The Week Ahead: Highest profits for years expected from Centrica
Monday 21 February 2011
With expectations high for its preliminary results on Thursday, analysts are warning that a strong performance from Centrica could lead it to face criticism.
The owner of British Gas will have benefited from the increased demand brought on by the cold weather at the end of last year, and Citigroup's Peter Atherton expects the group to announce its highest profits since 2007. However, he notes that with "rising prices, two cold winters in a row, and squeezed household incomes, the media are unlikely to let Centrica enjoy record profits without criticism".
In terms of its upstream business, Royal Bank of Scotland's Iain Turner says the acquisition of Venture in 2009 means that "gas and oil should see better volumes" and expects a good year for storage "thanks to better pricing".
Meanwhile, analysts from JP Morgan Cazenove note that Centrica's share price has underperformed ever since Ofgem revealed it was reviewing the UK supply market last November, seeming to create "a catch-22 in some investors' minds [where] the better Centrica's financial performance, the greater likelihood of political intervention".
With the outcome of the review expected next March, the broker feels a Competition Commission referral is unlikely, and says there is more chance of "restrictions on doorstep selling, increased reporting transparency and clearer bills".
Devro calls itself a producer of "manufactured casings for the food industry" – which, for the uninitiated, includes products such as sausage skins – and today it releases its full-year results. Panmure Gordon's analysts are predicting the group to reveal an increase in earnings of 10 per cent with its profit-before-tax shooting up by almost 50 per cent.
"We believe Devro remains well positioned to deliver growth from conversions and expansion into new markets," they add, "and we expect the ongoing investment in capacity and efficiency to underpin steady operating profit-margin expansion."
Results/Updates: Devro, International Ferro Metals, Lancashire Holdings and Mondi.
The media group Informa reveals its preliminary results on Tuesday following a strong run from its share price. As a result, says Investec's Gareth Davies, "there is scope for profit taking", but he advises investors to take the opportunity if any weakness occurs.
Mr Davies believes there will be "no material change in trading trends" since its last update, and adds its "outlook will be crucial, in particular comments around recovery starting to be seen in training and conference revenues".
Results/Updates: Croda, Drax and Informa.
With the completion of its acquisition of BSS in December, Numis's Howard Seymour says Travis Perkins – whose final results are out on Wednesday – will not be giving "anything other than initial findings on [the unit] and its potential", though he does expect some detail on how it will be integrated.
Meanwhile, with a strong performance in November followed by a weather-hit December, he adds that "there will be a focus on how January has fared and also how Travis's management sees the full year".
Results/Updates: Capital Shopping Centres, Henderson, Logica, St James's Place and Travis Perkins.
Any investors hoping for Capita's share price to be boosted by its final results on Thursday are likely to be disappointed, says Morgan Stanley, who adds that a fall in earnings growth forecasts over the past few years means "the current multiple looks fair".
According to the broker, expectations "already assume an acceleration of contract wins" and adds that there is "concern over margin pressure".
Royal Bank of Scotland continues the bank reporting season on Thursday, coming after strong figures from Barclays last week before updates from Lloyds Banking Group are released on Friday and HSBC next Monday.
Exane BNP Paribas' Ian Gordon notes that previously "fundamental bulls of [RBS] had been anticipating a return to profitability in 2010", but says the drag from a number of its units – including Ulster Bank and RBS Insurance – "always made such an aspiration quite unrealistic". Instead, he is forecasting an attributable loss of £0.7bn, clarifying that he is not a true believer "in the RBS turnaround story".
Results/Updates: Ashmore, Barratt Developments, BAT, Capita, Centrica, Filtrona, Hunting, National Express, Royal Bank of Scotland, RSA Insurance and Sportingbet.
Results/Updates: Brit Insurance, Colt, Lloyds Banking Group, Rightmove, Spectris and William Hill.
Eurozone manufacturing PMI; Eurozone services PMI.
Public sector net borrowing data; US consumer confidence.
Bank of England Monetary Policy Committee minutes; BBA loan approval figures; Eurozone industrial new orders; US existing home sales.
CBI reported sales; US durable orders; US new home sales.
GDP; GfK consumer confidence; US GDP; US University of Michigan consumer sentiment index.
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