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London braced for earnings shocks

STOCK MARKETS - THE WEEK IN VIEW

Martin Cej
Sunday 16 March 1997 00:02 GMT
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UK stocks will have to struggle for significant gains this week as investors are braced for what could be poor earnings from at least two big corporate names.

Among the companies reporting this week is Argos, the retailer whose shares have performed so poorly this year that they were removed from the FT-SE 100 index last week.

Argos shares have tumbled more than 17.5 per cent this year, hurt by the retailer's warning that 1996 earnings won't meet expectations due to poor Christmas sales. The company said it won't even match the most conservative estimate of pounds 140m.

Other companies reporting this week include Guinness, House of Fraser, Kingfisher, Vickers, Rexam, Wolseley and Pearson - the first report from the media company since chief executive Marjorie Scardino took over. Pearson has warned that it may take a pounds 100m charge against earnings for "improper accounting" at its Penguin USA publishing subsidiary.

Other stocks to watch this week include British builders, which are expected to continue benefiting from the recovery in the housing market. The FT- SE Building and Construction Index of Britain's 13 largest builders is up more than 11 per cent so far this year, eclipsing the FT-SE's gain of 8 per cent. Companies such as Persimmon, Berkeley Group and Taylor Woodrow are already up more than 23 per cent.

The reason? People are not only buying homes, they are also paying higher prices.That, say analysts and investors, will help maintain profit growth even if official interest rates - and mortgages - go up after the election.

European financial shares also bear close watching. In a pattern repeated from Milan to Helsinki, bid speculation, rosy earnings, low interest rates and signs of economic recovery have made shares like Lloyds TSB Group, Credito Italiano, Banco Santander, Kredietbank and Merita top performers on their respective indexes in 1997.

Also contributing has been the approach of European monetary union, which will increase competition as it opens up markets. The resulting consolidation in the financial services industry should boost earnings and share prices.

Of course, the recent rally in world stock and bond markets hasn't hurt shares either, particularly in Italy where the top gainers this year have been banks like Istituto Bancario San Paolo di Torino and Mediobanca, which have reduced their reliance on traditional bank lending and increased investment activity.

MARTIN CEJ Copyright: IOS & Bloomberg

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