The Week Ahead: Debt worries leave Yell with little to shout about
Monday 21 July 2008
The market will be keen to hear from Yell, the directories group which is due to publish first-quarter results on Thursday.
The company's shares have slumped by more than 84 per cent over the last year, owing to growing concern about the levels of debt on its balance sheet and about deteriorating revenues. UBS, whose analysts reduced their target price for the stock from 135p to 65p last week, said that the share price will remain volatile over the coming months, and moves of +/- 10 per cent "are likely to be a daily occurrence".
Against this background, while the company is likely to meet its quarterly guidance of zero per cent organic growth this week, the broker expects the focus to be on the group's outlook. "... We believe Yell may struggle to meet debt repayments from next year onwards," said UBS. "Equity upside therefore hinges on revenues, but with a deteriorating economic outlook and advertising downgrades in the US, UK and Spain accelerating, we believe the risk to earnings remains on the downside."
TODAY: The Cambridge-based software company Autonomy is due to publish results for both the second quarter and the six months to the end of June. The headline numbers were flagged in a trading statement two weeks ago, which indicated that both revenue and earnings per share would come in significantly ahead of consensus. According to the latest guidance, revenues are expected to be between $122m (£61m) and $125m, with between 15.3 cents and 16.23 cents in adjusted earnings per share.
"The results will not include any significant contribution from the recently secured large financial services contracts," said Seymour Pierce in a recent preview note. "However, given the large deals announced in recent weeks, and the ongoing strength of demand across all areas of the business, we would be surprised if the company did not take this opportunity to [upwardly revise its guidance for 2008], if only modestly."
Results/Updates: Domino's Pizza UK & Ireland, SThree, UBC Media, Autonomy Corporation.
TOMORROW: Vodafone will publish a quarterly interim management statement tomorrow, which "should be OK", according to Cazenove. "We expect overall organic revenue growth to be comparable to [the fourth quarter], supported by an increasing contribution from emerging markets," the broker said. "However, underlying growth rates in both Europe and EMAPA [Eastern Europe, Middle East, Africa, Asian Pacific and affiliates] are likely to have fallen, reflecting economic weakness in both Spain and the UK, together with a challenging Turkish market."
Results/Updates: SCI Entertainment, Severn Trent, Vodafone.
WEDNESDAY: Tate & Lyle is due to issue a first-quarter update and Citigroup expects trading to be in-line with management expectations.
"TALFIIA [the Americas food and industrial ingredients division], helped in no small part by unprecedented corn by-product prices, will likely continue to offset weak performance in sugars and in TALFIIE [the European food and industrial ingredients division]," said the broker.
Results/Updates: GlaxoSmithKline, Galiform, Halfords, Daily Mail & General Trust,Tate & Lyle.
THURSDAY: The FTSE 100-listed outsourcing group Capita is due to publish interim results later this week. Evolution Sec-urities forecasts 12 per cent growth in pre-tax profits to £116.5m, a 14 per cent rise in earnings per share to 13.5p and an interim dividend of 4.8p.
The broker said that while the results will show growth, "it is new contracts, rather than acquisitions and share buy-backs, which are required to sustain" the share price.
"As always, it is contract wins that drive the share price," Evolution said. "On the positive side, the group has won longer-term contracts, but on the negative side, the average annual revenue is low (3.4 per cent) as a percentage of the total group revenue. Given, for instance, the £60m London congestion charge revenue which drops out next year, contract wins are important."
Results/Updates: BG, Rolls Royce, Misys, Kingfisher, Imperial Tobacco, Yell, Capita.
FRIDAY: The drinks maker Britvic will publish a third-quarter trading statement at the end of the week and Citigroup expects news of continuing weakness in the on-trade business – where drinks are sold in a pub or a bar. The off-trade business – drinks sold in shops – is expected to be stronger, however.
Cazenove said that while the on-trade will have been a headwind to recent trading, "given a reassuring start to the quarter and the benign weather of the last three months", Britvic should show evidence of "resilient performance".
"We also feel it is likely there will be updates to the synergy targets for the Irish acquisition [Britvic acquired the soft drinks business of C&C group in 2007]," said the broker. "We do not feel that the current target of €14m (£11m) is at all taxing and expect it to be upgraded in due course, possibly at the investor seminar on 10 September."
Results/Updates: Beazley, Mitchells & Butlers, United Utilities, Britvic.
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