A week in advance 18th - 22nd August 2008
By Keith Bowman | 15 Aug, 2008
This coming week sees an upturn in the number of UK corporate second quarter/half year results, whilst the economic calendar lacks a major focus. In the US, the second quarter corporate results season has now finished, whilst economic events may again move back to the housing market.
Economics
In the UK, further explanation is due to be offered in relation to the Bank of England’s (BoE) early August (6th & 7th Aug) decision to leave the base interest rate unchanged at 5.0pc. Minutes from the meeting are due to be released on Wednesday. In July, the nine member committee which forms the Bank’s Monetary Policy Committee (MPC) saw its first three way split vote for sometime. Whilst a majority of seven members voted to leave the base interest rate unchanged at 5.0pc, one member voted for a reduction, whilst another member voted for an increase in the rate. The split shows the extent of uncertainty and confusion which the opposing forces of inflation and deteriorating economic growth pose on the economy going forward.
Over in the USA, further statistics in relation to the health of the US housing market lie in prospect. Such figures have become increasingly important, with declining US house prices providing the major cause for distress in the credit markets, with its significant impact on the financial sector and the banks in particular. On Monday, a housing market index of activity is scheduled, whilst on Tuesday, figures relating to new build activity are due to be released.
Companies
On the corporate front, the UK housebuilders come back into focus. The sector’s biggest company by stockmarket valuation, Persimmon, is due to report its half year results on Thursday. With housing at the centre of the current credit market difficulties, holding housebuilding shares over recent months has proved a particularly fraught experience. Whilst the shares are down just under 70pc over the last 12 months (source: Digital Look – as of 13Aug08), they have rebounded from their low of 228p in July to over 350p currently – although they are still down significantly on their year’s high of 1273p.
As for actual trading, the reduction and tightening in credit facilities and terms which the banks and building societies have been making does appear to have had a major impact – recent Bank of England figures for June revealed a new record low in mortgage approvals, with mortgage lending falling to a near eight year low. Persimmon itself, in a trading update in early July (2008), described trading for the first six months of 2008 as ‘the most challenging period in the group’s recent history’ and confirmed that it had cut 1,100 jobs since the start of the year. Legal completions had fallen by 31pc to 5,501 in the first half of the year, whilst the average selling price had dropped to £181,500 from £189,255.
However, unlike some of its rivals, management saw no immediate need to write-down the value of land holdings held. With debt evident across most of the housebuilding sector as a result of a combination of previous company and land acquisitions, along with monthly wage bills still too be paid, cash flow has rapidly taken priority over profit generation in recent months. An assessment of cash flow strength is likely to prove a key feature for both Persimmon and other housebuilders due to report in coming weeks. Market consensus opinion for Persimmon is currently negative in tone.
Away from the housebuilding sector, advertising giant WPP Group is expected to report its half year results on Friday. Investors broadly remained concerned that whilst the current epicentre of the current credit crisis may lie in the financial sector, its impact may be slowly rippling through to other sectors. With the media or advertising sector seen as particularly susceptible to wider corporate spending budget cuts, results from WPP will be closely scrutinised in order to gauge any such effect. In a statement accompanying the group’s annual general meeting back in late June (2008), management noted that the pattern of growth in April and May was similar to March when western continental Europe had slowed, whilst the markets of Asia Pacific, the Middle East & Africa, Latin America and Central and Eastern Europe all grew faster. Current market consensus opinion is positive in tone.
Other corporate announcements expected over the course of the week include results and trading updates from mining mammoth BHP Billiton, employment agency and takeover target Michael Page and bus and train operator Arriva.
Week Ahead Diary
Half Year Results
Monday – n/a
Tuesday – Michael Page
Wednesday – n/a
Thursday – Persimmon,
Friday – Arriva, Rentokil Initial, WPP Group
Full Year Results
Monday – BHP Billiton
Tuesday – n/a
Wednesday – n/a
Thursday – n/a
Friday – n/a
Economic Diary
Monday – US Housing activity index
Tuesday – US Housing starts data, US Producer Price Index
Wednesday – BoE interest rate policy meeting minutes
Thursday – UK Retail sales figures
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.
