Royal Mail's Christmas performance under the microscope on Thursday

By Tom Howard / January 17, 2018 / www.proactiveinvestors.co.uk / Article Link

The last we heard from Royal Mail PLC (LON:RMG) it claimed that an underlying 2% rise in revenue represented "a good start to the year".

Offsetting the ongoing decline in the letters business, the group saw a 6% rise in UK parcels revenue and a 9% revenue increase in its General Logistics Systems (GLS) business in the six months to 24 September.

As one might expect, however, the Christmas period is a critical one for Royal Mail, and the group scored a big success by heading off the threat of industrial action over the period.

As for cold, hard numbers, UBS expects a slowdown in UK parcel volume growth in the second half to 3%, along with a further deterioration in letter volumes to 5.5%.

"The primary reason for this is the slowdown in UK retail sales, which is likely to [have an] impact on the level of growth in UK e-commerce, although it will continue to grow.

"With a large part of the ?190mln cost avoidance programme this year achieved in H1, we also assume a slower run-rate for cost reductions in H2," UBS said.

Primark the latest retailer in focus

The Christmas trading updates from retailers just keep coming and the focus for Thursday will be on Primark owner Associated British Foods plc's (LON:ABF) first quarter numbers.

Like most other UK and European clothing retailers, Primark's numbers will likely show the scars of a warmer October, although there should have been some recovery in November, according to analysts at UBS.

In a preview, they forecast the discount fashion stores chain reporting like-for-like sales growth of 1%, against a flat performance in the comparable period a year earlier.

For the UK, the UBS analysts expect 3% like-for-like growth, with market share gains continuing from stronger fashion ranges, better value and range extensions into homewares, cosmetics and seasonal.

They added: "Key to look out for, in our view, will be any update on the EBIT margin outlook - currently guided to be flat, with a possible small decline in H1. Any sign that markdowns have remained low in the year to date could provide some upside risk."

Costa Coffee to be sold off?

Whitbread plc's (LON:WTB) third quarter trading update on Thursday will be closely eyed for any hints on whether the blue chip leisure giant is looking to sell off its Costa Coffee or Premier Inn chains.

Following the arrival of activist investor Sachem Head on Whitbread's shareholder register in November, analysts at Barclays said they have sensed a more open approach from Whitbread's management regarding corporate activity.

They added: "We see the most 'obvious' step, if any, as a sale of Costa rather than an 'opco propco' break-up of the hotels".

As for the third quarter trading update, they aren't expecting it to be positive given weaker industry RevPAR (revenue per available room) trends for hotels and softer retail footfall data.

They forecast a 1% fall in Q3 RevPAR and a 0.5% decline in like for like sales at Costa, albeit with Whitbread's restaurants stronger at 1.7% growth.

Significant events expected on Thursday January 18:

Trading updates: Associated British Foods plc (LON:ABF), Royal Mail Group PLC (LON:RMG), Whitbread plc (LON:WTB), Experian PLC (LON:EXPN), Halfords PLC (LON:HFD), Ibstock Plc (LON:IBST), Ocado PLC (LON:OCDO), Ten Entertainment Group PLC (LON:TEG), Workspace PLC (LON:WORK)

Ex-dividends: To clip 3.04 points off FTSE 100 - Ashtead Group PLC (LON:AHT), Compass Group PLC (LON:CPG), Micros Focus International PLC (LON:MCRO), SSE plc (LON:SSE)

Economic data: US weekly jobless, US housing starts, Philly Fed business outlook

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