The Week Ahead: ARM's prospects linked to sales growth at Apple
Monday 25 October 2010
Shares in the chip-maker ARM Holdings have been much in demand in recent weeks after rumours of a potential takeover resurfaced. That chat, along with a good contract win with Samsung, almost sent the Cambridge-based company's shares to an eight-year high in September.
ARM makes chips that go in smartphones and tablets, perhaps most significantly in Apple's iPhone and iPad. In fact, Apple is the company normally pencilled in as ARM's most likely buyer. The appetite for smartphones appears undiminished, and the iPad has been hugely successful, prompting the launch of a raft of rival tablet devices. Yet last week ARM's shares were adversely affected as Apple indicated that, despite its popularity, the iPad had not hit sales targets.
ARM's full-year earnings per share is expected to be twice last year's figure and investors will be keen to learn the forecasts for its crucial markets in 2011 when it announces its third-quarter numbers tomorrow.
The publisher Pearson will issue a third-quarter trading update. Mark Braley, an analyst at Deutsche Bank, said the group was the only one of its European peers "to actually give useful information" in its Q3s.
The third quarter is the key selling season in the school-books market, Mr Braley said, but this year's trends have already been well flagged. Instead, he will be looking for guidance on Pearson's "visibility" in next year's education market, given the pressure from the state funding crisis, and any sales opportunities stemming from federal stimulus measures in the US.
Other unknowns include whether Pearson will make use of its strong balance sheet, and whether there are succession plans for its chief executive, Marjorie Scardino.
Results/Updates: Aquarius Platinum; ARM Holdings; Braemar Shipping Services; Jazztel; Mitchells & Butlers; Subsea 7.
Virgin Media issues its third-quarter numbers this week and, much like its rival, British Sky Broadcasting, has benefited from the increase in high-definition television channels.
Investors will be hoping Virgin can follow the record growth it posted in the second quarter, when sales rose by 7 per cent. The market will also be looking for more news about the disposal of Virgin's 50 per cent stake in UKTV, which owns channels including Dave and Gold, as well as the take-up of its 50Mb broadband service.
Also reporting third-quarter numbers on Wednesday is British American Tobacco. Julian Hardwick, an analyst at Royal Bank of Scotland, expects a more moderate decline in organic volumes than in previous quarters. He expects that overall volumes will be supported by hoarding in Japan before a significant excise-tax increase. This is significant for BAT because it has 10.4 per cent of the Japanese cigarette market. Mr Hardwick believes the shares look fully valued but that if it delivers strong organic growth they could push higher in the short term.
Results/Updates: British American Tobacco; CSR; First Derivatives; Willis Group Holdings; Virgin Media.
Analysts at Deutsche Bank expect that AstraZeneca will struggle to match the performance of its past two quarters, when it beat consensus estimates, as it issues its latest figures. Mark Clark, of the German broker, said the third quarter was comparatively very tough and the pharmaceuticals company's earnings per share should show a marked decline.
"We do not expect AstraZeneca to raise the upper end of its full-year core earnings-per-share guidance range," he said. Some of the group's biggest drug brands face pressure from generic competition.
Mr Clark also noted that Astra also enjoyed a $152m earnings "windfall" from its H1N1 bird flu vaccine in the third quarter of 2009. There is little news expected for the rest of the year beyond the US Food and Drug Administration's long-awaited decision on Astra's experimental blood thinner, Brilinta, in December.
The specialist chemicals group Croda also has numbers out this week. Martin Evans, at JPMorgan Cazenove, believes it has found "a counter-cyclical niche through new product innovation". He reckons Croda should report continued trading strength, and he forecasts third-quarter sales of £252m, up from £213m a year ago. Brokers at Liberum have recently touted Croda as a takeover target.
Results/Updates: Ashmore Group; AstraZeneca; Croda International; Go Ahead Group; Mouchel Group; Premier Foods; Rugby Estates; William Hill.
British Airways is set to report its second-quarter results. Deutsche Bank forecasts operating profits of £282m compared with an operating loss of £72m in the first quarter, when the UK's flag-carrier airline was hit by the effects of Iceland's volcanic ash cloud and strike action by BA cabin crew.
Results/Updates: British Airways; F&C Asset Management; Sabien Technology Group; Shire Pharmaceuticals; WPP Group.
Today: British Bankers' Association mortgage approvals for September; Confederation of British Industry conference; speech by Mervyn King.
Tomorrow: UK Q3 gross domestic product.
Thursday: Confederation of British Industry distributive trades survey.
Friday: UK mortgage approvals for September.
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