The week ahead: Lloyds, HSBC, BHP, Aviva and Premier Oil
20th February 2015 15:28
by Harriet Mann from interactive investor
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In one of the busiest corporate weeks of the year so far, a stream of banks will update the market with fourth-quarter/full-year results. Deutsche Bank expects a season of weak earnings, which is why the broker has cut 2016 profit forecasts by 6%. Deutsche favours for capital returns and for deep value/overpriced conduct risks.
"Our coverage universe is now trading on 12.1x 2015E adjusted EPS, reflecting both the YTD rally, and also the earnings downgrades we have seen in aggregate," it says. "The banks are also trading on 1.1x 2015E TBV, for a downgraded 9.6 % 2015E RoTE, reaching 10.7% in 2016E."
Elsewhere, miner will open the week with its first-half results and will release its full-year update.
Monday 23 February
Anglo-Australian miner BHP Billiton releases first-half results Monday, kicking off a week full of corporate news.
Analysts' expectations: Analysts at UBS expect underlying earnings to be down a third on the year at $5.1 billion, driven by the iron ore business which accounts for 44% of group earnings. They reckon iron ore earnings could be down by just under 40% on 2013, thanks to the weak price environment. Group operating profit is set to fall 12% to $9.2 billion, and a $0.62 dividend per share is expected, in line with its dividend policy which has a pay-out ratio of 65%.
Investors will want to know how strong its balance sheet is, its ability survive lower oil prices, whether the group plans to cut capex, and will look for an update to the earnings from its South32 assets.
Valuation: "In our opinion, the risk/reward is still reasonably attractive, with investors set to receive >15% from dividends over the next 3 years (yield 5.1% pre-rebase from spin out) and an option on the next cycle," says UBS. "Our £17.0/sh price target is based on 0.8x P/NPV." The shares trade on a forward price/earnings (P/E) of 16 times.
will update the market with its fourth-quarter and full-year results on Monday.
Analysts' expectations: Fourth-quarter revenue of £15.23 billion and pre-tax profit of $4.3 billion should boost HSBC's full-year pre-tax profit to £21.3 billion, reckons UBS.
"Despite recent press commentary about the private banking operations, we expect the market to be focused on capital accretion in the quarter (UBSe 11.5% CET1) and the performance of the investment bank as well as commentary around the restructuring of the South American and North American businesses," says Christopher Clarke, an analyst at UBS.
He adds: "Concerns about the dilutive impact of TLAC debt issuance remains a concern for investors and any commentary around balance sheet repositioning would be taken positively."
Valuation: With a target price of 730p, Clarke has a 'buy' recommendation on the stock.
Trading statements
Dechra Pharmaceuticals, BHP Billiton, Green Reit, HSBC Holdings, Greencoat UK Wind, Bovis Homes Group, Audioboom Group, Bunzl, XP Power, Unite Group, Tritax Big Box.
Tuesday 24 February
will update the market with its annual results, and JP Morgan expects the engineer's automotive parts business to continue delivering revenue growth ahead of the global market.
Analysts' expectations: As well as its auto business, GKN has aerospace, powder metallurgy and land system divisions. With demand for agricultural equipment set to be weaker in 2015, analysts expect some sort of restructuring plan in its Land Systems arm. They also expect Powder Metallurgy's margin target range to be raised by around 100 basis points to between 10-12%.
Trading statements
Frontier Developments, Town Centre Securities, Ashmore Group, Just Retirement Group, dotDigital Group, Drax Group, Elementis, Mondi, Nord Gold, Provident Financial, Temple Bar Investment Trust, Meggitt, Persimmon, GKN, Aer Lingus Group, Croda International.
Wednesday 25 February
Insurance company will release its full-year results on Wednesday, but Panmure Gordon reckons the proposed merger with Friends Life (FLG) will prove just as interesting for investors.
Analysts' expectations: Pencilling in headline operating profit of £2.2 billion, up 7%, analyst Barrie Cornes notes that the dividend has already been announced. The insurer has decided to increase the full-year dividend by over 20% to 18.1p per share. Net tangible asset value should reach 240p per share.
"We are not anticipating any major surprises although we anticipate a negative impact to profitability of c£100m from UK individual annuities post the March Budget and a £80m negative impact from currency," explains Cornes.
