The week ahead...
Investors should expect to be hit by a plethora of corporate news next week.
CSR (CSR) will start the week off with its fourth-quarter results. The company's revenue guidance for the fourth quarter is between $230 million and $250 million (£145 and £158 million).
Recent industry news flow has been mixed. While the results season has not been as bad as many might have been feared, it has also not provided much in the way of committed positive guidance.
Shares in the company have had a good run, soaring 35% over the past three months. Ian Robertson, analyst at Seymour Pierce, admits that there are no "obvious" catalysts for share price outperformance. However, he believes that CSR should outperform in the medium term as the management actions take effect and the value of the Zoran acquisition shows through.
Tuesday will see Pendragon (PDG) publish its final results.
The company last updated investors in October, when it confirmed trading patterns for 2011 were in line with expectations, with a strong fourth-quarter performance anticipated from its prestige franchises. The company also outperformed the market in new cars (-10.3% versus the market at -11.3% in the third quarter).
Mike Allen, analyst at Panmure Gordon, forecasts that revenues will fall by 2% year-on-year to £3,503.5 million, with pre-tax profits at £30.5 million. The consensus range for pre-tax profits is between £30.5 million and £33.4 million. Additionally, he does not believe that the company will declare a dividend.
Shares in the company, which have risen more than 70% in the past month, are currently trading on a 2012 price to earnings ratio of about eight times, a valuation that is "undemanding" in Allen's view.
However, he rates the stock a 'hold', saying that the rally in the shares reflects a change in risk appetite from investors rather than a turnaround in market fundamentals. "We would expect the trading outlook to remain cautious for now," he stated.
On the same day, annual results from AMEC (AMEC) will mark the beginning of the support service industry's results season.
Following an in-line trading update in November, Seymour Pierce analyst Kevin Lapwood sees little room for surprise on the numbers. Instead, he believes that investors will focus on actions taken to improve the efficiency of its balance sheet.
Will shares in Genus (GNS) continue to touch new highs? All eyes will be on new chief executive Karim Bitar as he presents his first set of interim results.
Genus's last comment on trading was 10 November when it stated that adjusted pre-tax profits for the first four months of its fiscal year was "well ahead of last year".
Graham Jones, analyst at Panmure Gordon, believes that the message will be just as optimistic, with "superior product offering and unparalleled distribution reach" driving profits. "Also we expect a reiteration of the message that Genus is accelerating the rate of genetic improvement which adds value to its sales in both porcine and bovine markets and keeps it ahead of its fragmented competition," he added.
Shares in the company are trading on a 2012 price to earnings ratio of about 21 times.
Devro (DVO) will also report preliminary results for the year ended 31 December on Tuesday.
According to Reuters, consensus is expecting revenues for the full year to reach £226 million.
Damien McNeela, analyst at Panmure Gordon, believes that underlying demand drivers for Devro's products, namely increased meat consumption in developing markets and the switch from natural gut casings to collagen casings, remain intact.
"In addition we see further potential for margins to improve as the company's investment programme to increase capacity and improve efficiency," he added.
Devro's shares are currently trading on 2012 price to earnings ratio of about 13 times.
"The shares have outperformed the FTSE All Share by 25% over the past year but we believe there remains further upside given the structural demand drivers and the opportunity to increase operating margins," stressed McNeela, reiterating his 'buy' recommendation.
Corporate news will fall thick and fast midweek, with earnings updates from Hays (HAS), Rexam (REX), Travis Perkins (TPK), Barratt Developments (BDEV) and Galliford Try (GFRD) to name just a few.
Seymour Pierce has a 'buy' recommendation on both Rexam and Travis Perkins.
"Recent trading updates from global peers has underlined the resilience of the global beverage can market," it pointed out regarding the former.
In its last trading update in November, chief executive Graham Chipchase stated that "at this early stage, we expect 2012 to be a year of further progress". At that time, the European beverage can business had not been impacted by a eurozone recession.
Charles Stanley's analyst, Mark Shepard, believes that this remains a risk. Nevertheless, he has an 'accumulate' recommendation on the stock around the 2012 outlook, stating that the stock's valuation looked "reasonably attractive" on a 2012 price to earnings ratio of between 10 and 11 times.
Seymour Pierce's positive stance on Travis Perkins comes from the fact that valuation remains "undemanding" on a 2012 price to earnings ratio of about nine times. Additionally, Seymour Pierce believes that Travis Perkins will have continued with its market share gains.
