The Week Ahead: Oil prices put Ryanair forecasts at risk

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The Independent Online

Earlier this year Ryanair promised that the fuel cost increases it faces would be offset by savings elsewhere, but will the low-cost airline be able to deliver on this? Tomorrow's second-quarter figures from the group should provide the answer. Williams de Broe fears that Ryanair will have to revise its earnings guidance given the current oil price, even though the airline is thought to have had a strong three months.

The broker calculates that fuel accounts for about 20 per cent of the airline's costs, leaving it more exposed to the oil price than many of its competitors. Meanwhile, Ryanair is not in the type of business where it could pass on the higher costs to its customers. This leaves its forecasts looking vulnerable. For the second quarter, the market is expecting a pre-tax profit of €144m from the group, flat on the same period last year.

TODAY: Results: None.

TOMORROW: Numis Securities is expecting a solid set of interim numbers from Matalan. It has pencilled in like-for-like sales growth of about 5 per cent, with first-half profits flat on the previous year at £42m. The broker believes investors will be most interested in Matalan's outlook statement. Shares in the discount retailer have been a terrific performer since mid-March and now stand close to 12-month highs. This has been driven by a mixture of takeover speculation and signs of improving trading.

Results: Full year - None. Interims - BAA; Matalan; Penna Consulting; Umeco; Ryanair.

WEDNESDAY: First Group has hedged its exposure to rising fuel costs but analysts are worried about the outcome of the rail refranchising process. Williams de Broe believes that the group's First Great Western franchise is at some risk. If the transport company fails to win the contract, the group's shares will find themselves under considerable pressure, given their generous valuation. Interim pre-tax profits are forecast to be little changed on the £57m seen last year.

Stuart Chambers, Pilkington's chief executive, has been desperately trying to transform the group's potential but is not being helped by falling glass prices in Europe. Hence, profits are tipped to fall to £80m from £84.5m last time. Williams de Broe has a "hold" rating on shares of the glass maker. "There is no point investors jumping in for a recovery in the stock before a general rise in glass prices," the broker argues. It believes this is still some months away.

Results: Full year - Lok'n Store. Interims - Carphone Warehouse; First Group; Maelor; Pilkington.

THURSDAY: Investors will want Smith & Nephew's third-quarter results to show that the company is back on track after a disappointing second quarter. Since the setback, S&N shares have fallen a long way and yet they remain expensive when compared with other blue chips. Hence, any more bad news from the group and they are tipped to fall yet further.

Credit Suisse First Boston unsettled some investors last week when it cut its forecasts slightly to take account of a drop in growth in S&N's orthopaedics division. The Swiss broker believes that the healthcare group needs to deliver a strong performance from this unit in order to regain the market's confidence. S&N is expected to post a profit in the region of £64m for the quarter just gone, compared with £57m last year.

The only segment of the UK housing market that is certain to grow beyond 2004 is the market for retirement homes. Britain's ageing population is a matter of fact and full-year results from McCarthy & Stone will show that the retirement homes builder is continuing to benefit from it. Pre-tax profits should jump to £132m from £116m and shareholders can look forward to a nearly 20 per cent rise in the dividend to 16.3p a share.

By focusing on the mid-market range and avoiding the distractions of going beyond a core offering of four apartment types, plus tight cost controls, McCarthy & Stone enjoys great profit margins from its developments and faces low risks.

Results from Shire Pharmaceuticals remain very dependent on the performance of its hyperactivity disorder treatment Adderall XR. But shareholders need not fear. Brokers believe the drug continues to do well. Last week Shire got US regulatory approval for Fosrenol and the company is likely to make some comments about its launch strategy for the kidney product. Meanwhile, management will be quizzed regarding their plans for the group's near £1bn cash pile. Third-quarter profits are tipped to come in at about $95m, compared with $90m a year earlier.

Results: Full year - McCarthy & Stone. Interims - 3I Group; Danka Business Systems; Man Group; Millennium & Copthorne; Shanks; Shire Pharmaceuticals; Smith & Nephew; Sondex; Synergy Healthcare; Tate & Lyle; Xenova; Scottish & Southern Energy.

FRIDAY: Results: Full year - None. Interims - International Power.

Economics Diary

TODAY: UK: PMI manufacturing (Oct); M0 Base Money (Oct). Eurozone: PMI manufacturing (Oct). US: Personal income and spending (Sept); Construction spending (Sept); ISM manufacturing (Oct).

TOMORROW: UK: CBI distributive trades (Oct).

WEDNESDAY: UK: PMI services (Oct); CBI distribution survey (Oct); Official reserves (Oct). Eurozone: Service sector PMI (Oct). US: Factory orders (Sept); ISM non-manufacturing (Oct).

THURSDAY: UK: Interest rate decision. Eurozone: ECB interest rate decision; Producer prices (Sept); Unemployment rate (Sept). US: Initial jobless claims; Non-farm productivity (Q3, prelim).

FRIDAY: UK: Industrial production (Sept); Manufacturing output (Sept). Eurozone: Retail sales (Sept); OECD leading indicator (Sept). US: Non-farm payrolls (Oct); Consumer credit (Sept); Unemployment rate (Oct); Average hourly earnings (Oct); Average weekly hours (Oct).