A week in advance. 5th May - 9th May 2008
By Keith Bowman | 02 May, 2008
A week in advance
Our Equity Analyst, Keith Bowman provides you with his summary of what to look out for in the coming week.
This coming week sees the trading week cut short by a UK Bank Holiday, although a steady flow of corporate and economic announcements still lies in prospect. In the US, the first quarter corporate results season begins to wind down, whilst on the economic front, no major US announcements are scheduled.
Economics
In the UK, one announcement stands head and shoulders above all else – the Bank of England’s decision on interest rate policy, scheduled for midday Thursday. To date, the Bank of England has been running a line somewhere between its US and European Central Bank (ECB) counterparts, with the US aggressively cutting rates based on its greater concern for economic growth going forward, whilst the ECB has left rates on hold, highlighting global inflationary pressures. Although inflation has remained stubbornly above the Bank of England's 2.0 percent target for the six months running now (2.5pc as of March 2008), a recent measure of strength in the UK economy (the Gross Domestic Product reading) saw the country suffering its lowest gain since early 2005 - +0.4pc for Q1 2008 against +0.6pc for Q4 2007. On balance, consensus opinion suggests that the Bank of England may just wait for the next June meeting, post its next quarterly inflation report (due 14May08) to cut rates further.
Turning towards Europe, the European Central Bank (ECB) is also scheduled to meet regarding interest policy on Thursday. The big concern for the ECB is that interest rate differentiations between the Eurozone and the USA have resulted in significant strength for the Euro currency against the US dollar of late. This has caused concerns in relation to the reducing competitiveness of European exports which a rising Euro causes. That said, while economic pressures, particularly in Southern European regions (Spain saw March retail sales decline by 8.7pc year over year), may be suggesting that a reduction in interest rates would be of assistance, along with aiding the currency position, current global inflationary pressures – oil well over $100 per barrel - are again thought likely to generate a ‘no change’ decision.
Companies
On the corporate front, the only technology constituent within the UK’s premier FTSE-100 index, Sage Group, is due to announce its half year results on Thursday. The accountancy software group’s most recent trading update (mid April) suggested that half year results should be in line with current analysts’ estimates. Recent concerns have focused both on the company's US business and how it is likely to be faring in the face of a US economic slowdown and the increasing competitive pressures being generated via rivals such as Microsoft and Intuit USA Incorporated. On the plus side, the perceived defensive nature of the company’s revenues is often cited. Something in the region of 70pc of group revenues are estimated to be recurring, coming from long dated software support contracts and additional services. Current consensus analyst estimates for pre-tax profits over the half year to date stand at around £129m, up 5.9pc over last year, with revenues forecast to come in at approximately £617m (£574.7m last year).
On the same day, consumer goods giant Unilever is also due to announce its first quarter results. Underlying sales growth, as of the full results back in late February, came in at +5.5pc and above management’s previous guidance of between 3pc to 5pc - the high end of analyst estimates. Cost savings of 1 billion euros were achieved over 2007, aiding profit margins, whilst sales to the emerging market regions continued to lead the way. Furthermore, management also highlighted its expectation that underlying sales growth towards the upper end of its 3-5 pc target range would be achieved over 2008. On the downside, rising raw material costs (food inflation) are likely to have proved a drag on performance over recent months, whilst recent currency movements may also be adding to challenges. Current consensus analyst estimates for pre-tax profits over the full year stand at around £4.04 billion, up 6.1pc over last year.
Other corporate announcements expected over the course of the week include results and trading updates from tobacco giant British American Tobacco (BATs), owner of the Holiday Inn brand InterContinental Hotels, and low cost airline operator EasyJet.
Week Ahead Diary
Half Year Results
Monday – UK Bank Holiday
Tuesday – n/a
Wednesday – Anglo Irish Bank, EasyJet
Thursday – Sage Group
Friday – n/a
Quarterly Results
Monday – UK Bank Holiday
Tuesday – n/a
Wednesday – BATs (Q1), InterContinental Hotels (Q1)
Thursday – Unilever (Q1),
Friday – n/a
Economic Diary
Monday – UK Bank Holiday
Tuesday – n/a
Wednesday – n/a
Thursday – n/a
Friday – n/a
Note: This list represents what we believe are the highlights of the coming week and is not an exhaustive list of company announcements or economic events. Source: Digital Look.
