The Week Ahead: M&S hopes for Christmas tax gift from the European Court

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The Independent Online

With Christmas fast approaching and the pre-Budget report over for this year, the City is beginning to wind down. However, a few companies will front the market with trading updates and results and one very important tax ruling.

Who would have thought tax could be exciting? But this week Marks & Spencer and the taxman await an important ruling from the European Court of Justice that may set a precedent on whether current UK rules on group tax relief are incompatible with EU law.

If the court agrees that the current systems are incompatible, the UK would have to change its group relief laws. The British Government could be liable to corporate taxpayers for any tax collected under the incompatible regime - potentially billions of pounds. If incompatibility is proved, this could open the European tax system to other challenges.

But, given the magnitude of such a ruling, the court may deliver a more "qualified" victory to M&S, which would limit the tax changes needed and the UK's exposure to damages claims. In any case, any areas of uncertainty arising from the case may be appealed - leaving a final decision potentially years away.

In the more prosaic world of earnings guidance, Lloyds TSB is a company under pressure. The financial group is set to deliver its pre-close update against a backdrop of generally strong results from its domestic rivals. Analysts are not expecting any earth-shaking revelations, with the bank following a steady-as-she-goes strategy. While the share price is supported by an attractive dividend yield and perennial takeover speculation, any real sign of declining asset quality in the unsecured book or margin compression on new business may be harshly dealt with.

One company looking for input relief this week is Cadbury Schweppes. The sweet and beverage maker will release its trading update, and analysts are hoping there will at least be more of the same, with top-line growth is offsetting margin decline. Like other manufacturers, Cadbury Schweppes has seen its costs forced up by rising energy prices. The City is also looking for an update on the rollout of the group's new distribution system.

Two 2005 stock market debutants face the market this week with maiden interim results as listed companies. Unfortunately, the respective profits of La Tasca and RHM are likely to be at opposite ends of the spectrum.

In October, the Spanish-themed restaurant group La Tasca said its first-half performance was "encouraging" and that sales were "well ahead" of last year. The chain will open 14 new restaurants in its first year - up from the planned 10.

Greg Feehely, an analyst at Altium Securities, is predicting an interim adjusted pre-tax profit of around £2.6m. "There are a number of operators bucking the trend in a slowing market and are taking market share. La Tasca is one of them. It's well run with tight financial controls and an innovative profit share arrangement."

In contrast, the maker of Hovis bread and Mr Kipling cakes is struggling. RHM has already disappointed the market with a profit warning since its July flotation. Health-conscious Brits are shunning cakes, and the division has seen sales slump by 12 per cent. Analysts at ABN Amro are forecasting first-half underlying earnings of £70.5m.

Another company suffering from shifting consumer priorities is carpet retailer Carpetright. The group is expected to post a pre-tax interim profit of around £22m - substantially below last year's £32m result. The slide is due to disappointing sales - down 7 per cent on a like-for-like basis - and margin compression. The company is cutting prices to woo consumers.

Good news may emerge from the results of travel specialist MyTravel. Last week, rival First Choice Holidays unveiled a well-received interim pre-tax profit of £114m and the £91m acquisition of two US operators. James Ainley, an analyst at Dresdner Kleinwort Wasserstein, is upbeat about MyTravel's prospects - predicting a pre-tax profit of £43m and steady 3.5 per cent UK margins. The stock has been slammed for its lack of jet fuel price hedging, costing it an estimated £40m to £50m extra in 2005. But that strategy may not be so silly this half, with fuel prices now 20 per cent below their August peak.

It's any analyst's guess about the British Energy interim result this week as a major financial restructuring earlier this year has made comparable numbers redundant. Andrew Meade, an analyst at JP Morgan, is forecasting operating profit of £224m.

The Ashtead Group may report an impressive interim profit next week, but more interest is in who will succeed its chief executive, George Burnett. Speculation mounted last month that the group had appointed headhunters to replace Mr Burnett - a 21-year veteran with a 3 per cent stake in the company. UBS predicts the equipment-leasing specialist will post a 66 per cent rise in first-half pre-tax profit to £33.3m.


Tomorrow 12

UK RESULTS: (final) IDOX, Treatt, Windsor; (interim) Air Music & Media, Lawrence, Renold

Tuesday 13

UK RESULTS: (F) Ashtead, Civica; (I) British Energy Group, Carpetright, Image Scan, La Tasca, Telecom Plus, Vega, Zytronic

Wednesday 14

UK RESULTS: (F) Baggeridge Brick, Caretech; (I) RHM, Sondex

Thursday 15

UK RESULTS: (F) MyTravel; (I) Dunedin Enterprise Investment Trust

Friday 16

UK RESULTS: (F) Carnival; (I) Birse, Ensor Holdings, Minorplanet Systems