The Week Ahead: Wobbly trolleys at Morrisons as it struggles to stem losses

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The Independent Online

Few in the market have any real confidence in the profit forecasts for Sir Ken Morrison's troubled firm. "It's not going to be very good," one analyst said. "Realistically, the result could be anything from minus £50m to plus £100m before tax." Lehman Bros "tentatively" forecast a £33m pre-tax loss as "a result of seasonality", while Citigroup is looking for a £25m profit (pre-tax).

Investors will focus on Morrison's trading result. Citigroup analysts think that sales for the latest 10 weeks will remain negative at minus 2 per cent to minus 2.5 per cent on a like-for-like basis. The market is hoping that, with only around 30 former Safeway stores left to convert, management will report higher sales from the new outlets.

Morrisons is also expected to reveal the findings of a KPMG investigation that was set in train after the supermarket chain lost control of its finances during the Safeway integration. A new finance director, Richard Pennycook from motoring group RAC, is due to start this month.

In June, Morrisons slashed full-year profit guidance from £275m to between £50m to £150m. The group is suffering from a severe bout of Safeway-induced indigestion and increased competition from Tesco and J Sainsbury. Since the 2004 purchase, Morrisons has announced a series of profit warnings, faced strike action over job cuts, suffered distracting management and board-level disruption and lost customers. This has buffeted the reputation of the once revered company.

In contrast, the premium beverage manufacturer Diageo is likely to provide a generally positive trading update at its AGM this week. The main strength is expected to be good momentum in the US spirits sector, where the group is the market leader. Analysts are expecting 6 per cent-plus sales growth on the quarter for the US.

In a sector awash with commodity upgrades, Rio Tinto will post its third-quarter production figures this week. Few surprises are expected, with the resources giant having recently hosted an exploration update. But everyone is really looking forward to London Metals Exchange (LME) Week. Starting on 1 November, this annual shindig for producers, traders and consumers can move markets - especially in times of frothy pricing. Last year saw a metals sector sell-off after the event.

After a hiatus, market attention shifts to the technology sector this week with Sage, the maker of accounting software, providing a trading update. At issue is whether the recent launch of Microsoft's new entry-level accounting package has had any impact on Sage's sales figures. Negative sentiment has seen Sage's share price slump 9 per cent since hitting a 238p high in mid-September.

But, analysts remain sceptical about Microsoft's ability to snatch market share in the smaller, support-focused end of the market. Jonathan Crozier, an analyst at WestLB, expects an upbeat trading statement from the firm. Market consensus for the full year pre-tax result is sitting at around £205m.

The City is also watching this week's trading update from music giant EMI with interest, given concerns about a nascent slowdown in the US music market. The worry with EMI is the outlook statement for this quarter's trading and the release lineup for the Christmas period.

Out this week will be September lending data from the British Bankers' Association and the Council of Mortgage Lenders. Mortgage figures are likely to be solid, reflecting the effects of the base rate cut. But it won't pay to get too carried away - the medium-term credit growth outlook is still in decline.

While discretionary spend is falling, it appears that consumers may just be squirrelling away money for the future. Recent figures from the Association of British Insurers show solid growth in products such as unit trusts, pensions and life insurance. Financial services firm St James Group releases its sales update this week, and is likely to benefit from this trend.

Good things are expected from support services firm Mouchel Parkman in its full-year results. Michael Parkinson, an analyst with Brewin Dolphin Securities, is forecasting a pre-tax profit of £23.5m. While Mouchel Parkman remains strong in the transport sector, the City is looking for a steady deal pipeline in local authority outsourcing contracts.

A stock tied to the vagaries of consumer confidence and the housing market is housebuilder Bellway. Nevertheless analysts are confident that the group will post pre-tax profits of around £218m.


Tomorrow 17

UK RESULTS: (interim) Bizspace, Harvey Nash Group, MSB International, Superscape Group

Tuesday 18

UK RESULTS: (final) Accuma Group, Bellway, Mouchel Parkman; (I) LiDCO Group, Thomson Intermedia; (3Q) ARM Holdings

Wednesday 19

UK RESULTS: (I) Wm Morrison, Che Group

Thursday 20

UK RESULTS: (F) Freeport

Friday 21

UK RESULTS: (I) London & Associated Properties