Cuts pay off for BT as broadband pressures rise
Monday 31 January 2011
BT Group will hope to put out a strong response to moves by rivals to muscle in on its territory when it reports third-quarter numbers this week.
Last week, Sky announced the fastest growth in take-up of broadband in 10 quarters, and bought Wi-Fi rival The Cloud. O2 also announced it will start rolling out a Wi-Fi hotspots network. Deutsche Bank analyst Robert Grindle is worried the competitive environment could become tougher for BT. Tesco has moved into broadband, while Virgin Media could be more vocal after refinancing its debt, the analyst said. There could be challenges to its internet-TV partnership YouView, and the government's austerity plan could also prove a drag on BT's business.
Yet investors might see dividends rise following "aggressive cost-cutting," Mr Grindle said. The analyst expects BT to report that top-line growth has fallen by 3.5 per cent in the third quarter, but earnings should rise by 4.7 per cent.
despite losses as a result of the snow disruption and ATC strikes, analysts expect Ryanair to report a "broadly flat" net profit but a 21 per cent revenue increase to €739m (£634m).
Deutsche Bank believes the consensus of €378m net profit for the full year to March 2011 is possible given the company's modest plans for capacity growth and the fact that fuel is 90 per cent hedged to September. Analyst Geoff van Klaveren notes the reason for rival easyJet's weakness in the January-to-March yield outlook is "the airline will grow capacity by around 15 per cent in the same period", compared with Ryanair's 5 per cent.
Results/Updates: Air Partner; Sthree; Allocate Software; Ryanair
the semiconductor group ARM Holdings, the UK company whose chips appear in smartphones and tablets including the iPhone and iPad, has enjoyed a good start to 2011. Its shares enjoyed support on news that Microsoft's operating system will be able to run ARM's chips and Goldman Sachs calls the stock a "buy". In its results on Wednesday, Citi analysts expect ARM to report dollar revenues of $164.2m (£104m), based on stronger pound-to-dollar forecasts.
Another British FTSE 100 technology company reports today. Analysts expect Autonomy to post revenues of $867.6m, marking a 17 per cent year-on-year growth. The consensus analyst forecast for revenues is $959m for 2011. UBS analysts said that "investors are clearly currently riding the improving growth momentum at SAP" and recognise the potential for the software giant to re-accelerate, particularly if activities at its marketing branch, Promote, take off.
Results/Updates: BP; Autonomy Corporation; Arm Holdings; NWF Group; Ocado Group
Results/Updates: Maxima Holdings
deutsche bank analysts expect GlaxoSmithKline "to announce a pre-exceptional loss for the quarter" on Thursday. This follows a £2.2bn legal charge relating to US promotional practices and product liability claims on the diabetes drug Avandia.
In addition, the pharma analysts foresee "a grim-looking picture" as a result of the unusually strong comparitive quarter a year earlier when GSK's sales were boosted in excess of £1bn during the pandemic flu scare.
There are also tough comparisons on other drugs, such as the "flagship asthma drug" Advair, prescriptions of which have noticeably declined in the US following tougher label restrictions there. Deutsche Bankforecasts assume that group sales will fall by 12 per cent in the fourth quarter of 2010 to £28.4bn.
Last week, as development on a new insomnia drug was halted over safety concerns and the prostate-cancer drug Avodart approval was held up by the US Food and Drug Administration, Deutsche Bank's Mark Clark identified new drugs and regulatory developments as "key catalysts" for the group's shares, specifically the anticipated approval of Benlysta, the Lupus drug, and asthma drug Advair.
Vodafone also has results this week. It landed Gamma Telecom, the UK's fourth-largest fixed-line telecom network, from rival 3 last week, and with it tens of thousands of customers. Deutsche Bank's Mr Grindle expects Vodafone will be "exposed to some of the bad and a number of the good themes" anticipated for the telecoms industry in the year ahead. Increased regulation in Europe twinned with lower demand remain the primary concerns for investors, and, as Grindle notes: "Vodafone's size and liquidity also see the company more exposed to any sector rotation in favour of financial stocks should 'credit-crunch' concerns subside further." Analysts expect 0.7 per cent organic service-revenue growth, and forecast total European revenue growth to be flat. Voda will be boosted by higher equipment sales in the quarter due chiefly to pre-pay smartphone sales, Deutshe added. Indeed, investors will look to the addition of new smartphones in the market to bolster growth.
Results/Updates: BT Group; Unilever; GlaxoSmithKline; Metro International; Tui Travel; Vodafone
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