A week in advance 21st - 25th July 2008
By Keith Bowman | 18 Jul, 2008
This coming week sees the start of the UK corporate second quarter/half year results season. Over in the USA, further gauges of the US housing market are scheduled, whilst the corporate second quarter results season moves into full swing.
Economics
In the UK, further explanation is due to be offered in relation to the Bank of England’s June 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 June hit 3.8pc, significantly above the Bank’s target rate of 2.0pc. Later on in the week, the first estimate of overall strength in the UK economy during the second quarter of 2008 – the Gross Domestic Product or GDP gauge – is due. The final estimate for GDP growth during the first quarter of 2008 indicated that the economy had grown by 0.3pc compared with 0.6pc during the fourth quarter of 2007. Many investors are probably now fully aware that an economic recession in technical terms constitutes two consecutive quarters of negative GDP. Investors will be eager to see whether Q2 2008 brings the first negative quarter or not.
Over in the USA, the US Central Bank is scheduled to release its latest survey of business conditions on the ground via what is known as its ‘Beige Book’ survey. The release is due on Wednesday. The latter half of the week also sees the sector at the heart of current financial market difficulties – the US housing market – due to release further data. Existing home sales data is scheduled for Thursday, whilst new homes sales data due to be released on Friday. According to a recent survey by Californian based property consultancy business RealtyTrac, June 2008 saw a 53pc jump in the number of homeowners filing for foreclosure (passing back their property to the mortgage lender) over June 2007. June also marked the second consecutive month in which foreclosures topped the quarter-million mark. Investors continue to pay close scrutiny to all related housing data, given its impact on the banks and the wider financial sector.
Companies
On the corporate front, pharmaceutical and consumer healthcare goods giant, GlaxoSmithKline opens up the UK second quarter/half year results season on Wednesday. The disappointing share price performance over recent years (-2.5pc over the last 5 years and -36pc over 10 years) has continued to fuel investor dissatisfaction regarding the company – dissatisfaction which was recently expressed at the company’s May (2008) AGM, which saw a sizeable proportion of shareholders voting against the proposed management remuneration package. First quarter results announced back in April (21st), saw sales rising by just under 2pc to £5.68 billion, largely in line with forecasts, with declining sales in the group’s diabetes drug Avandia being partially offset by growth in inhaled medicines and vaccines. Dividing the sales between the two core business saw overall pharmaceutical sales fall by 4pc, whilst consumer healthcare goods rose by 8pc. Profit before tax came in at £1.9 billion, down from £2.1 billion during 2007. As for the coming second quarter numbers – the first results under the new chief executive (Andrew Witty) - little change is expected year-on-year, with sales on a consensus basis forecast to increase marginally to £5.72 billion (+0.8pc) and pre-tax profit forecast to come in at £1.899 billion (+0.15pc). Market consensus opinion is currently neutral in tone.
The following day, support services giant, Capita is expected to announce its half year results. Capita is a leading provider of so called ‘Business Process Outsourcing’ solutions in the UK. The company’s operating of London’s congestion charging scheme and the running of the BBC’s TV licence administration service are among some of its better known contracts. However, the company’s services are provided across a whole range of fields including: IT and software, frontline customer contact operations, human resources, finance, treasury and shareholder services, management and property consultancy or a combination of all these. The customer base is approximately split 50:50 between private and public sectors. The trading update which accompanied the group’s AGM back in early May saw management referring to strong trading over the first four months of the group’s current financial year. Current consensus analyst estimates for pre-tax profits stand at around £119.4m (£103.8m) +15pc over last year. Market consensus opinion is currently, cautiously positive in tone.
Other corporate announcements expected over the course of the week include results and trading updates from energy company BG Group, aero engine company Rolls Royce and computer software company Misys.
Week Ahead Diary
Full Year Results
Monday – IG Group
Tuesday – n/a
Wednesday – n/a
Thursday – Misys
Friday – n/a
Half Year Results
Monday – n/a
Tuesday – n/a
Wednesday – GlaxoSmithKline
Thursday – BG Group, Capita Group, Rolls Royce, Yell (Q1)
Friday – Beazley Group
Trading Updates
Monday – n/a
Tuesday – Severn Trent, Vodafone
Wednesday – Daily Mail & General Trust, Halfords
Thursday – Imperial Tobacco, Kingfisher
Friday – Britvic, United Utilities
Economic Diary
Monday – n/a
Tuesday – n/a
Wednesday – Minutes from the Bank of England’s (July) interest rate policy meeting, US Beige book survey release
Thursday – US Existing home sales data
Friday – UK Q2 Preliminary GDP estimate, US New Home sales data
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.
