Friday preview: Hopes UK retail sales can improve weak week

UK retail sales will be London's macro focus on Friday, while for larger company news only mid-caps Essentra, Kingspan and Segro are scheduled to report results.

In December retail finished the year in limp style, with volumes falling around 1.9% month-on-month, though overall the sector produced a healthy quarter-on-quarter increase of 1.2% in the fourth quarter.

Friday's data is expected to show retail sales volumes only edged up 0.2% month-on-month in January, causing the year-on-year increase to moderate to 2.6% from 4.3% in December and 5.7% in November.

Economist Howard Archer at IHS Global noted that more recent survey evidence for January was soft from both the British Retail Consortium - up just 0.1% year on year in January after a gain of 1.7% in December - and the Confederation of British Industry's distributive trades survey showed a balance falling back to a four-month low of -8% in January after climbing to a 15-month high of +35% in December.

"ONS data showing muted retail sales in January after December’s drop would fan suspicion that consumers have started to rein in their spending as rising inflation increasingly squeezes purchasing power," said Archer.

"This suspicion has been fanned by the Bank of England reporting that consumers borrowed at a much reduced rate in December."

Following rising inflation data and slowing wage growth earlier in the week, a disappointing retail number could be bad news for sterling, said analysts at Monex Europe.

Economists at UBS said: "Our sense is that consumption in the UK has lost some momentum on the back of rising inflation, and this was backed up further by the January BRC retail sales data.

"That said, the ONS volumes data are volatile and after two weak months, we do expect a rise in January – even if the y-o-y rate continues to trend lower."

Corporate results

At Essentra, which endured a challenging 2016 with two profit warnings during the year and a further warning in its post-close trading update, new chief executive Paul Forman will have a chance to share his early thoughts.

Broker Numis said Forman will present the results of his strategy review at interims in July, "although we would anticipate some commentary on his initial thoughts on the business".

Despite the EPS decline in 2016, Numis analyst James Beard anticipates a flat dividend, made possible by the disposal of Porous Technologies, which is due to complete in 1Q17.

On Segro, which made the unusual step of pre-announcing its positive valuation and earnings guidance last month, UBS analysts expect net asset value of 499p.

"But also note the preannouncement could lessen the importance of the results in the wider market's perspective."

Segro also guided on EPS to be at the "upper end" of consensus - which was 18.4p to 19.7p at the time.

"We expect a confident and upbeat statement, as we continue to see structural tailwinds for logistic space driven by the changing nature of retail and growth of e-commerce, driving demand for Warehousing space, with rents rising and increased appetite for pre-leasing. Additionally, weakening sterling will have had some positive impact on SEGRO's earnings," UBS said.

As for Kingspan, it already guided to trading profit of €335m in November. Bank of American Merrill Lynch forecast EBITDA of €402m, pre-tax profit of €311m and €145.18 earnings per share.

Said UBS: "Key focus will be commentary on trading in the UK and input cost inflation (steel and chemicals) and efforts to pass this on to customers. We expect positive commentary on both issues with the results."

Friday 17 February

UK ECONOMIC ANNOUNCEMENTS
Public Sector Net Borrowing (09:30)
Retail Sales (09:30)

FINALS
Essentra, Kingspan Group, SEGRO

INTERIM DIVIDEND PAYMENT DATE
Consort Medical, Fletcher King

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Current Account (EU) (09:00)

SPECIAL DIVIDEND PAYMENT DATE
Halfords Group, Scottish Inv Trust

FINAL DIVIDEND PAYMENT DATE
Blackrock Frontiers Investment Trust, Catco Reinsurance Opportunities Fund Ltd (DI), Catco Reinsurance Opportunities Fund Ltd (DI) C shares, Scottish Inv Trust, Shaftesbury, Victrex plc