The Week Ahead: Is the worst behind us? Don't bank on it ...

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The Independent Online

After reeling under the pressure of some dismal results from Bradford & Bingley last week, the banking sector, invariably depressed since the onset of the credit crunch, is bracing itself for another frosty reception from increasingly wary investors. Indeed, as some of the biggest names in the business, including Barclays, Alliance & Leicester and Lloyds TSB, prepare to publish their results this week, many in the market have one question on their mind: how bad has it been?

In the case of Alliance & Leicester, which is due to publish its full-year results on Wednesday, analysts at Deutsche Bank expect news of "margin pressures and further treasury write-downs". Citigroup expects the group margin to slump to 1.17 per cent for 2007. Noting a slowdown in volumes, Citigroup anticipates annualised loan growth in the retail bank to fall to 8 per cent in the second half of 2007 from 12 per cent over the previous period. While its analysts are confident about the commercial lending business (forecasting 23 per cent growth in 2007), they expect liquidity constraints to have a "significant" effect on the outlook for the current year.

TODAY: Results/Updates: Dicom, Heavitree Brewery.



Tuesday : Barclays is due to reveal its full-year results tomorrow. Unfortunately for investors, in a recent preview note, analysts at Citigroup warned of the "potential for further financial write-downs". Following earlier write-downs against a variety of asset classes, each bearing a different degree of risk, Citi thinks deteriorating market conditions have made further losses likely. There is also, they note, "the possibility that as accounting practices evolve, auditors may require the adoption of a harsher approach in assessing fair value of illiquid instruments".

Cadbury Schweppes is also due to publish its results on Tuesday. Management at the world's largest confectioner has come under pressure from Nelson Peltz, the activist investor. Mr Peltz, via his Qatar Investment Authority-backed Trian Fund Management vehicle, has built a 4.5 per cent take in the company. In December, he sent an open letter to the company's board, warning that, "should Cadbury fail to demonstrate meaningful operational progress in 2008 that translates to the bottom line, Trian will look to become significantly more active in evaluating all of our alternatives as a larger shareholder".

Analysts at JP Morgan think Mr Peltz should continue to "act as a catalyst ensuing Cadbury delivers on its full value creation potential". They say while they "do not share all the views of Trian", they believe the confectionery division offers significant operating margin of around 14 to 15 per cent. On that basis, they note, "we see limited downside risk for investors: either the current Cadbury management team executes or someone else will step in ...".

The Kronenbourg and Newcastle Brown Ale brewer Scottish & Newcastle is also due to publish its full-year results. Merrill Lynch has predicted that the brewer's share price is unlikely to move, given Carlsberg and Heineken's recommended takeover bid at 800p per share. Analysts at the bank have also forecast there will be no discernible improvement in the bleak sales figures released in a November trading update.

While Merrill expects total beer sales to rise by 5.7 per cent, it foresees a slight fall of 0.2 per cent in the UK and flat growth in continental Europe and the US. Investors will be keen to note the impact of the actual numbers, as poor results may weigh on Carlsberg and Heineken's takeover bid for the company.

Results/Updates: Barclays, Cadbury Schweppes, Croda International, Domino's Pizza, Intercontinental Hotels, Morgan Crucible, Scottish & Newcastle.



Wednesday: Results/Updates: Alliance & Leicester, Allied Irish Banks, Morgan Sindall, Anglo American, Millennium & Copthorne, Rexam, Thorntons.



Thursday: Kingfisher, the home improvement retailer and the company behind the B&Q chain, will issue a fourth-quarter trading update later this week. Despite some bad news from the company in November, when it appeared to be suffering under the pressure of softening consumer demand, Deutsche Bank recently upgraded its rating for Kingfisher. Advising investors to "buy" the company's shares, the bank said it had had a change of heart for two main reasons: "The shares have come down, and second there is now evidence that B&Q is going to start performing better due to better products, a better pricing message, and better laid-out stores (in that order)."

Results/Updates: BAE, Centrica, Colt Telecom, Reed Elsevier, Shire Pharmaceuticals, Kingfisher.



FRIday: Lloyds TSB, which is due to publish its results, is likely to fare the best of its sector this week. Deutsche Bank anticipates a "robust set of results" borne of the company's "strong deposit-gathering franchise", which limits a decline in margins, and "its conservative lending", which results in lower credit costs and a more positive earnings outlook than its peers. Its analysts forecast underlying pre-tax profits of £4.3bn, up 14 per cent year on year, primarily driven by the company's UK retail bank. Citigroup also notes the resilience of Lloyds' domestic retail banking arm, anticipating 16 per cent growth in the division's profits in 2007, compared to 5 per cent growth in 2006.

Results/Updates: Lloyds.

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