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The week ahead...
By Darshini Shah | Fri, 15th February 2013 - 18:00
InterContinental Hotels Group and Millennium & Copthorne Hotels will both report, with defence giant BAE Systems also offering its preliminary results.
Monday 18 February
It will be a quiet session on Monday, on both the corporate and economic fronts, with no major announcements scheduled.
Sareum Holdings, All Leisure Group, Pinnacle Technology Group.
Tuesday 19 February
Pendragon (PDG) will open the curtains on Tuesday with its final results.
Recent news: At the time of the third-quarter interim management statement on 30 October, the car retailer delivered an in-line performance, with third-quarter earnings before interest and tax (EBIT) ahead by £1.5 million year-on-year.
Analysts' expectations: Mike Allen at Panmure Gordon is forecasting revenues up 7% year-on-year at £3.6 billion with EBIT of £69.6 million. He is also expecting net debt to fall from £246.8 million to £203.4 million during the course of the year, implying gearing levels below 70% and a net debt to EBITDA ratio below two times.
"The shares have started the year very strongly with the implied valuation now in line with the sub-sector average despite having above-average balance sheet risk," he stated, reiterating his 'sell' recommendation.
Valuation: The stock is trading on a 2013 price/earnings (P/E) ratio of eight times.
This will be followed by final results from Brammer (BRAM).
Recent news: 2012 has been a difficult year for the industrial goods producer, with Spain and France still difficult, but Germany and the UK improving in recent weeks.
Analysts' expectations: During 2013, Chris Dyett at Investec is expecting revenue progress, as further key account and insites are secured, and roll-out of the tools and general maintenance division accelerates across the pan-European footprint.
"Brammer has significant upside if and when the recovery in industrial production comes in Europe, along with a strong balance sheet which should enable it to lead further industry consolidation," he says.
InterContinental Hotels Group (IHG) will then issue its full-year results.
Recent news: In the first nine months, global revenue per available room (RevPAR) was up by 5.6%, driven by higher room rates. The Americas were up 6.3%; Asia, Middle East and Africa (AMEA) up 6.1%; Europe up 13%; and Greater China up 7.6%.
Guidance was for room count to increase by between 2% and 3% during 2012. At the nine-month stage, the number of rooms was up by 2.1% year to date, reaching 672,252 (4,573 hotels). However, Sam Hart, analyst at Charles Stanley, cautions that growth continued to be held back by the closure of hotels that did not meet brand standards (particularly in the US) and a still difficult funding environment for new hotel developments.
Analysts' expectations: Consensus expectations are for pre-tax profits of $551 million (£356 million).
Panmure Gordon's Simon French is assuming 2013 RevPAR growth of 5% in the Americas, 1% in Europe, 4% in AMEA and 4.0% in Greater China. He is expecting the group to sell the InterContinental New York Barclay for $340 million this year and the InterContinental London Park Lane for $400 million in 2014.
"We are not particularly optimistic about the global macroeconomic backdrop but demand remains relatively robust in the Americas and crucially supply growth is virtually non-existent enabling hoteliers to push through increases in average daily rate," French says, rating the stock a 'hold'.
Hart also has a 'hold' recommendation on IHG, explaining: "Our expectation is that trading conditions in the global hotels industry will remain relatively benign through 2013 and into 2014, reflecting robust demand and limited new supply. InterContinental's strong portfolio of hotel brands and impressive new-room pipeline leaves it well positioned to exploit the favourable conditions.
"Following a period of strong share-price performance, however, the valuation suggests good future earnings growth prospects are largely discounted."
Valuation: The shares are trading on a 2013 P/E ratio of about 19 times.
ICON, Brammer, Morgan Sindall, InterContinental Hotels Group, Drax Group, AZ Electronic Materials.
Titon Holdings, Sunrise Resources, Tertiary Minerals, Weatherly International.
Wednesday 20 February
Precision instrument manufacturer Spectris (SXS) will kick off reporting on Wednesday with its preliminary results.
Recent news: The major company-specific features have been the integration of Omega Engineering and the opening of its Chinese operation; the decision to increase research and development investment in its materials analysis section; and the sale of Fusion UV Systems.
"All of these are signs of high-calibre strategic thinking and operational management and this message has not been lost: the shares have risen by nearly 50% in the last year, significantly outperforming the FTSE All-Share," notes Dyett.
