Rolls-Royce, Just Eat, ITV, insurers and inflation in focus for coming week

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The week begins with quite a busy agenda, including Direct Line Insurance (LON:DLG) and Pearson (LON:PSON), and really only gets busier, with big names across a variety of sectors, including Rolls-Royce, Just Eat Takeaway, Morrisons, Standard Life, Legal & General, before ending with the contrasting ends of the property market in Berkeley and Hammerson.

Macroeconomic data includes UK GDP, industrial and trade data on Friday, plus retail sales and more housing market information during the week, as well as a European Central Bank meeting and US inflation numbers that will be of interest to the Federal Reserve and those watching bond yields. 

Just another manic Monday?

Monday’s melange also includes Abcam (LON:ABC), which is not far off from being big enough for blue chip status and yet is still only AIM’s third-biggest company.

A trading statement at the start of this year highlighted the life sciences group’s continued resilience to the challenges of coronavirus, with half-year revenue expected to rise over 8%.

“Many investors are waiting for the margins to turn into an entry opportunity,” said broker Peel Hunt, but the company’s market valuation multiple “continues to set new highs as investors look through added costs and await the expected beats to the top line”.

Over at Direct Line, the motor and home insurer has given guidance that the combined operating ratio (COR) for 2020 should come in slightly ahead of the 93-95% target range, while underwriting results will include £35mln of direct Covid-related claims, without which the COR would have been closer to 91.6%.

As well as a 9p final dividend and no special final dividends, Peel Hunt analysts see the key focus points including whether pricing trends are keeping up with underlying claims inflation, and the pace of the declining trend in reserve releases.

Looking at Pearson, final results will cover a more challenging year, but where COVID-19 had positive effects on its shift towards online learning.

In a January year end update, new boss Andy Bird, who replaced chief executive John Fallon in October, reported a return to sales growth in the fourth quarter, as strong demand for online learning offset continued declines in North American courseware.  

The company expects revenue for the year to decline by 10% to circa  £3.5bn, with adjusted profits in the range £310-£315mln aided by £60m of incremental benefits from restructuring and net debt halved to around £500mln.

Next week’s results will be accompanied by an update on group strategy from Bird, so broker Shore Capital said investors will be looking for an insight into topics such as: “the group’s plans for accelerating digital transition (and resultant costs); how best to leverage progress to date; international opportunities; the role of acquisitions / disposal of non-core assets and; share buy-back plans”.

More encouraging signs for ITV?

ITV (LON:ITV) final results on Tuesday come with the broadcaster and producer’s shares higher than they were a year ago but down around 50% over the past five years, amid a rise in online video streaming competition.

In October, boss Carolyn McCall unveiled a restructuring of the broadcast division, with a cutting of London office space as the group reacts to changing viewing habits and more flexible working.

As well as the creation of a new ‘Media and Entertainment’ division to incorporate the broadcast and on-demand arms separately from the ITV Studios production business, McCall said “we need an on-demand business which will increasingly be the focus of our new investments in content and technology and which will be our growth engine attracting younger and more targeted audiences”.

The last trading update, in November, flagged “encouraging signs” across both sides of the business, following a very challenging first half, with external revenue declined 16% in the first nine months of the year but comments that total advertising would be “slightly up” in the fourth quarter.

As well as an update on the restructuring and any developments of Britbox partnership with the BBC, there are two main things to watch for in these results, says Sophie Lund-Yates, analyst at Hargreaves Lansdown: the effect of reduced marketing spending on advertising revenues in the current quarter, and the extent of revenue and margin dilution caused by higher costs and production delays in the Studios business from the UK’s extended lockdown.

A possible hedge against inflation

TP ICAP (LON:TCAP), the interdealer broker, has rallied sharply since the rights issue completed on 17 February and, looking towards the coming final results also on Tuesday, broker Shore Capital recommended the shares as an “inflation hedge” – but not to buy until after having look at these numbers.

As well as covering last year, results should relay useful updates on current trading, the build-out of the direct-to-consumer platform after the Liquidnet acquisition completes, and Liquidnet’s potential to improve earnings power and quality, said ShoreCap analyst Vivek Raja.

