The Week Ahead: Commodities slide puts BHP Billiton in a hole
Monday 02 February 2009
It was a monumental week for the big miners as Rio Tinto sold assets, it admitted that it may have to turn to shareholders for extra capital, and talks emerged over a multi-billion investment by Chinalco, while Xstrata said it was to raise £4.1bn in a heavily discounted issue. This was against a background of weaker commodity prices which saw the sector drag down the FTSE 100 at the end of the week.
Another reason the stocks were under pressure was a rumour that BHP Billitonwas guiding lower on its interimnumbers on Wednesday. BHP is in a better position than Rio and Xstrata as it enjoys a lower debt burden and has outperformed both in the market. However it has still fallen 44 per cent since its peak in May, and last week announced it would cut 6,000 jobs and close a nickel mine in Australia.
Rumours of the lowered guidance didn’t help, and analysts at Citi expect earnings of 69.8 cents a share including exceptional items, down from 106.8 cents last year.
TODAY: Research Now, which provides online services to the market research industry, is reporting its full years today, and they should be ahead of market expectations. This would extend its winning run, after last year’s 55 per cent jump in revenues to £41m.
“The year has been one of significant progress financially and operationally,”
it said last week. Research Now has suffered with the rest of the market, with shares dropping from 350p to 260p in five months. And while gross profit margins were up 75 per cent in the last year, this year isn't looking so rosy, as the group admitted they would be “considerably lower” given the ongoing economic disintegration.
Results: Full year: Telecity Group; Research Now; Sthree. First quarter: Avanti Communications.
TOMORROW: Along with big mining, big oil is reporting this week in the form of BP. Investors will be looking to see the effect of the downturn and the slump in the oil price on its bottom line.
Tony Shepard, analyst at Charles Stanley, said the rule of thumb was that a $1 drop in barrel price would hit profitability by $400m on an annual basis.
“In theory, this implies that profit in the E&P division could be $20bn lower in 2009 than in 2008 if current prices are maintained for the rest of the year.” Mr Shepard was pleased by BP’s operational performance, however, and expects a quarterly dividend of 14 cents per share. Consensus suggests pre-tax profits will be £11m lower in 2009.
Results: Full year: ARM Holding; BP; Cosalt. Fourth quarter: Subsea 7.
WEDNESDAY: Edinburgh-based Wolfson Microelectronics has had a month to forget. The chip maker will be hoping for some positive results to take their minds off the £140,000 fine from the Financial Services Authority last month for failing to disclose negative news last March.
Results: Full year: Wolfson Microelectronics.
First half: BHP Billiton; Quadnetics Group.
THURSDAY: The soap-to-Peperamimaking consumer goods giant Unilever is preparing to announce its full years on Thursday. The numbers are expected to be solid, but the shares were down on Friday over fears that the new chief executive, Paul Polman, could cut forecasts for this year.
Analysts are waiting to see if consumers are trading down into cheaper brands, as well as Unilever’s performance in emerging markets, but the group should see some benefit from its cost-cutting drive.
BG Group is also publishing full years this week, and Charles Stanley said they “could be quite an exciting event”. The company is expected to go into further detail over the huge oil discovery off Brazil and its plans for the Far East. The exploration and production division should bring in a fourthquarter profit of £700m, down £60m on the previous year. Group earnings per share are at 89p.
GlaxoSmithKline has done well from the decline in sterling against the dollar and this could translate into up to 20 per cent uplift in earnings in 2009.
Analysts are expecting underlying earnings to be lower than 2007 on a constant currency basis, following competition from generic rivals to some of its brands. Investors will hope for news of some drug development, aswell as its cost-cutting strategy, said to include 6,000 job cuts.
Results: Full year: BG Group; Glaxo- SmithKline; Metro International; Unilever.
First half: Alumasc Group; McBride; NWF Group. Third quarter: Yell Group.
FRIDAY: There shouldn’t be any surprises when it comes to British Airway’s results on Friday, because the shocks were pre-announced last week, when it revealed that it faced a £150m loss because of the plunging pound.
Customer numbers had fallen, but the airline was on course for a profit until the currency fall.
Results: Third quarter: British Airways
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