Analysts' expectations: Dyett has a 'hold' recommendation on the stock, explaining: "This is based on our below-consensus earnings estimates for the company, which are coloured by our cautious macroeconomic stance, rather than any misgivings concerning Spectris's ability to thrive.
"If the recent, less pessimistic, macro predictions prove accurate and the weakening of sterling is sustained, there could be reasonable upside risk."
Next up will be full-year results from Travis Perkins (TPK).
Recent news: The pre-close update was short, but indicated trading was in line in difficult markets. Group revenue year-to-date was up 1.6%, but down 1.8% on a like-for-like basis due to two additional trading days. Like-for-like sales at the specialist, general merchandising, plumbing and heating and consumer divisions were up 1.6%, down 0.4%, down 1.8% and down 5.8% respectively. The net debt reduction target to £450 million was reiterated.
Analysts' expectations: Consensus expectations are for full-year pre-tax profits of £305.5 million.
"With an attractive valuation and decent prospects across its operations, we stay positive on Travis Perkins," comments Panmure Gordon's Andy Brown. "Management has a strong record on tight cost control, essential in the current climate and it continues to deliver best-in-class margins."
Valuation: The stock is trading on a 2013 P/E ratio of 13 times.
Panmure Gordon is less optimistic on construction group Galliford Try (GFRD), which reports its interim results the same day.
Analysts' expectations: Panmure analyst Mark Hughes is forecasting pre-tax profits of £74 million for the year to June. He believes the group will report stabilised sales rates year-on-year within the housebuilding business, whilst the construction business, although competing in difficult markets, should have performed in line with expectations.
Valuation: The stock is trading on a price to net asset value (NAV) ratio of about 1.8 times.
There will be a deluge of economic news on Wednesday, including January's unemployment figures as well as December's average earnings.
The latest release showed employment climbing by 90,000 over the quarter, the International Labour Organisation unemployment rate dropping to 7.7% and claimant count unemployment dropping by 12,100, on top of the 8,900 fall the previous month.
"Whilst we do see the jobs market retaining its relative picture of health, we struggle to see the pace of improvement observed over the past two months being maintained," says Victoria Cadman, economist at Investec. She is thus looking for a modest 1,000 drop in the claimant count, leaving the unemployment rate steady at 7.7%.
On the earnings front, she is expecting earnings growth to remain subdued, with a forecast for the three months to December of 1.4%.
The unemployment statistics will be followed by the publication of February's Monetary Policy Committee (MPC) minutes.
Alongside its decision to keep policy on hold, the MPC released a statement which included the line that the committee stood ready to provide further stimulus if warranted by the outlook for growth and inflation. This was despite the new Inflation Report projections showing inflation likely to remain above the 2% target until late 2015.
In the past this sort of inflation profile would have prompted a serious discussion over a tightening, certainly not a further easing, and it is clear the MPC has shifted towards a more flexible interpretation of its mandate, rationalised by allowing the consumer price index measure more time to meet the target.
Philip Shaw, economist at Investec, is of the view that the vote to keep the quantitative easing target at £375 billion was 8-1, while the vote to keep the bank rate at 0.5% was likely to have been unanimous.
Mucklow (A & J) Group, Galliford Try, Centaur Media, BHP Billiton, Spectris, Travis Perkins, Rexam, Rathbone Brothers, STV Group, London Capital Group Holdings, RSA Insurance Group.
Thursday 21 February
Key focus areas on defence giant BAE Systems' (BA.) preliminary results will be the ongoing effects on trading of the US political impasse, strong international orders, possible news on a resumption of the share buyback and lack of progress in Saudi negotiations.
Recent news: Given BAE's Saudi Salam price negotiations have still not completed, Dyett estimates that 2012 earnings will be impacted by 3p, but observes 2013 will benefit by a similar amount, assuming an agreement is reached.
Analysts' expectations: In terms of 2012 revenue progression, Dyett is expecting continued negative underlying trends in US electronic systems and US platforms and services, as well as a more recent deterioration in US government IT activity, offset by good growth in international.
However, he points out that weak revenue is likely to be mitigated by a good margin performance and a growing order book, which should be up substantially on multiple international wins.
Next up will be preliminary results from Ladbrokes (LAD).
