The Week Ahead: Has 3i seen the best of private equity's bonanza?

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The Independent Online

Private equity has rarely been out of the headlines in the last 18 months, and sector watchers will have a keen eye on full year results from 3i, Europe's largest quoted private equity firm, due on Thursday.

Despite a record year for fund raising in 2005, with the global buy-out and venture capital industry raising $264bn (£142bn), 2006 has so far not been a smooth ride. Several high-profile public-to-private buy-outs attempted in the UK have failed, most notably HMV and House of Fraser, and the year's biggest private equity sale, Debenhams, wasn't exactly welcomed ecstatically by the market.

That said, 3i differs from many of its large rivals because it is involved in all stages of private equity, from seed capital to large-scale buy-outs, which should mean that investment opportunities remain good across the board.

The pre-close trading statement at the end of March was very upbeat, and most analysts anticipate a record year for exits, with net capital gains from investment of £500m to £520m. There should also be more details on a proposed return of capital to shareholders, again expected to be in the region of £500m.

The big question for most analysts will be whether or not 3i can maintain its strong start to the year. German broker Dresdner Kleinwort Wasserstein maintains its "buy" rating on 3i but warns that the current year may be represent a high water mark for exits.

TODAY: Results: Full year - Addworth. First half - 2 Ergo Group; Connaught; Diploma; Hardide; Minorplanet Systems. First Quarter - Randgold Resources. Third quarter - NDS Group.

TOMORROW: Expect to see decent numbers from Sage, the accountancy software group, with pre-tax profit for the first six months of the year to rise by 10 per cent to about £110m. However, it is the company's acquisition strategy that will be of most interest to analysts. Last month Sage looked poised to buy Norwegian rival Visma before private equity group Engel Holding outbid it at the last minute. Investors will be keen to hear that the setback over Visma will not dent the company's acquisition strategy.

Andor Technology, one of only two Belfast-based businesses quoted on the London market, reports full year results. The shares have done little since listing on AIM in December 2004 at 90p, trading at 96.5p on Friday. The group manufactures sensitive imaging devices for use in the drug discovery and medical diagnosis markets, and although no forecasts are available, broker Bridgewell Securities retains its "overweight" recommendation.

Results: Full year - Andor Technology; First Derivative; N Brown Group. First half - Sage Group. First Quarter - Acambis.

WEDNESDAY: Results: Full year - MP Evans Group. First half - Dimension Data; Fenner.

THURSDAY: First half numbers from industrial gases giant BOC are now largely academic since the group has agreed to an £8.2bn offer from German rival Linde. Any slip-ups and Linde may be left kicking themselves, since most analysts agree that BOC was unlikely to achieve the 1,600p bid price on its own any time soon.

The European Commission has extended its anti-trust investigation into the deal until 6 June, but very few sector watchers expect the deal to be scrapped. Linde may partly fund the deal by floating its material handling operations but, barring any real shocks, most analysts will be looking elsewhere on Thursday. Broker UBS is expecting a small increase in pre-tax profits to £130m for the second quarter.

Results: Full year - 3i Group; Findel; Oakdene Homes. First half - BOC Group. First quarter - International Power.

FRIDAY: Full year results from insurer Royal & Sun Alliance, announced in March, were well ahead of forecasts, but lacked details on when the company will exit the United States. Analysts expect another strong set of numbers, buoyed by strong equity markets and new business levels. Consensus forecasts indicate that analysts are looking for about £194m of operating profits.

Some brokers are hoping for great things from Crosby Capital, a small South-east Asian-focused merchant banking boutique. The company has a 24 per cent stake in Japanese trading company IB Daiwa, which announced last week that it has made a natural gas discovery at Big Mouth Bayou in Louisiana.

Natural resource stocks are few and far between in Japan and some traders believe that when the Tokyo markets reopen after Friday's holiday the stock will make a major move to the upside. There are no estimates available for the first quarter.

Results: First quarter - Crosby Capital; Royal & Sun Alliance.

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