Young & Co's Brewery 'A' Shares


Daily Mail and General Trust A (Non.V), Daily Mail and General Trust A (Non.V), Paragon Banking Group, Shoe Zone


Balfour Beatty, Go-Ahead Group, Huntsworth, Inchcape, Intertek Group, Kingfisher


Avingtrans, Bellway, Brewin Dolphin Holdings, Cerillion, Countryside Properties, Diploma, Euromoney Institutional Investor, Gattaca, Grainger, Income & Growth VCT, Keystone Inv Trust, Marston's, Maven Income & Growth 2 VCT, Mobeus Income & Growth 4 Vct, Town Centre Securities


M Winkworth, Tetragon Financial Group Limited


Kape Technologies, Morrison (Wm) Supermarkets


Jersey Oil And Gas , Alliance Pharma, Arena Events Group , Balfour Beatty, Cambridge Cognition Holdings, DP Eurasia N.V. (DI) , EnQuest, Escape Hunt , Eve Sleep PLC, F&C Private Equity Trust, Hastings Group Holdings , Headlam Group, Henry Boot, Huntsworth, Ibstock , Inchcape, Ingenta, Instem, Instem, Intertek Group, Learning Technologies Group , Lloyds Banking Group, Manx Financial Group, Sabre Insurance Group, Sound Energy , Spire Healthcare Group, Sportech, StatPro Group, Strix Group , Tissue Regenix Group, Yu Group


Bank of Ireland Group , Churchill China, Gresham Technologies, Hikma Pharmaceuticals, Impax Environmental Markets, ITV, Reckitt Benckiser Group, UBM, Zotefoams


Advanced Medical Solutions Group, British American Inv Trust, Bunzl, C&C Group, DCC, FDM Group (Holdings), Filta Group Holdings, Hill & Smith Holdings, Howden Joinery Group, Huntsworth, Manx Telecom , Menzies(John), Midwich Group, Mincon Group , Morrison (Wm) Supermarkets, Soco International, Spectris, Ten Entertainment Group , The Gym Group, Venture Life Group, Whitbread


Blackrock North American Income Trust , Carnival, HICL Infrastructure Company Ltd, NextEnergy Solar Fund Limited Red, Premier Global Infrastructure Trust, Regional REIT Limited


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