Recent news: At its third-quarter interim management statement, operating profit of £49.2 million was 0.4% up year-over-year. The gaming company generated £6.9 million of high-roller operating profit in the quarter.
Ladbrokes recently agreed to acquire GBEA, the operating business of Betdaq, for an initial consideration of €30 million (£26 million), half of which will be settled by issuance of Ladbrokes shares. In addition Ladbrokes will pay a capped earn-out based on the growth in GBEA's adjusted gross profits over the next four years. Ladbrokes will also acquire a 10% shareholding in TBHG, Betdaq's technology provider, for €4 million, with an option to acquire the remaining 90% in five years' time.
Analysts' expectations: Consensus expectations are for 2012 underlying EBITA of about £203 million.
"We think 2013 will be a transitional year for the group as it seeks to rebuild profitability in its digital division whilst trying to protect profit levels in its retail divisions," French says, reiterating his 'hold' recommendation. He continues to prefer William Hill (WMH).
Valuation: Ladbrokes trades on a 2013 P/E ratio of about 14 times.
The public finances data for January will be unveiled on Thursday.
January is a key month for tax receipts, so is one of the rare times when a surplus is achieved in the public finances. However, it is likely that ongoing disappointing corporate tax receipts limited the overall tax take in January. This is primarily due to significantly lower profits from energy companies.
Specifically, Howard Archer, chief UK and European economist at IHS Global Insight, is forecasting a net repayment of £6 billion on the public sector net borrowing requirement (PSNBR) excluding financial interventions in January, compared to a surplus of £6.4 billion in January 2012.
"The January public finance data will likely do little to change high and mounting expectations that at least one of the credit rating agencies will strip the UK of its AAA rating within the next few months," warns Archer, pointing out all three of the major agencies now have the UK's AAA rating on negative outlook, with Standard & Poor's completing the set after the Autumn Statement. Furthermore, Fitch commented in mid-January that the AAA credit rating is under "significant pressure" and could be lost if the March Budget shows a further weakening of the public finances.
The Chancellor also acknowledged in his Autumn Statement in December that the public finances were taking longer to rectify than had been targeted, but chose to extend fiscal consolidation by another year rather than enacting more austerity now and risk damaging already muted and fragile economic growth prospects.
Ashmore Group, Animalcare Group, Go-Ahead Group, Albemarle & Bond Holdings, RM, CSR, Ladbrokes, Premier Foods, New World Resources, Mondi, BAE Systems, Filtrona, Lancashire Holdings, Informa.
Bumi, easyJet, Optos.
Friday 22 February
The curtains will close with preliminary results from Millennium and Copthorne Hotels (MLC).
Recent news: For the third quarter, the hotels group reported pre-tax profits of £39 million.
Performance was driven by London RevPAR growth of 20.2%, but it declined by 0.2% in Asia and 8.0% in New York. Group RevPAR for the first four weeks of October was up 1.5%, but the company referred to more cautious corporate spending in Singapore, reflected in RevPAR down 0.9% in October. Asia RevPAR was down 0.5% in October.
Analysts' expectations: Consensus expectations are for pre-tax profits of £159.4 million.
In 2013, French is expecting a lacklustre Singapore market and a 3.4% decline in London RevPAR to reflect 4% industry supply growth. He is expecting the group to commence the refurbishment of its London hotel estate, with up to c. £80 million to be spent on the Millennium Knightsbridge.
French rates the stock a 'sell' given its "rich" valuation.
Valuation: The stock trades on a 2013 P/E ratio of about 17 times.
Millennium & Copthorne Hotels, Rightmove.
Armour Group, Cambium Global Timberland, Brewin Dolphin Holdings, Urals Energy.
|BAE SYS. ORD 2.5P||515.50p||0.49%|
|LADBROKES ORD 28 1/3P||120.50p||0.58%|
|TRAVIS PERKINS ORD 10P||2,208.00p||1.47%|
|WILLIAM HILL ORD 10P||416.70p||0.36%|
|MILLENNIUM &COP ORD 30P||587.00p||-0.59%|
|BRAMMER ORD 20P||311.25p||0.40%|
|INTERCONTINENTAL HOTELS GROUP||2,758.00p||-0.22%|
|GALLIFORD TRY ORD 50P||1,593.00p||0.44%|
|All data 15min delayed as of: 00:15:12 25/05/15|