“After a torrid end to 2020, a steeper yield curve should lift trading momentum across the core interest rates franchise,” he said, though the stronger pound looks like hitting revenue growth in 2021.

Following the rights issue, the broker expects 2021 earnings per share of 29.1p and rising to 31.7 in 2022, with dividends of 14.5p and 15.8p per share respectively.

“It doesn’t look like consensus has caught up yet so housekeeping is likely to entail downgrades on the results, which may provoke some profit taking. We would actually see this as an opportunity to reload with emphasis on the improvement in trading conditions,” said Raja.

Life, pensions and everything

Two big names in the pensions world report midweek and it is probably fair to say that Standard Life Aberdeen PLC (LON:SLA) is going through a period of upheaval while Legal & General Group PLC (LON:LGEN), like ol’ man river, just keeps rolling along.

Last month, Standard Life Aberdeen PLC (LON:SLA) confirmed it is to sell the Standard Life brand to Phoenix Group Holdings PLC (LON:PHNX).

Tuesday’s full-year results statement, the first under chief executive Stephen Bird’s watch, will give management the opportunity to provide some clarity on its strategic direction.

“News flow on SLA has been gathering since Stephen Bird took over – with a number of small disposals and acquisitions so far announced, a possible change to the branding, and talk of expanding into non-traditional asset classes,” said Deutsche Bank. “Given the recent run in the share price, our analysis suggests that a series of bolt-on acquisitions at up to 20x [annual earnings] can now match the initial accretion from buy-backs, while also bringing better longer-term growth and a higher rating; however, there remains considerable uncertainty as to whether this is indeed the strategy, how it is to be implemented, how long it will take and what risks any future M&A involves.”

For its part, Legal & General (L&G), due to report on Wednesday, has already announced many of its headline numbers for 2020.

Analysts are intrigued by the impact rising bond yields will have had on the insurance firm’s solvency ratio; an improvement in the ratio should enable the company to write a higher level of new annuity business than previously expected.

“An unexpected (if long-awaited) rebound in the yield on Government (and other) bonds makes it easier for Legal & General to generate the income it needs to match the liabilities it will face as customers begin to draw down their pensions or claim on their policies,” explained Russ Mould, the investment director at AJ Bell.

The insurer has already indicated it intends to leave the 2020 dividend unchanged but from this year on it is looking to grow the dividend by “low to mid-single digits” (in percentage terms).

Did somebody say Just Eat results?

Just Eat Takeaway.com NV’s (LON:JET) finals on Wednesday are coming at a time of big excitement for competitor Deliveroo’s IPO.

Shares are little changed form where they were 18 months ago despite high demand for food deliveries as it fights with huge competition.

The company is growing revenue fast but it’s not just down to the supportive market, as the Anglo-Dutch group is having to pump a fair whack of cash on marketing, while also investing in growth.

JET said last year that it plans to hire thousands of new couriers as it stepped up a gear with adding deliveries to its Just Eat marketplace offering in the UK, so investors will want to hear updates on this.

The market will also be keen for updates on which of London, Amsterdam or New York will be best for its long-term listing location.

The acquisition of US-based Grubhub required the firm to list in New York so Just Eat will need to make decision on which European stock exchange to take off the order.

Rolls-Royce hoping for take-off

Rolls-Royce Holdings PLC (LON:RR.), one of the most popular stocks in the UK in recent weeks, will be glad to see the back of 2020 but it has to look back one more time with its full-year results statement.

The aerospace engineer updated the market in January and said trading in December was “broadly in line with expectations across all business units”; the phrase “broadly in line” is City code for “not quite as good as we expected”.

Having been hit hard by the coronavirus (COVID-19) pandemic for much of the year, the last thing the company needed, given its reliance on aircraft engine maintenance revenues, was additional uncertainy at the end of the year caused by new strains of the virus.

“There’s no doubt it’s been a tough year for Rolls Royce, the question is whether it was even worse than expected. Rolls Royce hoped widebody engine flying hours would rise to 55% of 2019 levels by the end of the year but an unexpected round of further restrictions means we’d expect to see that forecast downgraded,” said Laura Hoy, an equity analyst at Hargreaves Lansdown.

