Friday preview: Pivotal results for Barclays, questions for IAG

Friday sees only a slight relenting in the torrent of corporate results, though Barclays, BT and IAG provide some heavyweight action, while there will be data on UK consumer confidence and US GDP.

Barclays is scheduled to report interim results, with the second quarter being the first since selling most of its African arm and the first following the closure of its non-core bank with the remaining £25bn of risk-weighted assets folded back into the UK and International segments.

Analysts at Deutsche Bank pointed out that the second quarter will impacted by a number of non-operating items, with the Africa sale during the quarter represents £1.2bn negative impact on, while non-core should benefit from circa £200m gain on the Egypt sale, and we have assumed circa £100m gain for the Vocalink disposal.

UBS told clients to expect Barclays to report group profit before tax of £1.3bn and £1.6bn for the core bank.

"Barclays has not been having a good time of it of late," said analyst Laith Khalaf from Hargreaves Lansdown. "After failing to cash in on the fixed income trading boom earlier in the year, the question is whether Barclays will nonetheless share the pain felt by the US investment banks from lower levels of activity in this area in the second quarter of the year." He added that the folding back in of the non-core assets "is a significant step for the bank", with a drag on profits that has been considerable, "and this marks the bank drawing a line under a large restructuring programme, though the dissolution on the non-core reporting stream leaves little for the bank to hide behind".

At BT's first-quarter numbers the attention is likely to focus on key operating metrics such as BT’s retail share of broadband net adds, EE’s contract net adds and churn, and Openreach’s net line loss/gain, rather than on likely "unexciting financials", reckoned Numis. Consensus forecasts are for revenue of £5.8bn and EBITDA down 3% to £1.76bn.

The broker would like BT’s share of broadband net adds to be better than 35% reported in the fourth quarter, EE to keep reporting good contract customer metrics, and change in Openreach lines to be markedly better than -103k reported in the preceding quarter. "Re financials, we think consensus expects challenges with BT Italy and the UK Public sector to remain the biggest sources of downward pressure to group EBITDA."

UBS expects a "solid" set with no change to full-year guidance of broadly flat underlying revenue, EBITDA of £7.5-7.6bn, and normalised free cash flow of £2.7-2.9bn. "We see BT as a well-positioned converged operator, but are wary of regulatory and competitive pressures."

Barclays analysts "take a constructive view near term given recent share price weakness as we see scope for positive surprises", noting a strong tailwind from price increases in the quarter, with April's price increases overlapping with the July increases last year.

British Airways and Iberia owner International Consolidated Airlines reports half-year results after hitting all-time highs earlier this month July but hitting some turbulence in the last week after warnings about a possible price war in the second half from budget operators such as Ryanair.

In June IAG's first quarter showed a surprisingly strong 3.9% rise in traffic and 3.5% in capacity, with operating profits up 10%.

"Strong results from other airline operators, positive monthly passenger data and sliding fuel prices suggest it will be another good quarter for IAG," said Jasper Lawler at London Capital Group.

While the recent wobble shows concern from shareholders that BA and Iberia might be dragged into the price war, Lawler said BA's transatlantic business has held up well compared to Europe's highly competitive budget market, though budget airline Norwegian Air making the crossover to long haul is a worry.

The consensus is for earnings per share of €0.28 up from €0.18, on net income of €502m and revenues of €5.7bn.

Deutsche Bank, which forecast Q2 EBIT of €710m, sees IAG enjoying current industry-wide tailwinds and its 1.6% capacity guidance for Q3 suggests supply will add to the demand picture into Q3. "We do not see a significant risk of sustained price stimulation and/or reputational damage impacting the business."

Among smaller caps, Laird will deliver half-year results following a solid first start to the year where underlying revenue at constant currency was up 8% and 15% at the reported level to £197m.

"However, the Q1 update did not provide any disclosure on profitability and the outlook stated that the Q1 performance gave 'confidence that the measures taken to improve performance in 2017 are on track'," noted Numis, which believe the key sensitivity to full year performance is more around operating margin in the CVS and Performance Materials divisions.

"We expect the interims to report underlying group revenue growth of 10%, which combined with FX tailwinds should result in 22% reported revenue growth. We expect to see some improvement in operating margin to 6.9% from 6.1%, resulting in 38% growth in PBT."

MACRO DATA

Overnight, Gfk will reveal its latest UK consumer confidence index, which fell to -10 in June, which was hardly the most settled of months due to the snap election and a number of tragic incidents, not to mention a continued squeeze on from higher inflation on real incomes. HSBC's economists expect this overall caution to stay in place for July, but do see a small improvement on the back of slightly lower petrol prices and less negative newsflow.

Turning to the US, the consensus forecasts is for a 2.4% annualised rate of real GDP growth for the second quarter.

HSBC expect a 2.8% rate, with consumer spending growth picking up to 2.9%, from 1.1% in Q1. "We estimate that weaker net exports could subtract around 0.6 percentage points from Q2 GDP growth, while faster inventory accumulation could add around 0.6 percentage points."

In addition to the Q2 data, the Bureau of Economic Analysis will also release its annual revision to the national income and product accounts. This will result in revisions to the GDP data from 2014 through to Q1 2017.

Friday July 28

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Business Climate Indicator (EU) (11:00)
Economic Sentiment Indicator (EU) (11:00)
Industrial Confidence (EU) (11:00)
Services Confidence (EU) (11:00)
U. of Michigan Confidence (Final) (US) (15:00)

INTERIMS
Barclays, Berendsen, IMI, International Consolidated Airlines Group SA (CDI), Laird, Morgan Advanced Materials , Rightmove, UBM

GMS
Amur Minerals Corporation NPV

FINALS
Clipper Logistics

TRADING ANNOUNCEMENTS
BT Group, Gear4music (Holdings), Lonmin

AGMS
B&M European Value Retail S.A. (DI), Bellzone Mining, Boxhill Technologies , Diversified Gas & Oil, Gear4music (Holdings), Golden Saint Resources Ltd (DI), Hansa Trust, Johnson Matthey, Red Leopard Holdings, RM2 International S.A. (DI), Subex Ltd GDR (Reg S), ULS Technology , United Utilities Group, Vodafone Group

FINAL DIVIDEND PAYMENT DATE
Acal, B.P. Marsh & Partners, Biffa, Bisichi Mining, Braemar Shipping Services, Octopus Apollo VCT, Palace Capital , Phaunos Timber Fund Ltd., Prime People, Renewi , Royal Mail, Telecom Plus, Value and Income Trust, Vianet Group

INTERIM DIVIDEND PAYMENT DATE
Character Group, Dunedin Smaller Companies Inv Trust, Globalworth Real Estate Investments Limited, Paragon Group Of Companies, Scottish Inv Trust, Sherborne Investors (Guernsey) 'B' Limited, Up Global Sourcing Holdings

QUARTERLY PAYMENT DATE
Real Estate Investors

QUARTERLY EX-DIVIDEND DATE
City of London Inv Trust