The Week Ahead: No peace for Vodafone as City makes call for dividends
Sunday 28 May 2006
The market explodes into action on Tuesday, after the Bank Holiday weekend, with the annual results and strategic update of mobile phone giant Vodafone.
"May you live in interesting times", Vodafone chief executive Arun Sarin might be grumbling to himself as he reflects on the year. Not only has he weathered a bust-up with his departing chairman, Lord Ian MacLaurin, he has also put through a £28bn writedown, sold the underperforming Japanese business for £6.8bn and potentially overpaid for Turkey's number two telecoms group with a £4.6n offer. All this against a backdrop of generally tough operating conditions.
And the pressure shows no sign of abating. While the market is predicting an adjusted pre-tax profit of between £8.4bn and £8.6bn - a marginal increase on 2005 - the numbers will have to fight for attention with the promised findings of the much-anticipated strategic review. Nick Delfas, an analyst at Morgan Stanley, is keen to see an increased dividend payout ratio, modernisation of the "One Vodafone" cost-cutting project and a reiteration of the new regional focus.
The future of Vodafone's non-controlling 45 per cent stake in Verizon Wireless, a US group, remains a management dilemma. Mr Delfas believes Vodafone should "repeat that Verizon Wireless is increasing in value so there is no pressure to sell, but that it would always consider offers - the best negotiating position".
Given weak first-quarter results from Vodafone's peers in the UK, Germany and Italy, the market may be disappointed by short-term prospects - although its Spanish rival Telefonica, which acquired O 2 in 2005, is bullish about the outlook for its UK business.
Vodafone's news comes against a flurry of economic releases, with UK housing price and volume data, and the minutes from the last US Federal Reserve meeting providing an insight into the American central bank's stance on interest rates.
Northern Foods is another company where the strategic review holds as much interest for investors as the full-year results, given two profit warnings and a 35 per cent share price slump this year. The maker of Goodfellas pizza has already telegraphed a £45m pre-tax profit, against £62m last year, as falling biscuit and pastry sales, heavy discounting and price pressure from heavyweight clients such as Marks & Spencer begin to bite. With the likelihood of no second-half dividend and a weak 2007 interim result, analysts are looking for news of disposals and a revamped cost programme.
Elsewhere, steel group Corus releases its first-quarter results fresh from the £570m sale of its rolled-aluminium business. The market consensus is for moderate "earnings before costs" of £167m as margin pressure and energy price hikes hurt the bottom line. However, analysts at Deutsche Bank are upbeat about the second- and third-quarter outlook, due to rising steel prices and strong underlying demand.
With the expected announce- ment of a 30 per cent slide in pre-tax profits to £70m, electronics group Electrocomponents is relying on its dividend yield to maintain investor interest. "Basically, this stock has long-term challenges with more than 50 per cent of profit exposed to the UK - a market in structural decline. The shape of the business is wrong and dividends are not covered by earnings or free cash flow," said Joel Spungin, an analyst at Oriel Securities.
It's a case of steady as she goes for utility companies, with a generally solid set of results and capital returns expected from Pennon, AWG, United Utilities and Scottish and Southern Energy (SSE). However, new accounting rules make utility company profits vulnerable to revision and volatility.
Water company AWG's full-year profit will be boosted by improved performance at Anglian Water Services and the sales of Morrison Construction Services and Project Investments. Clive Roberts, an analyst at Charles Stanley Stockbrokers, predicts a pre-tax result of £109m - a 76 per cent increase on last year. The group still has half of its £75m share buyback to go, with scope for an extension when this is complete.
Like AWG, Pennon is committed to a £55m buyback, having just returned £145m through a B Share scheme. Mr Roberts believes the group will post an annual pre-tax profit of £105m - an 18 per cent rise on last year.
Geraint Anderson, an analyst at Dresdner Kleinwort Wasserstein, is upbeat about SSE's full- year result, forecasting a 17 per cent rise in adjusted pre-tax profit to £846m. "We expect a good all-round performance from SSE, with both the regulated and competitive businesses showing impressive growth."
United Utilities will be showcasing a new chief executive at its full-year results. Philip Green, the former head of Royal P&O Nedlloyd, took the reins last month. His first official duty is likely to be pleasant, with an expected pre-tax profit of around £490m - a 22 per cent rise.
UK RESULTS: Bank Holiday.
UK RESULTS: (final) Blueheath, BSS, Domestic & General, Hamworthy KSE, Vodafone.
UK RESULTS: (F) AWG, Computer Software, Expro International, Healthcare Enterprise, ICAP, Northern Foods, Oasis Healthcare, Quintain Estates & Development, Scottish and Southern Energy, Speedy Hire; (interim) Abacus, RWS, Shed Productions; (first quarter) Corus, Premier Farnell.
UK RESULTS: (F) Applied Optical Technologies, Electrocomponents, Johnson Matthey, Maelor, Man, Pennon, Pilkington, Plasmon, Printing.com, Shanks, United Utilities, Vedanta Resources; (I) API.
UK RESULTS: (F) Caffyns; (I) Local Radio.
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