A week in advance. 19th May - 23rd May 2008

By Keith Bowman | 16 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 a steady flow of UK corporate announcements and economic data releases. In the US, the first quarter corporate results season is now virtually over, whilst on the economic front, minutes from the US Central Bank’s recent interest rate policy meeting are likely to dominate events.

Economics

In the UK, further explanation is due to be offered in relation to the Bank of England’s early May decision to leave interest rates unchanged at 5.0pc. Minutes from the meeting are due to be released on Wednesday. Inflationary pressures will undoubtedly lie at the heart of the Bank’s decision – the CPI inflation rate during April hit 3.0 percent, one full percent point above the Bank’s target rate of 2.0pc. Committee member David Blanchflower (resident in the USA) has for some time now argued that the risks of a slowing economy outweigh short term inflation pressures and that the Bank of England should be following its US counterparts in cutting rates aggressively. Many economists believe that a slowing economy will in itself eventually curtail inflationary pressures. However, at this point it’s worth remembering that the Bank of England is only mandated with controlling inflation via interest rate policy, not the overall health of the economy, as with the US Central Bank.

Over in the USA, and far more importantly on a global basis, meeting minutes from the US Central Bank’s most recent interest rate policy meeting are also scheduled to be released on Wednesday. The meeting saw rates cut by a quarter of a percentage point to 2.0pc. However, since the meeting, speculation has been rife in markets across the globe that the US Central Bank has now finished cutting rates – rates have been cut from 5.25pc a year ago (a total drop overall of 62pc). This assumption has had all sorts of implications, particularly in currency markets, where the US dollar has been enjoying something of a rally. On that basis, investors will be scrutinizing in detail the minutes in order to assess whether or not this assumption is correct. On a broad basis, a falling US dollar has partly been attributed with providing strength in commodity prices across the spectrum - most of which are priced in US dollars, including oil - with all its wider implications for sectors such as mining and energy.

Companies

On the UK corporate front, full year results are expected on Wednesday from business services group Experian. The company, headquartered in Dublin, operates via four main divisions 1) Credit Services 2) Decision Analytics 3) Marketing Solutions and 4) Interactive Services. Experian is estimated to maintain credit records on around 300 million consumers globally, along with some 30 million businesses. Back in mid April, management in a trading update conceded that trading remained tough in both of its key markets, the US and UK, although noted that profits should still meet current analyst estimates. The shares have declined by over 25pc over the course of the last 12 months as a combination of fading takeover speculation and concerns that the unfolding credit crisis will eventually impact on the level of credit checking services required, particular in relation to consumers, as they look to raise their savings levels and reduce borrowings. On the positive, the company has been widening its geographical reach, predominately via acquisitions, hopefully helping to offset some of the downturn in both the US and UK economies. At the current time, market consensus opinion is positive in tone.

Turning directly towards the High Street, baby and children’s retailing group Mothercare is due to announce its full year results on Thursday. Back in early April, management in a trading update noted that its fourth-quarter and full-year sales had increased and that the integration of the ‘Early Learning Centre’ business was progressing well. Total fourth-quarter group sales rose by 31.6pc and were up 3.9pc on a like-for-like basis. Furthermore, a management plan in relation to optimising the group’s property portfolio was also nearing completion and details are likely to be announced with the full year figures. Profits have been driven by a combination of the Early Learning Centre acquisition, overseas expansion and growing internet sales. Current consensus analyst estimates for pre-tax profits stand at around £33.5m, +48pc over last year, whilst the final dividend is forecast to be up by around 17pc to 11.72 pence per share.

Other corporate announcements expected over the course of the week include results and trading updates from property giant British Land, telephone directories group Yell Group and telecoms company Cable & Wireless.

Week Ahead Diary

Half Year Results
Monday – n/a
Tuesday – ICAP, Imperial Tobacco, Mitchells & Butlers
Wednesday – Britvic
Thursday – Daily Mail & General Trust
Friday – n/a

Full Year Results
Monday – n/a
Tuesday – British Land, KCOM Group, Yell Group
Wednesday – Experian, Great Portland
Thursday – Cable & Wireless, De La Rue, London Stock Exchange, Mothercare, Tate & Lyle
Friday – GCAP Media

Economic Diary
Monday – n/a
Tuesday – n/a
Wednesday – Bank of England meeting minutes, US Central Bank meeting minutes
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.