The Week Ahead: Kingfisher weathers hard times to surprise market

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The Independent Online

Kingfisher, the home improvement retailer behind the B&Q chain, may surprise the market with news of better-than-feared quarterly trading this week.

In the UK, the weather has caused some concern about the strength of business over the start of the year, with Liberum Capital terming the conditions "remarkably unhelpful" for B&Q. That said, the performance may not be as bad as some expect, the broker said, noting that mortgage approvals were up by an annual rate of 25 per cent over the first quarter and planning applications, which in the past have "shown a good correlation with B&Q's like-for-like [LFL] sales", "should now be heading into moderately positive" territory in year on year terms. As a result, Liberum's pencilled in a 2 per cent fall in B&Q's first quarter LFL sales, the same as UBS, whose analysts point out that, if achieved, the result would be in line with news from rival DIY chain Wickes. Investec is less optimistic, expecting the chain to post a LFL sales decline of 3 per cent, reflecting the poor weather and the tough comparative from last year when, boosted by favourable weather conditions, B&Q booked a 2.9 per cent rise over the first quarter.

Looking ahead, though the outlook for the UK consumer remains uncertain, Deutsche Bank said investors should recognise the support provided by the recent improvement in housing activity. "House moves are running 30 per cent up on the last year (in the last three months) and house owners continued to benefit from [the] lowest ever mortgage rates, so we expect investors to recognise [that] increasingly there are less reasons to worry about UK DIY than most other consumer markets," the broker said.

Today – Northern Foods, the maker of Fox's Biscuits and Goodfella's Pizzas, will post full-year figures this morning. The group's already posted like-for-like revenue growth of 1 per cent, prompting Panmure Gordon to forecast flat reported revenues of £976m, with an 8 per cent slide in clean pre-tax profits to £36m, against a consensus estimate of just under £37m. Elsewhere, the broker is looking for a 1 per cent decline in earnings before interest, tax, depreciation (EBITDA) and amortisation to £52m, which equates a group EBITDA margin of 5.3 per cent.

Results/Updates – Volex and Northern Foods.

Tomorrow – Numis is expecting no surprises from Hamworthy, the industrial engineer which is due to post its annual results tomorrow. The company issued a trading update at the start of April, and the broker expects the release to confirm that the business has been performing in line with expectations, "highlighting a weaker climate for original equipment but robust aftermarket activity". There is unlikely to be any noticeable boost in the pace of orders, the broker added, forecasting £225m in full-years sales, with £19m in pre-tax profits and 30.6p in earnings per share.

"Longer term, while it is difficult to determine when activity levels will recover, we believe newsflow should become incrementally positive as the year unfolds," Numis said. "Therefore, [2011] should represent the trough year for Hamworthy and we remain positive on the long-term prospects given its exposure to environment legislation-driven markets, a robust aftermarket business and its strong cash position."

Results/Updates – Alterian, Topps Tiles, Northumbrian Water and Hamworthy.

Thursday – Johnson Matthey, the world's largest supplier of catalytic converters, will issue its full-year figures later this week and City analysts expect underlying pre-tax profits to come in anywhere between £238m to £273.4m. JP Morgan Cazenove expects the release to be upbeat, with an encouraging outlook to boot. "The outlook is likely to reflect generally better trading conditions in autocatalysts for both car and trucks, and the benefit of more robust PGM [platinum group metals] prices," the broker said, adding that, with "a robust first half" in prospect for 2011, "investors should be encouraged by these results". Citigroup also expects the company to be "more sanguine" about the road ahead, highlighting the beneficial impact of rising PGM prices.

"Johnson Matthey's state sensitivity to PGM prices is that a 10 per cent in the average annual PGM basket price adds £3m to [it's] annual group earnings before interest and tax," Citi said. "In our view, however, this understates the sensitivity, since it ignores the fact that rising PGM prices [are] usually linked to rising demand for JM's products."

Results/Updates – Helical Bar, Redhall, Synergy Health, Johnson Matthey and Kingfisher.

Friday – Toy-maker Hornby is due to post annual numbers at the end of this week and, given that the company issued an encouraging pre close update just weeks ago, the focus is likely to be on the outlook. Numis expects news on the product pipeline to be among the talking points on the day. The opportunities presented by the London Olympic Games are also likely to attract interest, as Hornby holds a license to develop and market a range of products to go with the events.

Results/Updates – Hornby and SThree.