The Week Ahead: Primark should sugar the pill for AB Foods

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The Independent Online

First-half numbers from Associated British Foods tomorrow will be a tale of two halves, with the food side of the business showing little if any growth while Primark, the company's discount fashion retail chain, goes like a train.

British Sugar, which trades under the Silver Spoon brand name, faces a tough trading environment which the broker Panmure Gordon believes will result in a 33 per cent decline in pre-tax profits from sugar operations. Higher energy prices are driving up costs, while temporary quota cuts have lowered volumes at the same time as demand for sugar products is falling. The ingredients side of the business should be boosted by the integration of the global yeast business Burns Philp, an Australian operation acquired in 2004.

However, for bulls of AB Foods the jewel in the business is undoubtedly Primark, from which Panmure expects to see a 22 per cent rise in pre-tax profits. The converted Littlewoods stores should start opening as Primark next month and by the end of the year will increase total floorspace by 50 per cent, with new stores opening in London's Oxford Street, Bristol and Tallaght in Ireland. Panmure is looking for total first-half pre-tax profits of £253m.

AB Foods has underperformed the market in 2006, and although there should be few surprises in the first-half numbers, Panmure believes the company will return to growth rates of about 10 per cent a year in 2007. For investors prepared to see beyond the short-term woes of the sugar business, any weakness after tomorrow's announcement will be treated as a buying opportunity.

TODAY: Results: Full year - China Shoto; XL TechGroup.

TOMORROW: Dresdner Kleinwort Wasserstein expects the online casino group PartyGaming to report a 46 per cent increase in first-quarter revenue to $324.8m, growth in line with that of its major rivals. Periodic worries over US litigation against online gambling has meant the stock has struggled to break through the 150p mark and it remains among the most volatile stocks in the FTSE 100. Dresdner believes the stock, trading on 16 times forecast earnings, is too cheap and that the chances of a prohibition bill passing Congress are "materially exaggerated".

Results: Full year - BNB Recruitment; Parity Group; SkyePharma. First half - Associated British Foods. First quarter - ARM Holdings; PartyGaming.

THURSDAY: Prudential rejected a 710p-a-share offer from the rival Aviva a month ago, so analysts will be taking great interest in its trading update. There are not likely to be any nasty shocks but any weakness, particularly in the UK business, will raise the pressure on the chief executive Mark Tucker. M&G, Prudential's fund management arm, is likely to have performed well on the back of rising equity markets and a strong ISA season.

Robust trading statements issued by peers mean the market will expect more of the same from Huntsworth. The group was formed by the merger of Huntsworth and Incepta in April last year, and employs more than 3,000 in 23 countries. Huntsworth issued a detailed trading statement on 15 February so there should be no surprises with the full-year results. The broker Numis Securities is looking for pre-tax profits of £12.3m, a rise of 157 per cent on 2004 numbers. The analyst Lorna Tilbian believes that after a series of mergers, acquisitions and sales, Huntsworth's revenue model will be simpler in 2006, resulting in a potential re-rating of the shares.

JJB Sports is finding life on the high street tough and few sector watchers will be surprised if it reports worsening conditions with full-year results. The company warned the market in January that heavy price cutting and a highly competitive environment had dented Christmas sales. The long-running battle between JJB and JD Sports looks like being won by the latter, and with pre-tax profits pencilled in at about £32m, few would bet on pleasant news from JJB. With a price war on England football shirts looming in the run-up to this summer's World Cup in Germany, competition is going to get fiercer.

Results: Full year - Genosis; Huntsworth; JJB Sports. First quarter - Millennium & Copthorne Hotels.

FRIDAY: WPP's full-year 2005 numbers were well ahead of expectations and guidance for 2006 was for more of the same. First-quarter numbers on Friday should come with an upbeat trading statement, with internal expectations of between 4 and 5 per cent growth with operating margins rising to 14.5 per cent. The chief executive Sir Martin Sorrell appears to have put the troubles with his Italian subsidiary behind him for the moment, so if the numbers are good, expect to see him back at his bullish best.

Results: First quarter - WPP Group.

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