Company results and bets on the next rates move continue to dominate
STOCK MARKET WEEK
Monday 25 March 1996
Blue chips, partly on political uncertainties, have lost much of their exuberance during the current results season but there is no doubt that the deluge of figures has generally been at the upper end of expectations.
The underlying firmness of the market and its satisfaction with the run of results is reflected in the performance of second-line shares, the 250 equities frisking in the shadow of the 100 blue chips.
Whereas the blue chip index, the FT-SE 100, is some distance from its peak the supporting index has been persistently hitting new highs.
There must be a possibility that as Thursday approaches speculation could mount about a German interest rate cut. And should the Germans, as some suspect, nudge rates lower the market will see pressure developing on the UK authorities for a further reduction.
Corporate activity and share buy-backs are two other big influences on the market. Since the pounds 3.9bn fast and furious battle between Granada and Forte there has, to the surprise of most observers, been little takeover activity. Trafalgar House has fallen for pounds 900m to Kvaerner, the Norwegian group, and South West Water has attracted the attention, but as yet no bids, of Severn Trent and Wessex Water.
Still in the market, as far as bids are concerned, hope springs eternal. Ladbroke Group remains the punters' favourite, with Cable & Wireless and an array of electric and water utilities not far behind.
Share buy backs - an admission that a company is short of ideas on how to spend its cash - are a regular feature of market life. Guinness, the brewing and distilling giant, demonstrated the habit was alive and well on Friday when it splashed out pounds 463m on 100 million shares.
Among the more intriguing results due this week are Inchcape and Kingfisher. Inchcape, largely because of the strength of the Japanese yen and the problems of the car industry, has had a depressing time. Its shares, 262p on Friday, were 623p three years ago. Profits were pounds 271.4m in 1993. Today the new chairman, Sir Colin Marshall, is expected to show profits of pounds 140m which could be hit by exceptional items.
It is possible Sir Colin will also suffer the indignity of presiding over a dividend cut.
NatWest Securities, the investment house, believes if the dividend is to be lowered it should be sooner rather than later. "A cut is more palatable if Inchcape can outline what it intends to do with the cash saved," it says.
Kingfisher, reporting on Wednesday, is expected to demonstrate that Sir Geoff Mulcahy, chief executive, has delivered his promise to avoid the disastrous mistakes of 1994 when Kingfisher had the dubious distinction of being the worst-performing blue chip. Profits will not be devoid of growth this year; pounds 275m against pounds 244.2m is likely.
Do-it-yourself is Kingfisher's big problem. Like others in this once booming corner of the retail market it has found the going exceedingly tough with profits under intense pressure. It is possible Sir Geoff will use the occasion of the group's results to announce some sweeping changes at B&Q, its DIY off-shoot.
Next, another entry for Thursday, should, by contrast, produce another set of splendid figures, say a 20 per cent gain to pounds 123m.
The market expects P&O, reporting tomorrow, to accompany what will be uninspiring figures with details of disposals. Perhaps Bovis, the group's building off-shoot, will be sold.
P&O's cross-channel ferries are clearly feeling the pinch and its container business is under pressure. But cruising is one area where P&O should be prospering. Profits are likely to come in at around pounds 305m against pounds 341.4m.
Barratt Developments on Wednesday should show that housebuilders can still lift profits, even when their market is deeply depressed. Sir Lawrie Barratt, chairman, could produce year's profits of pounds 17.7m against pounds 16.1m.
Taylor Woodrow tomorrow will also push profits ahead, perhaps producing pounds 48.5m against pounds 42.8m. But a sharp profits fall is signalled at Caradon, the building products and security printing group, and pounds 155m is possible against pounds 201.2m when it reports on Wednesday.
Wm Morrison, the supermarket chain with a profit date on Thursday, has attracted sell advice from NatWest and Greig Middleton. NatWest expects profits of pounds 125.3m against pounds 116.1m, Greig pounds 126.4m.
Alexon, the clothing group, should swing back into the black today with profits of pounds 2m; perhaps pounds 4m is in sight this year.
Queens Moat Houses, the hotel group that was almost overwhelmed by debts, should provide further evidence of recovery on Thursday. Although it is expected to make another loss, it will be about pounds 4.5m against pounds 64.1m last time. The hotel industry has so far managed to shrug off the impact of IRA bombing and continue its recovery from the recession that devastated so many companies a few years ago. There are hopes QMH should be in profit this year.
Shares of the group, valued at pounds 80m against nearly pounds 1bn at its peak, have been firm on hopes of a trading recovery and corporate action with the reclusive Barclay brothers mentioned as possible predators.
Manchester United, one of five quoted football clubs, kicks in with figures tomorrow. But the market could be more interested in the football club's television ambitions. Profits could surge to nearly pounds 19m, against the pounds 10.8m produced last time.
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