The Week Ahead: Advertising agencies' rosy forecasts wither

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The Independent Online

Earnings forecasts are at risk when the advertising group WPP publishes its third-quarter trading statement on Thursday, according to analysts at Collins Stewart.

"We are highly concerned that the market is about to be surprised by the scale of downgrades likely to hit agency stocks' earnings forecasts," the broker said in a recent "sell" note on the company, adding that its industry contacts have indicated that at WPP, "trading over the last weeks has take a sharp turn down".

Rival Omnicom, which issued an update last week, said clients in the automotive and retail sectors had begun to cut spending.

"Other brokers' are still forecasting a relatively healthy outlook, but our understanding is that agencies are seeing a sudden drop in business, a condition we expect to continue as major recession risk rises," the broker added, saying that upcoming updates from Publicis, Interpublic and WPP may prompt a revision of "rosy forecasts".

Today: Wolfson Microelectronics releases results for what has been a turbulent third quarter for the company's stock, which is down by more than 35 per cent this month. Panmure Gordon, which reckons that the company has the potential to return to growth, said investors were taking an "I'll believe it when I see it" attitude. "In the event investor sentiment to Wolfson cannot be reversed, it is most likely the company will be sold," the broker said.

Results/updates: McBride, Reckitt Benckiser, Wolfson Microelectronics.

Tomorrow: Despite the recent share price weakness, analysts are optimistic ahead of tomorrow's interim management statement from the transport group Arriva. Panmure Gordon foresees a growth in passenger volume at its UK bus operations, which make up about half the group's profits, driven by high fuel prices, increasing congestion and mounting environmental awareness.

Panmure also pointed out that the company's UK rail division constitutes 15 per cent of group profits, and its two regional rail franchises are secured until 2016 and 2018 respectively, meaning they have no exposure to London commuter franchises.

The broker added: "The Mainland Europe division [which makes up about 35 per cent of group profits] is also defensive as Arriva does not take passenger revenue risk on the majority of its revenues."

Results/updates: ARM Holdings, BP, Aviva, Carpetright, ITV, Arriva.

Wednesday: When CSR released results for the second quarter it said that projected revenue for the next three months would fall between $190m and $220m. Panmure expects quarterly revenue to hit the mid-point of this range when the company updates the market this week, signifying a year-on-year decline of 14 per cent, driven by a market share loss at Nokia. Previews suggest that CSR stock is undervalued and that the company is in a good position to return to growth next year. However guidance for the fourth quarter is expected to be cautious owing to uncertainty about global demand for mobile handsets and headsets.

Results/updates: Cairn Energy, Shire, CSR.

Thursday: After a record-breaking second quarter at Royal Dutch Shell, Deutsche Bank expects exploration and production net income to have fallen by 25 per cent when results for the third quarter are released this week. Hurricanes in the Gulf of Mexico and attacks on oil pipelines in Nigeria have impacted exploration and production, and Deutsche expects quarterly production to have fallen below 30 million barrels per day for the first time in a decade.

Also on Thursday, AstraZeneca is due to report third-quarter earnings. Deutsche anticipates a 6 per cent hike in reported sales, to $7.55bn, with $2.18bn in earnings before interest and tax. Earnings per share are expected to grow by 9 per cent to $1.13.

Results/updates: Tomkins, Standard Life, Luminar, Unilever, British American Tobacco, AstraZeneca, Royal Dutch Shell, WPP.

Friday: Results/updates: British Sky Broadcasting, Friends Provident, Meggitt.