However, the broker is negative on Hays. With a net fee income growth of 8% already announced for the half year, Seymour Pierce believes that the focus will be on conversion rations and the ability, or not, for the company to continue paying its uncovered dividend.
About 31% of Hays's net fees are generated in Asia Pacific, 33% in Continental Europe & Rest of World and 36% in the UK & Ireland. Sequentially, growth in Asia Pacific slowed from 21% in the first quarter to 11% in the second quarter, while Continental Europe's growth slowed from 34% in the first quarter to 20% in the second.
UK profitability is also like to be a worry, with the second quarter seeing an accelerated fee decline to -7% from -4% in the first quarter.
Shepard believes that investors may have begun to view Hays as a cyclical recovery play, as shares in the company have risen by more than 20% over the past month. However, he was less encouraged by this view, saying that he maintained his 'hold' recommendation until there was a road map to improve UK profitability.
Following a very strong trading statement last month, Panmure Gordon's analyst, Mark Hughes, is confident that not only will Galliford Try report a "strong" set of first half interim results, but that it will upgrade full-year forecasts.
He forecasts a pre-tax profit of £25.5 million, with net debt coming in at £70 million.
The stock is the most undervalued stock in the sector, trading on a 2012 price to earnings ratio of about 8.5 times, a 45% discount to the sector. The stock also offers a dividend yield of about 4.5%.
A positive trading update is also expected from housebuilder Barratt Developments.
Rachael Waring, analyst at Panmure Gordon, is expecting the group to report 5,198 completions, up 8% year-on-year, with pre-tax profits coming in at £90.5 million. Additionally, she noted that the company's stock on loan had reduced from 12.32% at the start of the year to 9.08% this week.
However, she pointed out that debt was likely to have increased to around £550 million due to the timing of land creditor payments.
Despite the share price having had a strong run in the year to date, up more than 30%, Waring believes that the stock has "further to go". The stock is currently trading on a price to net asset value (PNAV) of 0.56 times.
Panmure Gordon also has a 'buy' recommendation on Informa (INF), which will update investors on Thursday.
The broker cites the company's defensive growth, with cyclical upside, low valuation, and self-help potential as reasons to be optimistic on the stock.
Shares in Informa have risen about 13% over the past three months.
The one stock that has analysts divided is Capita (CPI). Hence, it will be interesting to see what the company has to say when it publishes its final results the same day.
The company recently announced an army recruitment contract award, estimated to be about $500 million over 10 years.
While Panmure Gordon's Allen confessed that the contract win is positive news for the company, he also stressed that more was needed for the company to achieve its 4% organic growth target for 2012.
"We have further concerns that margins may well have peaked, and also believe acquisition momentum could slow from here," Allen commented, adding that an update on its bid pipeline will be useful. He has a 'sell' recommendation on the stock.
The company is trading on a 2013 price to earnings ratio of about 13 times. "While the valuation looks undemanding relative to history, we do not think the shares will be re-rated until the company is in a position to demonstrate it can deal with the headwinds it faces and the bid pipeline improves from here," Allen voiced.
On the other hand, Seymour's Lapwood rates the stock a 'buy', stating that 2012 looked "more promising" than 2011. However, he warned that this depended on an increase in the speed at which contracts are awarded.
And banks will come into focus once again as Royal Bank of Scotland (RBS) issues its full-year results.
In its third-quarter interim management statement, the company reported attributable profit of £1,226 million, with group income totalling £6,358 million down 18% from the second quarter. Impairments fell by 32%, while the core tier 1 ratio improved to 11.3%.
Nic Clarke, analyst at Charles Stanley, rates the stock a 'hold'. He estimates that the implementation of CRD 3 and Basel III will result in uplifts to risk-weighted assets some £20 billion lower than previous estimates.
And is it time to saddle up the black stallion?
Investors will find out when Lloyds Banking Group (LLOY) publishes its full-year results at the end of the week.
In its interim management statement, the bank stated that it had made a statutory loss before tax of £3,858 million in the first nine months of the year, with pre-tax profits in the same period falling 30% on a combined businesses basis.
However, Clarke pointed out that there was a significant reduction in the impairment charge to £7,378 million for the first nine months, with improvements seen across all divisions, particularly wholesale.
He has a 'hold' recommendation on the stock.
Friday will also see Rightmove (RMV) grace its investors with a trading update. Although Panmure Gordon rates the stock a 'buy', it admits that further upgrades will be needed if the shares are to keep performing.
