Et tu, Brute? Last week, the market was by turns amused and bemused as Merrill Lynch, Sports Direct's house broker, turned on the company.
Merrill's dagger a sharp, scathing 14-page note sliced profit expectations, cutting them by 30 per cent for this year and the next, and drew blood from the management, demanding "a better articulated strategic vision rather than the desire to be the 'most profitable sports retailer in the world'". It also pricked investors' hopes urging them to sell, as "fundamental issues of quality, visibility and sustainability remain unaddressed".
We can look forward to the company's first-quarter earnings report on Wednesday, at the Merrill Lynch Financial Centre in London (or, as this column will refer to it, Pompey's theatre).
To be fair, we had a profits warning from the company in November. Sports Direct said that this year's results are likely to disappoint owing to England's failure to qualify for the 2008 European football championships. Most analysts agree, and go further: wider economic woes have made many people suspicious about the state of the trading in the company's core business. Citi, for example, cut its April 2008 EBITDA forecast by 23 per cent, bringing down its full-year pre-tax profit estimate to 92m. Their numbers assume a 15 per cent decline in like-for-like sales. Sports Direct stock has more than halved from 281p at its debut in February to 95.5p when the market closed on Friday. Wednesday's showing is likely to be a tragedy.
Today: Investors in Informa, the specialist information provider, will look for more good news in its trading update. The company has seen no signs of a slowdown in client spending. Online publishing is reported to be doing well, with subscription renewal rates averaging at 90 per cent. Advertising contributes to only 3 per cent of sales, so the company is well insulated from cyclicality in the sector. The company also produces events, where attendance has been steady; the top 200 bring in around 40 per cent of revenue and 70 per cent of profit. Analysts across the board urge investors to buy. Bear Sterns estimates profit before tax of 233m in 2007, rising to 241m in 2008.
The oil and gas giant BP is also due to put out a trading update today. Evolution moved the stock from "add" to "buy", setting a target share price of 700p, after the chief executive Tony Hayward's strategy announcement in October. A recovery in the price of crude oil at the tail end of last week helped to push the stock up by 9.5p to 617.5p at close on Friday. Analysts do not expect any surprises.
Results: Trading updates Informa and BP.
Tomorrow: Analysts at KBC Peel Hunt expect Regus's trading update to show more positives than negatives. KBC estimates 2007 pre-tax profit tocome in at 119m, rising to 190m in 2008. Themanaged office and business support services group has done spectacularly well since 2003, when the shares were trading at around 5p. The long-term outlook at the company remains strong as it expands into emerging markets where growth should offset any slowdown in the US operations. An uncertain economy makes temporaryoffice space, a Regus speciality, attractive and should help the company to maintain an even keel in rough economic conditions.
Consensus forecasts peg National Express Group's pre-tax profit between 165m and 167m, with around 80p worth of earnings per share. The company's pre close update should elaborate on the November announcement that trading was in line with expectations. The Continental Auto acquisition appears to be doing well the update should shed some light on the business which came into the group only a few months ago.
Results: Trading updates Drax, National Express, Petrofac, Cookson and Regus.
Wednesday: Results: Sports Direct first-quarter earnings.
Thursday: Europe remains the growth driver for Carnival, the cruise operator which is due to release its fourth-quarter results. The company, which has been hit by problems in the Caribbean, where the Cozumel pier is still being rebuilt, and New Orleans, where post-Katrina recovery work continues, will debut two new 110,000-ton ships in the 2009 European season of its Fun Ship voyages. The Carnival Liberty will operate 12-day northern European and Mediterranean cruises, while the Carnival Freedom will sail to the Mediterranean. The deployment of a larger ship to China and some indications about Singapore as a destination port are also encouraging. The results will be scrutinised for detail on fuel surcharges, where Evolution expects the company to be cautious. The fourth quarter contributes around 15 per cent to the company's earnings and is usually difficult. A good third quarter led Evolution to revise its full-year estimates, and it expects pre-tax profit to grow by 6 per cent in 2007 and by more than 14 per cent in 2008.
Results: Fourth-quarter Carnival. Trading updates Bodycote, Forth Ports, Keller.Reuse content