Thursday preview: BoE QE, Man Group, Unilever

3rd Nov 2010 15:58

By Thursday morning markets will know whether the US Federal Open Market Committee (FOMC) has resumed quantitative easing (QE) and, if so, by how much. Attention will then turn the Bank of England's Monetary Policy Committee (MPC), which has much the same decision to make as its US counterpart.While the consensus seems to be that the Fed is keen to start buying up assets again, with pundits suggesting the FOMC will sanction a programme of $80bn to $100bn of purchases, the MPC is seen as being less keen on a resumption of QE, at least for the time being.Much better than expected second quarter gross domestic product (GDP) data - GDP was up 0.8% from the preceding quarter, versus expectations of a 0.4% gain - will probably persuade the neutrals on the committee to leave interest rates unchanged, and the QE weapon in the holster.At the October meeting of the MPC there was a three-way split, with Andrew Sentance continuing as the lone voice advocating nudging up the key lending rate from 0.5% to 0.75%, while at the other end of the scale Adam Posen plumped for a £50bn increase in QE. No one would be surprised were there to be a three-way split again on Thursday, but we probably won't find out until the minutes from the meeting are released later this month, though the market will be gagging to know whether any of the "status quo" crowd have defected to Sentance's or Posen's camp.The MPC will have the Bank of England's latest GDP growth and consumer price inflation forecasts to refer to, as these will be included in the Bank of England's forthcoming Quarterly Inflation Report. Dr. Howard Archer, chief economist at forecasting unit IHS Global Insight, makes the interesting observation that the MPC has been more prone to changing monetary policy when they have new forecasts available.While waiting for the MPC's decision, due to be announced at noon, the market will have no shortage of big company announcements to keep it occupied, including updates from Cable & Wireless Communications, Invensys, Man Group, Old Mutual, Unilever, RSA Insurance and, should it fancy a pint after all that study, pubs group JD Wetherspoon.Anglo-Dutch consumer products leviathan Unilever is tipped to announce third quarter group sales of around €11.35bn, up from €10.20bn the year before. Fully diluted earnings per share, according to Charles Stanley, will rise to €0.42 from €0.36. The broker is also expecting the group to pay a quarterly dividend of 21 cents, as the group recently announced its decision to move to a quarterly payments schedule."We know that Unilever's dividend payout ratio has exceeded that of its peer group and that the company is keen to bring the ratio back into line with peer group averages (c.40-50% of earnings compared with Unilever's 57%). Expect Unilever to move towards a 50% payout ratio over time," Charles Stanley suggests. "Investors should note that a substantial fall in Unilever's payout ratio is already envisaged for 2010, reflecting the weakness of the euro over the period. Thus, we expect Unilever to reach its target not in one step but in two stages, concluding the process in 2011," the broker predicted, adding that this should "manifest itself in relatively muted dividend growth while earnings per share growth appears fairly robust."Charles Stanley is predicting organic sales growth of around 3.3%, but notes this is around 0.4 percentage points below consensus. The market view on the operating margin is for a figure of 16.6%.The annual general meeting of pubs group JD Wetherspoon should be more interesting than usual, given that the finance director, Keith Down, and chief operating officer, Paul Harbottle, have announced their intention to drink up and leave. The announcement came out of the blue and naturally led to speculation of a board room bust-up. Panmure Gordon takes up the story: "No explanation was given, but speculation centred on either a disagreement over the pace of the expansion strategy and/or a disagreement on whether to invest cost savings in stimulating demand (price cuts) or use them to protect margins." The broker added it is "happy to back the views of founder Tim Martin who has grown the group from one pub to 784 pubs."KBC Peel Hunt thinks the dispute may have been over "short-term margins on one hand and medium-term brand building on the other," and has concluded that this means "margins are now under threat"."Trading for the quarter will probably look strong - like for like sales were up 1.5% in the first six weeks, while the