Week Ahead: Water companies count the cost of leaky pipes
Monday 23 May 2011
Investors' attention switches to the water utilities this week, with a number of groups in the sector releasing their full-year figures amid fears the severe weather experienced over the winter will result in fines being imposed for missed leakage targets.
Morgan Stanley notes all three of the companies reporting over the week have already warned about the cold December, which prompted an increase in the number of burst pipes, but the broker says that while they could be financially penalised, "we would expect Ofwat to act for persistent missed targets, not a one-off due to exceptional weather conditions."
Pennon kicks off the season with its preliminary results on Tuesday, and although Investec's Angelos Anastasiou predicts its profits-before-tax will come in at £181.4m – a slight fall from the previous 12 months – the analyst notes the company "has a tendency of surprising on the upside when results are actually announced."
Royal Bank of Scotland's Iain Turner, meanwhile, expects similar figures, but points out upcoming tariff rises of more than 8 per cent will drive growth over the current financial year "despite some cost pressures and further switching to water meters".
United Utilities announces its final figures two days later, the group's first under both its chief executive Steve Mogford and its chief financial officer Russ Houlden. It is also the first year of the five-year price control that has resulted in a base price cut of 4 per cent, and Mr Anastasiou therefore predicts its pre-tax profit to drop by a third to £322.6m.
Also expected to have seen a fall in profits thanks to the new price review is Severn Trent, although Mr Turner only predicts the company's numbers – out on Friday – will have declined by 10 per cent.
The week starts with Mitie releasing its preliminary results, and the support services company is expected by Peel Hunt to confirm its guidance in January when it said it was on line to meet the market's expectations. At its update, the group said it was being knocked by the cold conditions over the winter, and the broker is eager to find out how this has affected its projects during the rest of the financial year.
Results and updates: British Land, Mitie and Stobart.
Paragon updates the market with its interim results on Tuesday after a strong month that has seen the mortgage provider's share price rise nearly 12 per cent, and Collins Stewart's Robin Savage expects the positive sentiment around the group to continue. Forecasting its profits-before-tax to have risen by 16 per cent year-on-year, Mr Savage notes he is more bullish than the general consensus, which the analyst says does "not reflect the falling arrears, the substantial balance sheet bad debts provisions or the returns being generated from recent investments."
Also releasing numbers is Homeserve, and Charles Stanley warnsinvestors to carefully watch the repair group's margins. The broker's analyst Andy Smith highlights the fact they dropped at the company's interimresults, although he points out that management has "downplayed the threat from new entrants who they believe have no material impact on the market dynamics."
Results/Updates: Cable & Wireless Worldwide, De La Rue, Great Portland Estates, Homeserve, Marks & Spencer, Paragon, Pennon andVictrex.
Results/Updates: Aveva, Brewin Dolphin, BTG and Cable & Wireless Communications.
Last month, Burberry revealed its underlying revenues had grown by 30 per cent over the second six months of the year, the latest piece of good news in what has been an impressive run for the upmarket retailer and the luxury sector in general.
The group reveals its final results on Thursday, and Numis Securities' Andrew Wade – taking into account April's update – is forecasting its pre-tax profit to just edge above £300m, while predicting further outperformance to come.
Results/Updates: Antofagasta, Burberry, Daily Mail and General Trust, London & Stamford Property, Man Group, QinetiQ and UnitedUtilities.
Britvic releases its first-half results on Friday, and Citigroup expects the owner of Tango and Robinsons to have seen strong growth in its gross sales over the second-quarter. However, the broker notes its margins will be under pressure from cost inflation and that recent cost saving initiatives will provide a bigger benefit in the next six months.
Results/Updates: Electrocomponents, Severn Trent and Tate & Lyle.
BBA mortgage approvals; US Chicago Fed national activity index.
CBI sales data; EU industrial new orders; Public sector net borrowing; US new home sales.
Business investment data; GDPrevision; US crude oil inventories; US durable goods orders.
US preliminary GDP; US unemployment claims.
GfK consumer confidence survey; US pending home sales; US personal spending.
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