Friday preview: Loss of confidence in Tesco ahead of Q1 update

After busy week, Friday sees a quieter day on the UK business calendar, with a Tesco trading statement the highlight for investors, while a Bank of Japan announcement and eurozone inflation data will keep macro wonks interested as the fallout from UK and US central banks continues to be digested.

Tesco endured a tough day ahead of its first-quarter trading announcement, falling over 3% amid gloomy UK retail numbers that knocked the head off its recent gains.

In the fourth quarter of its last financial year, UK and Irish sales were up 0.6% and international down 0.3%, while in the first quarter last year, UK&I was up 0.3% and international 3%.

For the 13 weeks to 27 May this year, UBS were looking for group like-for-like sales of 1.7%, of which UK & Ireland is expected to be up 1.9% and international 0.5%.

Data from Kantar Worldpanel and Nielsen over 12 weeks indicates growth of +1.8% and +2.2%, respectively.

"If validated, this would represent Tesco's strongest quarter in the past seven years, but the split between inflation and volume is likely to determine investor response," UBS analysts said.

"Various data points suggest Tesco has been on the front foot on price in recent months, with pricing at multi-year lows versus its competitors," they added.

HSBC predicted UK LFL growth will pick up to 2% from the 0.7% headline growth delivered in the preceding quarter helped by the tick-up in inflation, with RoI up 0.5%, Europe improving to a flat performance and Asia improving to 1% LFL growth.

"If achieved, such results would be encouraging. Such results would confirm the improved momentum of the business, giving confidence in the volume led recovery and reassuring on long term guidance. In the UK, inflation will be more of a feature, as has been well documented, but we believe Tesco inflation is below the industry average as Tesco improves its relative price position."

Recruiter SThree provides some small cap interest, reporting its second quarter gross profit trends following what was a weak first quarter and finish to last year due to UK weakness.

UBS expects a "material improvement" which would be "an important catalyst for SThree to start to close the valuation gap to peers".

The Swiss bank forecast 5% constant currency gross profit growth after two flat quarters, with the UK down 11% after the Q1 slump of 19% as underlying markets are still seen as weak, especially the public sector, but comparatives from last year are easing.

Broker Numis noted that SThree’s underperformance in the UK was well below the performance of its large cap UK peers as demand was hit by the uncertainty surrounding the implementation of IR35 which covers self-contracted recruitment into the NHS, an area in which SThree has much greater exposure versus its peers.

"We believe further IR35 and election uncertainty could continue to put pressure on the UK performance. We expect further strong performances in the US and Europe, and believe group fee growth could increase to circa 4%."

Friday June 16

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Building Permits (US) (13:30)
Consumer Price Index (EU) (10:00)
Housing Starts (US) (13:30)
U. of Michigan Confidence (Prelim) (US) (15:00)
Wholesale Price Index (GER) (07:00)

FINALS
Real Estate Credit Investments Ltd, Record

TRADING ANNOUNCEMENTS
Tesco

ANNUAL REPORT
Real Estate Credit Investments Ltd

SPECIAL DIVIDEND PAYMENT DATE
Calculus VCT, Calculus VCT 'C' Shares, U And I Group

AGMS
Ergomed , Gulf Keystone Petroleum Ltd Com Shs (DI), Mayair Group, Pembridge Resources, Sagicor Financial Corporation Limited (DI), Tesco, Zincox Resources

FINAL DIVIDEND PAYMENT DATE
Advanced Medical Solutions Group, Burford Capital , FDM Group (Holdings), Howden Joinery Group, Ingenta, North American Income Trust (The), Quarto Group Inc., Soco International, The Gym Group

FINAL EX-DIVIDEND DATE
Vianet Group

INTERIM DIVIDEND PAYMENT DATE
Avingtrans, Blancco Technology Group, Brewin Dolphin Holdings, Cambria Automobiles, Gattaca, Inch Kenneth Kajang Rubber, Majedie Investments, Telefonica SA

QUARTERLY PAYMENT DATE
Carnival, Honeycomb Investment Trust