Valuation: "Rolling forward our valuation and applying a 2015F PE multiple of 12.9x we achieve a revised target price of 660p per share from 585p previously," explains Cornes. "At this target price PE multiple would still be at a discount to the current PE multiples of all other large UK insurers in our universe."
Trading statements
Empiric Student Property, Wilmington Group, Kier Group, Barratt Developments, Avingtrans, Hays, Rex Bionics, Telefonica, Vitec Group, Weir Group, Brit, Segro, Plus500, International Personal Finance, Petrofac, Henderson Group, TSB Banking Group, Man Group, St James's Place.
AGM/EGM
Amiad Water Systems.
Thursday 26 February
Premier Oil releases full-year results on Thursday.
Analysts' expectations: Investors have a good idea of the operational highlights of the past year following a pretty extensive trading update in January. Beating guidance for the first time in a long while, production was strong, driven mainly by improved efficiency in the UK and Indonesia.
Obviously, the company will need to react to the challenging oil price environment, which is likely to have caused significant impairments in the period thanks to its investment in the North Sea, to the tune of $700 million. Like the other players in the oil space, Premier will cut its capex from $1.2 billion in 2014 to around $800 million.
"Assuming a $60/bbl average price in 2015, Premier Oil should be roughly free cash-flow neutral for the full year," says Mark Henderson, an analyst at Westhouse Securities.
Valuation: With a 171p target price, Henderson has an 'add' recommendation on the stock.
Economic news
Fourth quarter GDP will be given its first revision on Thursday in a relatively light UK economic week. There will, of course, be important information released about the eurozone. It will provide expenditure detail, painting a picture of how household consumption and investment in business fared at the end of last year, explains Victoria Clarke, an analyst at Investec Securities. Some figures pointed to a steeper decline in construction output numbers, but better industrial data should offset this.
Clarke reckons it will be left at 0.5% growth on the quarter, but this has room for downside.
Trading statements
Asian Citrus Holdings, Redde, Synthomer, Travis Perkins, Premier Oil, Xchanging, Reed Elsevier, RSA Insurance Group, Robert Walters, RPS Group, Spirent Communications, Royal Bank of Scotland Group, STV Group, Merlin Entertainments, Circassia Pharmaceuticals, Interserve, Jupiter Fund Management, Capital & Counties Properties, COLT Telecom Group, Howden Joinery, Guinness Peat Group, Domino's Pizza Group, Hutchison China Meditech, Countrywide, Kaz Minerals, Macfarlane Group, Mail.RU Group, Cherkizovo Group, National Express Group, British American Tobacco, Bodycote, Kennedy Wilson Europe Real Estate, Derwent London, Ladbrokes, Capita Group.
AGM/EGM
Twentyfour Select Monthly Income Fund, Zytronic, Nova Resources, JZ Capital Partners, Idox, Jelf Group.
Friday 27 February
One of Deutsche Bank's top picks in the banking sector is Lloyds Banking Group, which will release its fourth-quarter/full-year results on Friday.
Analysts' expectations: "We expect the declaration of a modest 1p dividend with FY14 results to herald a return to normality after a six and a half year break from shareholder pay-outs," says Deutsche Bank. The analysts are aware that volatility lies ahead as the General Election draws closer, but believe the fundamentals of the company are too good to ignore, with it being significantly undervalued.
Valuation: "Trading at 9.6x 2015 adjusted EPS, offering a 4% current year dividend and 11p of forecast excess capital at end 2016 LBG is far too cheap in our view. Rated Buy, TP 94p."
Economic news
February's GfK consumer confidence index will be updated at the end of the week, and after rising to a five-month high in January, Clarke expects another single point increase to +2.
"Our suspicion is that on balance sentiment will have been lifted by consumers continuing to feel the boost to their wallets from the lower pump petrol prices at a time when pay growth also looks to be picking up," she explains.
Trading statements
Waterman Group, Mysale Group, Pan African Resources, Ricardo, Waterman Group, Mysale Group, Pan African Resources, Ricardo, Berendsen, William Hill, UBM, IMI, Rightmove, Lloyds Banking Group, Pearson, Restaurant Group, Rentokil Initial, Spectris, Old Mutual, Intu Propertie, Telefonica