A week in advance 1st - 5th September 2008
By Keith Bowman | 29 Aug, 2008
This coming week sees UK corporate results take something of a back seat, whilst economic events come to the fore. In the US, the week is cut short by a national holiday on Monday, whilst monthly unemployment data is likely to head economic events.
Economics
In the UK, one announcement clearly stands head and shoulders above the rest – the Bank of England’s decision on interest rate policy, scheduled for midday Thursday. Like many Central Banks around the world, the Bank of England is currently balancing a deteriorating economy against an elevated inflation rate. For now, given these conflicting forces on the economy, the Bank of England is currently expected to leave the base interest rate unchanged at 5.0pc. The rate has remained unchanged since April this year. However, with broad economic indicators currently still weakening, expectations for interest rate cuts before the end of the year are growing.
On the continent, the European Central Bank (ECB) is also due to pronounce on interest rate policy on Thursday. With the ECB having raised rates (+1/4pc) to 4.25pc as of its July (2008) policy meeting – given its overriding concerns for inflation – consensus expectations are for a ‘no change’ decision. That said, and despite many doubts at the time, an increasing number of economists have begun to question the increase, with various European economic indicators – particularly for Germany, the zone’s biggest economy – weakening in recent weeks.
In the USA, the unemployment situation again comes back into focus. Monthly August employment statistics are due to be released on Friday. As of July, the US economy had lost jobs for the previous seven consecutive months, although the rate of loss in July was below that expected by economists (51,000 versus 72,000). Investors globally will be watching avidly to see whether a combination of aggressive interest rate cuts and tax rebates provided to US consumers has helped to contain the traditional evils of an economic slowdown/recession and rising unemployment.
Companies
On the corporate front, full year results from employment agency group Hays (expected on Tuesday), provide a focus on UK employment prospects. Whilst the group’s share price has retreated over the last year (-38.5pc: source Digital Look), given the unfolding credit crisis and the question marks which it has placed over economic prospects, a recent takeover approach by Continental employment group Adecco for rival UK employment agency Michael Page has provided a speculative boost (+17.5pc over the last month, as of 27Aug08: source Digital Look). Although Adecco has yet to make a formal bid for Michael Page, the approach has made investors re-evaluate the employment sector. A trading statement from Hays back in July saw the company continuing to make progress – fourth quarter organic fees grew by 16pc – although management did highlight increasingly challenging conditions in the UK.
Over recent years, both Hays and major rival Michael Page have been focusing on overseas growth in order to diversify revenues away from the UK and Ireland. Current consensus analyst estimates for full year pre-tax profits stand at around £243.5 million (+15pc over last year), whilst the dividend is expected to enjoy a similar increase to 5.77 pence per share. Market consensus opinion is currently neutral in tone.
Turning towards the leisure sector, managed pub operator JD Wetherspoon is due to announce its final results on Friday. Like other pub and leisure companies, Wetherspoon has also been hit by slowing consumer expenditure, a tougher trading climate, and relatively poor summer weather. In addition, concerns in relation to increasing utility costs, rising staff wages, along with higher food price inflation, have all combined to impact sentiment – the share price has declined by 55pc over the last year (as of 27Aug08 – source: Digital Look). A trading statement from the company back in mid July saw like-for-like sales over the full year down by 1.0pc, although like-for-like sales over the fourth quarter period rose by 0.4pc. In addition, and allowing for new pub openings, overall group sales had risen by 2.2pc, whilst management remained confident that the group would continue to make overall progress. Current consensus analyst estimates for full year pre-tax profits stand at around £55.4 million (-10.6pc over last year), whilst the dividend is expected to see a rise of around 9.0pc to 13.0 pence. Market consensus opinion is currently tentatively favourable in tone.
Other corporate announcements expected over the course of the week include results and trading updates from jewellery retailer Signet Group and transport operator Go-Ahead Group.
Please note that the value of investments can fall as well as rise and past performance should not be viewed as a reliable guide to the future.
Week Ahead Diary
Half Year Results
• Monday – n/a
• Tuesday – n/a
• Wednesday – Signet Group
• Thursday – n/a
• Friday – n/a
Full Year Results
• Monday – n/a
• Tuesday – Hays
• Wednesday – n/a
• Thursday – n/a
• Friday – JD Wetherspoon, Go Ahead Group
Economic Diary
• Monday – US National Holiday
• Tuesday – n/a
• Wednesday – n/a
• Thursday – UK Interest rate decision, European Central Bank Interest rate decision
• Friday – US Monthly employment report
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.