comparative [figures] weakened from there to the end of the quarter in 2009, but any statement indicating a shift to longer-term value would pressurise the shares further," Peel Hunt opined.Hedge fund manager Man Group has been the subject of takeover speculation recently, but the management would doubtless much rather focus on the group's own $1.6bn acquisition of investment management firm GLG Partners when it announced interim results on Thursday.The GLG acquisition is less than a month old so won't feature in the interim figures, though it will be a factor in how the market assesses Man's performance and how badly it needs to diversify away from dependence on its flagship AHL fund.The group already gave a heads-up on most of the interim numbers in the 28 September trading update, so focus will be on current trading. Funds under management have stabilised recently and at the end of September were up over the previous three months to $39.5bn from $38.5bn."Man Group has reported its eighth quarter in a row of net client withdrawals as investors are still reacting to the poor performance of AHL in 2009. However, the news is not all gloomy, as AHL has performed well compared to the markets in 2010, which should help staunch outflows going forward. Also, the acquisition of GLG, which was completed on 14 October, should offer the group a broader range of products to market," Charles Stanley notes. The management of South African insurer Old Mutual may well have been quietly seething since global banking giant HSBC backtracked last month on its plans to buy the insurer's Nedbank investment for £4.5bn, and Thursday will give it the chance to let off steam, as the company announces third quarter figures.Deutsche Bank notes that the share price of Old Mutual had started to perk up in expectation of the group evolving into a much more focused, streamlined entity and that the HSBC decision was therefore a blow. The development has made investors nervous about Old Mutual's proposed $350m sale of US Life to Harbinger Capital Partners, and edgy over how the insurer now intends to meet its debt reduction target of £1.5bn.Supermarket operator Morrisons will provide food for thought with its third quarter trading update. Royal Bank of Scotland is forecasting a 1.5% increase in like for like sales, excluding fuel. Moving on to engineering group Invensys, Charles Stanley will be looking for "evidence of the ongoing restructuring programme, coupled with a partial improvement in end-markets to have contributed positively at the divisional level," when the company announces its interim results."Overall we look for a 4.2% improvement in group sales to £1,111m and an improvement in the order book to £1,125m (£1,079m)," the broker added. Operating profit is seen edging up to £106m from £102m. Singer Capital Markets, meanwhile, will be seeking reassurance on full year earnings projections "given the fragile recovery in some of its markets".Waste management firm Shanks is expected by KBC Peel Hunt to announce interim trading pre-tax profit, excluding exceptional items and goodwill, of £17.0m, up from £16.5m the year before. The broker thinks the company will probably be cautious about the near term macro economic outlook, but adds that there are numerous short-term drivers the board could highlight, including improved recyclate prices, better margins in Private Finance Initiative projects, further cost savings, good trading in hazardous waste and improved financing costs.INTERIMSBTG, Cable & Wireless Communications, Invensys, Man Group, Synergy HealthINTERIM DIVIDEND PAYMENT DATECamellia, Cenkos Securities, Fisher (James) & Sons, M. P. Evans Group, Pinewood Shepperton, Tullow OilINTERNATIONAL ECONOMIC ANNOUNCEMENTSPMI Service Sector Survey (FRA) (08:50)PMI Service Sector Survey (GER) (08:55)PMI Composite Index (EU) (09:00)EC PMI Service Sector Survey (EU) (09:00)Producer Price Index (EU) (10:00)ECB Interest Rate (EU) (12:45)Continuing Claims (US) (13:30)Initial Jobless Claims (US) (13:30)Non-farm Productivity (US) (13:30)Q3Hellenic Telecom Industries SA ADS, Millennium & Copthorne Hotels, Morrison (Wm.) Supermarkets, Old Mutual, Unilever, Wolfson MicroelectronicsGMSFitbug Holdings, SpiceFINALSNoble Investments (UK)IMSSCharter International, Meggitt, Old Mutual, RSA Insurance Group, Spirent CommunicationsAGMSIndigoVision Group, Kofax, Redrow, Schroder Japan Growth Fund, SwallowfieldUK ECONOMIC ANNOUNCEMENTSBoE Interest Rate Decision and Asset Purchase Target (12:00)New Car Registrations (09:30)FINAL DIVIDEND PAYMENT DATEJPMorgan Emerging Markets Inv Trust