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The week ahead...
By Interactive Investor | Fri, 31st October 2014 - 16:09
888 Holdings will report next week, along with Hilton Food Group and Dairy Crest, in what is set to be a busy week for economic news, too.
Monday 3 November
Kicking off the week is the release of October's manufacturing purchasing managers index (PMI) on Monday. After falling for the third consecutive month in September to a 17-month low, another slide is expected as challenges remain.
Victoria Clarke, an analyst at Investec, pencils in a dip to 51.1 from 51.6 in September.
e2v technologies, International Ferro Metals, HSBC Holdings, Bovis Homes Group.
New World Resources, HSBC Holdings, Bovis Homes Group, Plutus Powergen, Telecity Group.
Tuesday 4 November
After a quiet start to the week on the company front, 888 Holdings (888) will update the market on its third-quarter.
Analysts' expectations: Second-quarter revenue was up 15% on the same period last year, and strong numbers have been reported by the sector recently, boosted by the World Cup.
"888 performance over the past four years is even more remarkable given its significant exposure to poker around 20% of revenues," says Nicholas Batram, an analyst at Peel Hunt. "A look at PokerScout data suggests the business continues to perform relatively well in a weak market. How long 888 can continue to grow in a structurally challenge market is a key question but sports could well take up any slack."
Batram is confident in 888's "strong" product portfolio and team. However, he warns that the point of consumption tax is expected to deal a big blow next year. He rates the stock 'hold' with a target price of 135p.
Alpha Bank, Banco Santander, Advanced Computer Software, 888 Holdings, Associated British Foods, Imperial Tobacco Group, Legal & General Group, Weir Group, PPHE Hotel Group, Persimmon, Unite Group, Stock Spirits Group, Jardine Lloyd Thompson Group, Biome Technologies.
Premaitha Health, Mobile Streams, Monitise, Societatea Nationala De Gaze Naturale "romgaz" S.a. Gdr, Dx, Akers Biosciences, Powerflute Oyj.
Wednesday 5 November
Hilton Food Group's (HFG) third-quarter Interim Management Statement (IMS) is expected to ease concerns over the impact on profits of its relationship with struggling supermarket Tesco. Hilton is beefing up its share of Tesco's meat business, which should feed an extra £120 million into turnover in the next two years. Profits from its Australian Woolworths contract should rise by £3 million.
"Markets are challenging, with a combination of weak volume growth and input price deflation in Europe," says Peel Hunt analyst Charles Hall. "This will hold back numbers in the short term, but there is still significant upside with the additional Tesco business and Woolworths contract."
He rates the group 'buy' with a target price of 520p.
After a quiet Tuesday, we see the release of October's services PMI midweek. In September, the index faltered slightly, down to 58.7, but Investec's Clarke reassures investors that it remains in "buoyant expansionary territory".
"Over the second quarter the Services PMI averaged 59.1," said Clarke "whilst the ONS’s official (preliminary) estimate of growth in the sector stood at +0.7% which looked a touch soft against the survey data, but still very respectable."
Confident of continuing growth, Clarke expects the index to reach 58.7.
Lancashire Holdings, Marks & Spencer Group, Wincanton, Smurfit Kappa Group, Tate & Lyle, First Derivatives, Avocet Mining, Applied Graphene Materials, Meggitt, Old Mutual, JD Wetherspoon, esure Group, Hunting, Aer Lingus Group.
Quoram, Jupiter European Opportunities Trust, Schroder Japan Growth Fund, Infrastructure India, Africa Oilfield Logistics Limited, Haynes Publishing Group.
Thursday 6 November
Dairy Crest's (DCG) first-half numbers are released on Thursday, and Peel Hunt's Hall is pencilling in pre-tax profit of £21.6 million, down from £21.9 million last year, due to a challenging diary market.
Analysts' expectations: Profits from property disposals are to be partially wiped out by the dairy division losing £4 million in the first six months of the year.
"The major processors have now reduced their prices to farmers, and this has brought input/commodity prices more into line – this should ensure a much better second half performance in dairy," commented Hall. "Meanwhile, the key brands are continuing to perform well, with sales growth of around 4%."
He reckons investors should 'buy' Dairy Crest, putting a 550p target price on the stock.
Although no headline rate change is expected in the European Central Bank (ECB) meeting, Investec reckons decision-makers will discuss the start of the covered bond purchase programme and corporate bond purchases.
Both the manufacturing output and industrial production figures for September will be updated on Thursday, after three consecutive months of flat or positive monthly moves. This performance is set to have boosted industrial output by 0.5%.
"We suspect however that October will be a month in which the softer surveys that have been coming through finally 'bite' on official output data such that we see a modest decline," said Clarke. "Our forecast is for a 0.2% drop in manufacturing output although that would still see output 2.3% up on the year," she added.
Clarke also expects the wider industrial production measure to drop by 0.2%, due to a softer output from utilities caused by the warmer weather.
Coca-Cola, Shanks Group, AstraZeneca, Tate & Lyle, Randgold Resources, Cable & Wireless Communications, Hellenic Carriers, Halfords Group, Inmarsat, Dairy Crest Group, Experian, Hangar8, Schroders, RSA Insurance Group, Stock Spirits Group, Synthomer, Rightmove, Beazley, Cobham, Intu Properties, Gem Diamonds, Inmarsat, Croda International, Promethean World, Hikma Pharmaceuticals, WM Morrison Supermarkets
Afi Development, Thor Mining, Daniel Stewart Securities, Hansard Global, New Star Investment Trust.
Friday 7 November
Insurer Novae (NVA) will be the last company to report next week.
Analysts' expectations: "We expect the statement to confirm that Novae’s premium income is weighted towards more attractive areas with regards to a generally softening rating environment," said Peel Hunt's Anthony Da-costa. "We will be interested in the outcome on the loss ratio following the fairly benign Atlantic wind season."
Reinsurance is expected to fall with "mixed" results in direct lines, he predicts.
Valuation: Trading on a December 2014 net tangible asset ratio of 1.1 times, Novae is trading at a discount to the sector; which trades on a rati of 1.4 times.
"We consider the discount unjustified because the stock is underweight CAT reinsurance and overweight speciality lines where margins are still defendable," explains Da-costa. "In addition, self-help measures are in place that will drive shareholder returns higher even if the rating environment remains challenging."
September's trade in goods and services and October's US non-farm payrolls will bring the economic week to a close.
With August's headline trade balance dropping to the narrowest since April at £9.1 billion, Clarke expects a more "normal" reading this month, reflecting a wider deficit, which she expects to reach £9.3 billion.
On to US non-farm payrolls; Clarke still sees the job recovery as robust as gains have exceeded 200,000 since February this year - excluding August.
"Indeed, over the past month we have seen jobless claims edge down a touch further whilst the NFIB small firms hiring survey which tends to signal moves in payrolls with a lag, suggests further solid gains lie ahead," she explains.
Clarke pegs payroll gain to rise to over 260,000 from 248,000 last month. Unemployment is expected to fall down further to 5.8%, which is in line with the Fed's guidance for longer-term unemployment rate, Clarke adds.
National Grid, Capital & Counties Properties, Admiral Group, Tullow Oil, Spirax-Sarco Engineering.
Admiral Group, Weatherly International, Ark Therapeutics Group, Alpha Bank, Galliford Try, Rentokil Initial, Drax Group.