The Week Ahead: Cautious optimism for tour operators' updates
Monday 09 August 2010
Demand for holidays will be in focus when tour operators Thomas Cook and TUI Travel publish updates this week.
Worries about the strength of consumer demand has held back the shares, with both TUI, which is due to post its interim management statement and third-quarter figures tomorrow, and Thomas Cook, which is due to follow with its update on Wednesday, underperforming the FTSE All-Share Index over the year to date.
Additionally, the disruption caused by the Icelandic volcanic ash cloud highlighted what JP Morgan Cazenove termed the "exposure these companies have to exceptional events, and consequently their low earnings visibility".
That said, the broker expressed some cautious optimism about the medium-term outlook, noting that while consumer demand was falling in Britain and remained flat in Europe, employment trends were likely to "remain robust". This suggests families are likely to stick with their holiday plans, driving demand for Thomas Cook and TUI.
Turning to this week's figures, investors are likely to be greeted with news of softness in May and June. "We expect May and June bookings to have been weaker than initially expected due to the seasonably warmer than usual weather and the distractions of the world cup," JP Morgan said in a preview published last week. "However, the past four weeks should have been stronger owing to re-bookings from the failed Goldtrail operator and the more mixed weather."
Citigroup is also cautious about the May and June performance, pointing to industry data which showed that UK tour operator volumes "continued to be weak" in both months. Though encouraged by pricing trends, Citi said that while it was optimistic volumes would bounce back in July and August, it had become "increasingly concerned about signs of greater discounting, which may help deliver good volumes but could come at the cost of lower margins".
"The real focus will be on the outlook for the rest of the summer season and we expect both companies to be cautious," the broker added.
Also today, the construction company Morgan Sindall is due to issue its half-year results. Ahead of the update, Numis flagged up the likelihood of a flat year-on-year performance.
The broker expects improvements in trading to be offset by the costs of integrating the company's construction and infrastructure services arms.
Panmure Gordon said that, following the recent problems at the social housing repairs group Connaught, any comments about affordable housing trends and opportunities were likely to be talking points this morning.
Morgan Sindall's house broker, Royal Bank of Scotland, had similar expectations, anticipating the focus to be on risks attached to affordable housing.
Results/Updates: Hill & Smith and Morgan Sindall.
Shore Capital anticipates news of "relatively subdued" trading when Greggs the baker issues its half-year numbers. Beyond the headline figures, Greggs has embarked on a five-year efficiency and expansion drive and, though the programme is still in its early stages, the broker is looking forward to an update on the progress so far.
Also tomorrow, the hospitality group InterContinental Hotels is due to post interim figures. Citigroup is looking forward to a positive update, citing recent industry data which showed improvements in revenues per available room (revpar) around the world.
"We expect an optimistic tone... with management referring to strong occupancy trends, stabilising of mid-scale pricing and improved visibility for group bookings," the broker said last week, upgrading its forecasts in advance of the update.
Results/Updates: Greggs, InterContinental Hotel, International Power, Interserve, Mondi and TUI Travel.
The software specialist Micro Focus International's first-quarter interim management statement may reveal in-line trading, says Panmure Gordon.
The quarter is likely to have unfolded in step with management's hopes, said Panmure, and its analysts also expect the company to express confidence in the outlook for the rest of the year. "The chief executive officer, Nigel Clifford, is likely to reiterate guidance stating that in the short-term Micro Focus expects to deliver mid-single-digit organic revenue growth, with the ambition of returning to double-digit growth over the medium term, while maintaining adjusted earnings before interest, tax, depreciation and amortisation margins at about 40 per cent," Panmure said in a preview.
Results/Updates: Balfour Beatty, Standard Life, Micro Focus International and Thomas Cook.
Results/Updates: Prudential, Holidaybreak, Greencore and Lincat.
Regional PMIs; Bank of England narrow money report.
British Retail Consortium-KPMG retail sales; Royal Institution of Chartered Surveyors' housing market survey; Department of Communities and Local Government house price index.
Council of Mortgage Lenders regulated mortgage survey; Office for National Statistics monthly unemployment figures; Bank of England inflation report.
Mortgage and landlord possession statistics.
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