The Week Ahead: Bearish analysts lie in wait for bruised Wolseley

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The market will be keen to hear from Wolseley, the construction materials group, which is due to issue a pre-close update this Wednesday. Slowing housing markets on either side of the Atlantic have bruised its share price, which has slumped by almost three quarters over the past 12 months, and analysts, worried about the strain on the company's debt-laden balance sheet, are increasingly bearish.

ABN Amro reckons it is time for a "fundamental management rethink on Wolseley's capital structure". Goldman Sachs thinks that although "Wolseley does have options to reduce debt through the sale of freehold property or cutting its dividend", the current level of financial exposure "will continue to impinge on its operational options both in the short and longer term". Both maintain a "sell" rating on the stock (Wolseley is also on Goldman's "conviction sell" list).

ABN recently said that to restore its balance sheet the company should now look to raise £1.25bn. The broker added: "Assuming a 40 per cent discount from the ... 422p share price (we have used 40 per cent based on the recent rights issue discounts in the UK banking sector) suggests a 0.75p for 1 rights issue, which would results in a theoretical ex-rights price at 350p."

today: Low & Bonar, the specialist materials group, is due to publish interim results for the six months to 31 May, and Evolution Securities is forecasting a 41 per cent increase in pre-tax profits to £10.4m and a 38 per cent hike in earnings per share to 4.7p.

The broker said: "Features will be comments on raw material prices, particularly polypropylene which is continuing to fall as additional capacity comes on stream; Mehler's [the German company acquired in December 2007] performance after a record sales month in April; and an update on the commercial segment of contract flooring, which has started to soften."

Also today, Ocean Power Technologies is due to publish results for the year to 30 April, and the renewable energy company is expected to reveal increased revenues of around $5m (£2.5m), up from $2.5m in 2007.

The company is also expected to provide a bullish update on the ocean power hub being developed with Iberdrola, the Spanish utility, in northern Spain.

Results/Updates: St Modwen Properties, Ocean Power Technologies and Low & Bonar.

TOMORROW: The luxury goods retailer Burberry is due to issue a first-quarter trading update, and according to HSBC sales are difficult to forecast, given a tough basis of comparison and a volatile environment.

"Even though the first quarter is mostly a retail (vs wholesale) quarter, and the first quarter last year saw strong same-store sales growth (+9 per cent), we forecast 10 per cent sales growth at constant [exchange rates] in the first quarter, assuming flat same-store sales," the broker said.

Looking ahead, HSBC is positive on the company and maintains an "overweight" rating on the stock with a 580p target price. Goldman Sachs, whose analysts recently downgraded the stock to "sell" with a 370p target price, is less confident, citing poor cash flow and Burberry's exposure to challenging end-consumer markets such as the UK, the US and Spain.

"We believe the company will continue to deliver poor cash generation in light of its ambitious expansion plan and transformation into a more retail-led business model, requiring greater working capital absorption," said Goldman.

Results/Updates: Trikona Trinity Capital, Premier Foods and Burberry.

WEDNESDAY: Bluebay Asset Management, the fixed income fund firm, which is due to issue a fourth-quarter update, published an unexpected profit warning in June, indicating pre-tax profits for 2008 will be broadly similar to those for 2007. Reacting to the statement, Numis securities noted that Bluebay's fiscal year "has unfortunately coincided perfectly with the start of the credit crisis in July/August 2007, which appears to have impacted performance fee generation".

As a result, the broker said, earnings remain at risk over the short term. Numis added: "Over the longer term, we believe attractive opportunities should arise for active fixed income managers such as Bluebay and re-equitisation should also benefit fixed income relative to equity."

Results/Updates: Bluebay Asset Management, Land Securities, Luminar and Wolseley.

THURSDAY: Results/Updates: Blacks Leisure and Smiths News. Others: Bradford & Bingley EGM.

FRIDAY: Electrocomponents, the distributor of electronic, electrical and industrial supplies, is due to publish an interim management statement. The company's recent results, for the year to the end of March, were above consensus forecasts, and looking ahead analysts are positive.

Goldman Sachs said in a recent note: "On our estimates, the current [share] price discounts little chance that [the company] will pay special dividends post 2009. Yet we believe it can continue to pay a total [dividend per share] of 18.4p given its underleveraged balance sheet and ongoing margin support from strategic initiatives."

Results/Updates: Anite and Electrocomponents.

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