Berendsen (BRSN) will close the curtains with its preliminary results. Seymour Pierce, which has a 'buy' rating on the stock, reassured investors that there would be no "major" surprises, stating that Berendsen had a defensive model which should continue to grind out growth despite the weak macroeconomic backdrop.
There is no shortage of economic data next week either.
After a quiet Monday, January's public finances will be published on Tuesday.
Howard Archer, chief UK and European economist at IHS Global Insight, forecasts a net repayment of £8 billion in January on the Public Sector Net Borrowing Requirement (PSNBR), stating that January normally sees a net repayment on the public finances as it is a key month for tax receipts.
However, he warns that it seems "inevitable" that the public finances will be increasingly pressurised over the coming months by muted economic activity eating into tax revenues and pushing up unemployment benefit claims.
Midweek will see the release of the minutes of the February meeting of the Bank of England's Monetary Policy Committee (MPC), when the decision was taken to enact a further £50 billion of quantitative easing (QE). It was also decided to keep interest rates down at the record low level of 0.50%, where they have stood since March 2009.
Archer states that what will be "crucial" about the minutes is whether or not all nine MPC members were in favour of the £50 billion extension to QE. "If there were any MPC members against extending the QE programme in February, it will fuel speculation that this could be the last stimulus for the economy from the Bank of England barring another marked downturn in the economy," he warned.
Victoria Cadman, economist at Investec, suspects that the balance of views at last week's discussion was less unanimous than in October when the MPC last sanctioned further QE. "Indeed, at least a couple of members may have toyed with an 'on hold' vote on this basis, although we suspect that on balance any borderline members would have sat in line with the Committee quorum for the vote itself," she stated.
Archer believes that additional QE is more likely than not, predicting that the Bank of England will do £25 billion more QE in May and another £25 billion in August. Additionally, he is predicting that interest rates will not rise until "at least late 2013 and could very well stay put at 0.50% until 2014".
The Confederation of British Industry (CBI) industrial trends survey for February will be out on Thursday.
Archer predicts that manufacturing activity will have picked up "modestly".
"Any further improvement in the CBI's industrial trends survey would lift hopes that an apparent overall pick up in UK economic activity around the turn of the year extended into February," he commented, but remained wary about whether the sector could sustain its improved performance.
Last but not least, UK's fourth-quarter GDP data will be published at the end of the week.
According to the Office of National Statistics' (ONS) preliminary GDP estimate, the UK economy shrank by 0.2% quarter-on-quarter in the fourth quarter, raising fears that Britain was back in recession.
Both Archer and Cadman are expecting the figure to confirm that GDP contracted by 0.2% quarter-on-quarter in the fourth quarter of 2011, thereby limiting year-on-year growth to just 0.8%.
In fact, Archer now believes that the UK will avoid recession and achieve 0.5% growth in 2012, improving to 1.6% in 2013.
But he stressed that the UK economy was not out of the woods yet.
"[We] expect activity to be limited through the first half of 2012 by ongoing serious domestic and international headwinds, notably including still squeezed consumer purchasing power, rising unemployment, a reluctance of business to invest in worrying and uncertain circumstances, tighter credit conditions, reduced public spending and investment, and muted global economic activity particularly in the eurozone," he warned.
Monday 20 February
Trading updates
AFC Energy, Animalcare Group, XP Power, CSR
AGM/EGM/Special Meetings
Westmount Energy, Renovo
Tuesday 21 February
Trading updates
Croda International, Drax Group, Quarto Group, AMEC, Morgan Sindall Group, Rathbone Brothers, Segro, Genus, Devro, Primary Health Properties, afestore Holdings, Pendagron
AGM/EGM/Special Meetings
Amiad Filtration Systems
Wednesday 22 February
Trading update
Logica, St James's Place, Galliford Try, Filtrona, Millenium & Copthorne Hotels, Anglo Pacific Group, London Capital Group Holdings, Barratt Developments, Law Debenture Corp, Travis Perkins, Temple Bar Investment Trust, Rexam, Micro Focus International, Hays, Dialog Semiconductor
AGM/EGM/Special Meetings
Gooch and Housego
Thursday 23 February
Trading update
Redrow, Wentworth Resources, Informa, Capita, Royal Bank of Scotland
AGM/EGM/Special Meetings
Alternative Investment
Friday 24 February
Trading update
Asian Citrus Holdings, Ultra Electronics Holdings, Rightmove, Berendsen, Lloyds Banking Group
AGM/EGM/Special Meetings
Tertiary Minerals, Charter European Trust
