The buzz returns to the City this week after a brief hiatus for Christmas and the new year. While some may judge the resilience of the retail sector by the number of hours it took to wade through London's Oxford Street, investors and trad-ers will be looking over Marks and Spencer's trading update with interest on Wednesday.
Goldman Sachs is optimistic about the company's prospects, anointing M&S their "Christmas winner" in a preview note last week. The US investment bank believes M&S will do well because of its defensive sales mix. Panmure Gordon has raised fears about the company's "frightening" 70-per-cent-off sales, but upgraded its recommendation from "hold" to "buy". However, a majority of analysts are forecasting like-for-like sales growth to remain flat or dip for the first time in nine months, with some pencilling in a drop of as much as 2 per cent. Both Morgan Stanley and Credit Suisse cut their forecasts last week with fears that general merchandise will not have done as well as expected. Any bad news from M&S will send retail stocks down further.
TOMORROW: The tile and wood flooring specialist Topps Tiles will issue its trading update. It operates in an area of discretionary spending and is not immune to a slowdown. At its preliminary results in late November, Shore Capital thought the company's stock was a buying opportunity, saying the business was "well equipped to weather the consumer storm". Goldman Sachs, in a note put out just before Christmas, also said the shares were worth buying and noted they "represented an unwarranted discount to its peers".
ProStrakan, the special-ity pharmaceutical com-pany, also issues its trading update tomorrow. The company, which filed its first new American drug application last year, is poised to enter the market in 2008. This follows its tie-up with Nova-Quest, the strategic partnering group of Quintiles Transnational Corporation, as it looks to start building its own exclusive sales force on the other side of the pond.
Results/Updates: Domino's Pizza, ProStrakan, Topps Tiles, Michael Page International.
WEDNESDAY: Like many of its sector counterparts, Persimmon, the UK housebuilder, had a rough 2007. The company's shares have slumped by more than 50 per cent over the last 12 months and investors will be waiting for the company's results with their fingers firmly crossed. Analysts at Citi chose an apt subtitle when they cast the industry as a "bleak house" in a recent note. While expecting the company to perform relatively well this year, Citi believes a slowdown in demand over the next 12 months will lead to house price deflation of around 3 per cent. The bank also warned investors that if deflation is worse than expected, there may be "negative earnings surprises". Goldman's reinitiated its coverage of the sector with some caution at the end of November, and kept a "neutral" rating on the Persimmon stock. Like Citi, Goldman thinks the company has a good track record and adds that the anticipated softening of the market is already priced into the shares.
Restaurant Group, the owner of the Chiquito and Garfunkel's chains, will also update the market on Wed-nesday. This is another industry bracing itself for the predicted slowdown in economic activity. The investment bank JP Morgan, which cut its forecast for UK pub and restaurant stocks by an average of 5 per cent, expects the company to experience a slight dip in business. JP does think, however, that the company is better placed than others to bear a slowdown and expects solid growth of 10 per cent per year.
Results/Updates: Marks and Spencer, Persimmon, Rest-aurant Group, Greggs.
THURSDAY: The other interesting retail story of the week promises to be Signet Group. The company, which operates the H Samuel, Ernest Jones and Leslie Davis high street chains, will update the market on Thursday about how it has done during the past few weeks. The Goldman Sachs note mentioned above, which anoints M&S the bank's Christmas winner in the retail sector, does not bear good news for Signet investors. Goldman is quite blunt in labelling Signet its "Christmas loser". Analysts at the bank say that the company's US exposure, via its Kay Jewellers and Jared stores, and its dependence on credit-driven sales, are likely to hurt the company. Factor in Signet's pricing strategy, the intense competition and rising input costs (gold touched an all-time high last week) and it all makes for a worrying cocktail. UBS rated the stock at "neutral", while Goldmans told investors to sell.
Results/Updates: Signet, Premier Foods
FRIDAY: Persimmon's peer Bovis Homes will make its trading update at the end of the week. The company is a medium-sized housebuilder and completes around 3,000-3,250 plots annually. Citi rates the company medium risk owing to the sector-specific risks outlined above and some worries about the negative impact on margins as the company tries to keep pace with the larger players in the market. Investors are also warned about weaker-than-expected volume growth and worse-than-expected house price deflation.
Results/Updates: Bovis Homes