“Long-haul travel looks likely to be disrupted well into summer. We’d like to know what that means for management’s target of turning free cash flow positive in the second half. Progress on the group’s massive restructuring plans is something else to watch, with 9,000 redundancies underway as part of a £1.3bn cost saving target,” she added.

More reasons to relegate Morrisons?

WM Morrison Supermarkets PLC (LON:MRW) is releasing its full-year results on Thursday, just as it’s about to be relegated from the FTSE 100 as part of the latest quarterly reshuffle.

Shares are a few pence lower than they were a year ago, which AJ Bell said it seems “a bit ungrateful when you consider how important the company has been in keeping the nation fed and watered during the pandemic”.

Sales have been going up but were matched by charges of £280mln to follow COVID-19 safety measures, while the grocer also said it would repay £274mln in business rates relief.

Management guided pre-tax profit excluding exceptional items at £420-440mln, with analysts forecasting £431mln.

With the supermarket chain having already declared an interim dividend of 2.04p a share and a special dividend of 4p, analysts are expecting a final payment of 4.75p and increases in payouts in the next two financial years coming.

The market will also be looking to what’s in store in 2021 with sales growth at the start of the year, to see if trading has been holding up in the current lockdown, and comments on what’s expected as the UK opens up the economy again.

Property chalk and cheese

Berkeley Group (LON:BKG) and Hammerson (LON:HMSO) wrap up the week and should demonstrate the chalk and cheese nature of the wider property market.

London and South-East focused housebuilder Berkeley, where the sector got good news from the Budget in the past week, usually updates its guidance for profit for its full year to end-April in its trading update at this stage.

In its interim results in December, the FTSE 100 group reported lower half-year sales and profits but reaffirmed its commitment to returning oodles of cash to shareholders over the coming year as it steps up long-term investment and construction activity.

Analysts at UBS said they expect PBT of £538mln, versus December’s guidance of around £500mln, and net cash to be around £900mln by year end.

“We expect trading to be broadly stable to positive in Q3, reflecting somewhat more subdued trends in London vs the rest of the country. We do not expect a change to multi-year guidance at this stage.”

As for Hammerson, the financials should highlight the severe headwinds in the retail sector, as well as the impact of the dilutive rights issue in the summer.

Broker Peel Hunt forecast a year-end loan-to-value of 46%, and with ongoing valuation declines expected over the coming years, sees LTV rising further without disposals.

“This will be crucial to the future prospects of the company in our view, and we look for an update on the new management team’s intentions.”

Macro matters

There has been a notable change in sentiment in financial markets recently, which many analysts and market commentators have put down to uncertainty about growth and inflation.

“The change has emanated from the bond market, specifically the US Treasury market, where yields have risen substantially. But the surge in yields has been global,” says market analyst Marshall Gittler at BDSwiss.

The rise stems from a dramatic change in the behaviour of the bond market, where something called the ‘bond term premium’ has turned positive after two and a half years.

In short, what this means, explains Gittler, is that “for the last two and a half years investors seemed worried about the risk of not being in the bond market. They were willing to pay a premium for the privilege of holding bonds. But now that’s turned around.

“Now investors are once again worried about the risks of holding bonds – which is the normal state of affairs – and are demanding to be compensated for taking on that risk. This is a big change in sentiment.”

US consumer and producer price inflation numbers will be coming out, providing more data to pore over. 

“Is the stock market being driven by the bond market? Or are both being driven by something else, e.g. doubts about the recovery, or perhaps something even more striking: certainty about the recovery,” ponders Gittler.

“Perhaps the market is switching from hope to expectation and with that a rotation out of assets that make money through loose liquidity and abnormal situations, such as the tech stocks that’ve been soaring recently, and into assets that make money in normal times, such as banks.”

UK’s big data trade data will probably be closely watched as it’s the first month’s data after Brexit, with a narrowing deficit likely to be good for the pound.

