Tuesday preview: Inflation likely to surge, Vodafone results 'may surprise'

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Tuesday preview: Inflation likely to surge, Vodafone results 'may surprise'

Mon, 15 May 2017
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Tuesday preview: Inflation likely to surge, Vodafone results 'may surprise'

(ShareCast News) - Tuesday is likely to show inflation surging even higher above the Bank of England's 2% target, while company news includes preliminary results from Vodafone and BTG, and interim from CYBG.
At 0930 BST the Office for National Statistics will publish the April's readings for consumer price inflation, plus retail and producer prices, allow us to see how close the Bank of England's view is to reality, plus the data comes a day before unemployment and wage growth, which in abomination have major implications for the economy in the medium term.

The BoE's quarterly Inflation Report estimated April CPI will be up 2.7% on last year, rising from March's unchanged yearly rate of 2.3%.

The fact the UK inflation did not fall back in March was significant, given the Easter effect, said HSBC, which pushed inflation down elsewhere in Europe.

"This Easter effect will go into reverse in April, pushing inflation higher. April will also see increases in council tax and household utility bills, as well as the continued pass-through of the weaker exchange rate. All in all, it looks set to be a punchy reading in the UK."

RBC economists noted that as well as utility bills and a 4% increase in council tax in England, there was also a 2% hike to NHS prescription charges and 4% to dental charges, with rises in the cost of stamps and vehicle excise duties.

"Offsetting all of these factors which point to higher inflation, petrol prices actually fell in April compared to a rise between March and April last year," RBC said, predicting CPI will from May onward remain between 2.8% and 3.1% as the lagged impact of Brexit-related exchange rate depreciation persists.

Vodafone, CYBG and BTG

Shares in Vodafone have underperformed since last summer over worries about business in India, where new network Jio, backed by the deep pockets of Reliance Industries, has turned the Indian market on its head by offering free data to customers, although .

Concerns for Vodafone were eased slightly by plans for a $23bn merger of its local unit with local rival Idea Cellular and for prelims on Tuesday the company's guidance was for EBITDA growth including India and Netherlands of 3-6% and €4.0bn of free cash flow.

Results may even be better than investors expect, said UBS, forecasting robust underlying EBITDA growth and free cash flow.

With fourth-quarter group service revenues growth of 1.3% excluding India versus 2.2% in the third quarter due to regulatory cuts and tougher comparables, analysts expect Vodafone to deliver 4.9% underlying EBITDA growth to €13.9bn when excluding India and Netherlands. Including India and Netherlands, UBS expect EBITDA growth of 3.1% and FCF to rise to €4.0bn from €1.3bn as capex comes down post the end of Project Spring.

Analysts at broker Hargreaves Lansdown predicted European Q4 numbers to show some underlying growth.

"After spending plenty of time navigating headwinds across Europe in recent years, it feels like the wind is finally at Vodafone's back on the Continent. The sails might not be billowing, but things are steadily moving in the right direction nonetheless," they said.

On India, they added: "While Jio's model of offering free data to customers has taken a knock in the courts, it's hard to foresee a rapid reversal of recent declines."

Clydesdale and Yorkshire Bank owner CYBG will report first half numbers, with income expected to remained largely unchanged at £493m while adjusted profit should increase 11% to £119m as growth in loan balances is offset by a small decline in the net interest margin and an increase in impairments, forecast broker Numis.

While a return on tangible equity of 4.8% does create opportunities for improvement, the broker expressed concern about "both the level of work that is required and the lack of success the previous parent NAB had in trying to do this", which explains its negative rating on the stock.

Numis also previewed specialty pharma and interventional medicine group BTG, following its strong year-end trading statement in early April, which indicated sales were expected to be at or ahead of the £535-565m guidance. The broker awaits further details of the performance, outlook and strategy for BTG's interventional oncology and Ekos business units, plus reimbursement and US approval updates on PneumRx.

Tuesday 16 May

Balance of Trade (EU) (10:00)
Building Permits (US) (13:30)
Capacity Utilisation (US) (14:15)
Housing Starts (US) (13:30)
Industrial Production (US) (14:15)

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

BTG, DCC, First Derivatives, NewRiver Retail REIT, Premier Foods, Speedy Hire, Summit Germany Limited, Vodafone Group

Avon Rubber, CYBG , easyJet, ITE Group, Tharisa, Zytronic

Crest Nicholson Holdings, Jackpotjoy

Lloyds Banking Group

JSC Kazkommertsbank GDR (Reg S), JZ Capital Partners Ltd

Aldermore Group, Charles Taylor, Faron Pharmaceuticals Oy (DI), Gulf Marine Services, Impax Environmental Markets, IWG , Merchants Trust, Pittards, Polymetal International, Quarto Group Inc., Rockhopper Exploration, Standard Life, Ubisense Group, Xaar

JZ Capital Partners Ltd

Capital & Regional, John Laing Infrastructure Fund Ltd, Lloyds Banking Group, Melrose Industries, Private & Commercial Finance Group, Rathbone Brothers, Wood Group (John)