British Gas owner Centrica will release its full-year results on Thursday after UBS warned that pressure from the government to lower energy prices would hurt margins.
UBS on Tuesday cut its rating of the utility to 'sell' from 'neutral' and target price to 280p from 340p, citing increasing political scrutiny over prices in the sector.
The Swiss broker said the gas and electricity provider might see all its retail margins fall towards 4% in order to reduce political risk. UBS believes this could bite into its earnings per share (EPS) by 16%, resulting in a fair value estimate for the stock of 300p.
If the government moves to freeze tariffs, alongside a possible retail re-regulation, it would cut EPS by a further 13-15% (fair value: 240p), according to the analyst.
Centrica also faces lower margins from wholesale natural gas Stateside, additional weakness in gas storage and adverse movements in US dollar foreign exchange
BAE Systems is also out with its annual results tomorrow amid concerns over US and UK defence cuts in the industry.
The company's stock took a hit last week after fellow defence contractor Rolls-Royce issued a profit warning, blaming a reduction in government spending.
Ahead of its results, BAE has prepared investors for the impact of spending cuts in the US, where it makes 40% of revenues.
On a positive note, however, news on Wednesday revealed the group has agreed pricing with Saudi Arabia over the rising cost of a long-running Eurofigher Typhoon jet deal.
Saudi has ordered 72 Eurofighters in 2007 for £4.5bn, but the contract had faced challenges over escalating costs. Last year BAE warned that failure to agree a deal could hit earnings.
Following the earnings session, US inflation data will be the prime focus ahead of the Federal Reserve's March meeting.
US consumer prices are expected to have risen by 1.6% year-on-year in January, up from 1.5% a month earlier. On the month, they are tipped to fall to 0.1% growth from 0.3%.
Other notable releases in the US will be confidence data, continuing claims, initial jobless claims and Markit's preliminary reading for manufacturing purchasing managers' index (PMI).
In the Eurozone, a report on consumer confidence will be unveiled along with PMI for service and manufacturing.
Thursday February 20th
Centaur Media, Go-Ahead Group, Petra Diamonds Ltd.(DI)
QUARTERLY PAYMENT DATE
INTERNATIONAL ECONOMIC ANNOUNCEMENTS
'Flash' HSBC Manufacturing Index (China) (09:45)
'Flash' Markit Manufacturing PMI (EZ) (08:58)
Consumer Price Index (FR) (07:45)
Producer Price Index (GE) (07:00)
Bloomberg Consumer Confidence (US) (14:45)
Consumer Confidence Indicator (EU) (10:00)
Consumer Price Index (US) (13:30)
Continuing Claims (US) (13:30)
Crude Oil Inventories (US) (15:30)
Initial Jobless Claims (US) (13:30)
Leading Indicators (US) (15:00)
Philadelphia Fed Index (US) (15:00)
Producer Price Index (GER) (07:00)
Trade Balance (JP) (08:50)
First Quantum Minerals Ltd.
Anglo Pacific Group, BAE Systems, Essentra, First Quantum Minerals Ltd., Primary Health Properties, Rathbone Brothers, Rexam, Playtech, Centrica
Sports Direct International
Auhua Clean Energy
Optos, Thomas Cook Group
Mail.ru Group Ltd GDR (Reg S)
UK ECONOMIC ANNOUNCEMENTS
CBI Industrial Trends Surveys (11:00)
Speech Andrew Haldane (18:00)
FINAL DIVIDEND PAYMENT DATE
Dewhurst, Dewhurst (Non-Voting)