Significant announcements expected for week ending 12 March:

Monday 8 March

Finals: Direct Line Insurance Group PLC (LON:DLG), Pearson PLC (LON:PSON), Phoenix Group Holdings PLC (LON:PHNX), Clarkson PLC (LON:CKN), Diversified Gas & Oil PLC (LON:DGOC), Network International (LON:NETW), RHI Magnesita (LON:RHIM), Emis (LON:EMIS), Senior (LON:SNR),

Interims: Abcam PLC (LON:ABC), PCI-PAL (LON:PCIP

AGMs and EGMs: Chrysalis Investments Ltd (LON:CHRY), IntegraFin Holdings (LON:IHP), Jlen Environmental Assets (LON:JLEN)

Economic announcements: US wholesale inventories

Tuesday 9 March

Trading statements: Braemar Shipping Services PLC (LON:BMS)

Finals: ITV PLC (LON:ITV), Standard Life Aberdeen (LON:SLA), Cairn Energy (LON:CNE), Capital & Counties (LON:CAPC), Foresight Solar (LON:FSFL), Gamesys Group (LON:GYS), IWG (LON:IWG), TP ICAP (LON:TCAP), Ultra Electronics (LON:ULE), Arix Bioscience (LON:ARIX), Capital & Regional (LON:CAL), Costain Group PLC (LON:COST), Forterra (LON:FORT), Gresham Technologies (LON:GHT), Headlam (LON:HEAD), Keller (LON:KLR), LSL Property Services (LON:LSL), Marshall Motor Holdings (LON:MMH), Midwich Group (LON:MIDW), RPS Group (LON:RPS)

Interims: Abingdon Health (LON:ABDX), DFS Furniture PLC (LON:DFS), Orchard Funding (LON:ORCH)

AGMs: Caretech Holdings PLC (LON:CTH), Ecofin Global (LON:EGL)

Economic announcements: UK retail sales, US smaller companies confidence, EU unemployment and GDP

Wednesday 10 March

Finals: Just Eat Takeaway PLC (LON:JET), Legal & General PLC (LON:LGEN), Spirax-Sarco Engineering PLC (LON:SPX), Balfour Beatty plc (LON:BBY), CLS Holdings PLC (LON:CLI), FDM Group (LON:FDM), Hill & Smith Holdings PLC (LON:HILS), Ibstock PLC (LON:IBST), IP Group PLC (LON:IPO), National Express PLC (LON:NEX), Quilter PLC (LON:QLT), Tritax Big Box REIT (LON:BBOX), Aptitude Software Group PLC (LON:APTD), Breedon Group PLC (LON:BREE), Foxtons Group PLC (LON:FOXT), Restaurant Group (LON:RTN), TT Electronics (LON:TTG), Vaalco Energy (LON:EGY)

Interims: Kin and Carta PLC (LON:KCT)

AGMs: Blackrock Income & Growth Investment Trust (LON:BRIG), Inspirit Energy (LON:INSP), Northamber        (LON:NAR), Titon (LON:TON)

Economic announcements: US CPI

Thursday 11 March

Trading update: IG Group (LON:IGG)

Finals: Rolls-Royce Holdings PLC (LON:RR.), Wm Morrison Supermarkets PLC (LON:MRW), WPP PLC (LON:WPP), Derwent London (LON:DLN), James Fisher and Sons (LON:FSJ), Just Group (LON:JUST), Marshalls (LON:MSLH), Playtech (LON:PTEC), Savills (LON:SVS), Spirent (LON:SPT), Equiniti (LON:EQN), Eurocell (LON:ECEL), Gem Diamonds (LON:GEMD), Gresham House PLC (LON:GHE), Helios Towers (LON:HTWS), Secure Income REIT (LON:SIR), Oakley Capital Investments Ltd (LON:OCI), TCS Group (LON:TCS)

Interims: Brooks Macdonald Group plc (LON:BRK), Go-Ahead Group (LON:GOG), Volution Group (LON:FAN)

Economic announcements: UK RICS housing survey, US jobless claims, job openings

Friday 12 March

Trading statement: Berkeley Group Holdings PLC (LON:BKG)

Finals: Hammerson (LON:HMSO), Ocean Wilsons Holdings PLC (LON:OCN)

AGMs/EGMs: Autins Group (LON:AUTG), Petroneft (LON:PTR)

Economic announcements: UK GDP, UK industrial, manufacturing and construction output, UK trade data, US PPI

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