The Week Ahead: Hopes rise Wolseley can build on US bailout
Monday 22 September 2008
Nervous investors will have their fingers crossed for Wolseley, the construction materials group, which is due to publish its final results today.
The company has seen its share price plummet amid fears that, faced with tougher conditions in the US and UK housing markets, it may run close to its borrowing facilities. The debate, as Seymour Pierce highlighted in a recent note on the company, has been "not so much about the earnings numbers but about whether the group will breach its banking covenants".
But at the end of last week, following news of the US government's plans to deal with the bad mortgage debts at the root of the current financial crisis, the fears were mitigated by hope, sending the company's stock up more than 6 per cent in Friday's record session.
Traders said that the new measures, once finalised and implemented, should aid the American housing market, which has been hit by the paucity of credit. This should benefit Wolseley, which has extensive operations on the other side of the Atlantic.
"Normally, the share price would have been weak ahead of Wolseley's results. But there is some confidence that the worst may be over with this American bailout," said one market source, speaking at the end of Friday's session.
TODAY: The precious metals producer Peter Hambro Mining is due to publish interim results, and, given the recent strength in the price of gold, Cazenove expects the company's share price to rebound from the recent weakness caused by the tensions between Russia and the West.
"The massive injection of capital by the Fed to shore up the financial industry has clear connotations for the US dollar, inflation and will further stoke fears over general economic collapse.
"In the UK, there are genuine concerns over savings within the banking system. This should be the time therefore when investors turn to gold and silver," the broker said, noting that at current levels Peter Hambro is "probably the cheapest meaningful gold stock in the world".
Results/Updates: Cape, Peter Hambro Mining and Wolseley.
TUESDAY: Results/Updates: Mitchells & Butlers and Severn Trent.
WEDNESDAY: The long-term savings provider Hansard Global is due to publish full-year results, and, in light of the company's May interim management statement and July sales figures announcement, Panmure Gordon does not anticipate any surprises.
"We have taken what we believe to be a cautious approach to new business growth in the current year, given the volatility of investment markets. We forecast flat sales on an APE [annualised premium earnings] basis for 2009, reflecting annual premium sales (+1 per cent) and single premium sales (-1 per cent)," the broker said.
"We do not believe that the change at AIG [American International Group] will have much impact on Hansard's business given the lack of trading overlap. Recent currency movements of the US dollar and the euro will have helped, but will probably have come too late for the 30 June 2008 results."
Elsewhere, JP Morgan expects International Power to use its annual investor conference to address concerns about sensitivity to the weaker oil price, the health of the US business and the company's high gearing levels.
"We believe IP has been sold off alongside other [power] generators on [the] falling oil [price], even though only two assets in its fleet are directly exposed to the falling oil/gas/power prices," the broker said.
On the issue of gearing, the broker added: "We believe recent concerns about the counterparty risk following the failure of a major US bank and the underperformance of Constellation Energy on liquidity issues have weighed on IP's shares.
"[But] despite high gearing levels, [the company's] near-term financing requirements are limited, with no major refinancing due until 2010."
Also on Wednesday, Deutsche Bank thinks Imperial Tobacco's pre-close update should calm investor's nerves. "We do not normally bother with a preview of a preview. But lately, the volatility and underperformance of Imperial shares seems to have surprised some investors and [has] generated concerns that something is going wrong with the underlying business," the broker said,
"We do not believe this to be the case. Wednesday's statement and presentations should help to calm nerves, even if nothing startlingly new emerges."
Results/Updates: Smiths, Alexon, Imperial Tobacco and Hansard Global. Other: International Power's annual investor conference.
THURSDAY: Daily Mail & General Trust is due to publish a trading statement, and, according to UBS, investors are likely to focus on any comments regarding the continuing decline in the UK advertising market.
"In particular, investors would be looking for more clarity on the state of national advertising, given that it has held up relatively well throughout the year, although it saw its first signs of decline in the third quarter," the broker said, maintaining its "sell" advice for the stock.
Results/Updates: Luminar, United Utilities and Daily Mail & General Trust.
FRIDAY: Results/Updates: None.
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