The Week Ahead: L&G faces another inquisition on capital
Monday 23 March 2009
Legal & General will face intense scrutiny this week, as analysts and investors, both increasingly worried by the prospect of yet more turmoil in the equity markets and the possibility of higher-than-expected corporate bond defaults, focus on the strength of the insurer's capital base.
L&G, which is due to post full-year numbers on Wednesday, has already issued an update on its funding at the end of last year, telling the market last month that its regulatory capital surplus stood at more than £1.6bn as at 31 December. But worries persist, not least, as the stockbroker Charles Stanley highlighted in a note to clients last week, because of the numerous differing accounting measures that investors must grapple with when valuing life insurance stocks in the current environment.
The dividend is likely to be a key area of focus, with some in the market arguing that a reduction of the payout may be appropriate in light of the current market turmoil. MF Global, for example, does not anticipate the need for a recapitalisation, but warned that a dividend cut and a scaling back of new business may be the best options on the table.
"Given that the company raised capital at the bottom of the last equity market downturn, one can certainly see why the market is concerned," the broker said.
"However, now is most definitely not the time to raise equity if you do not need to, and we see it as far more likely that the company will simply adjust its business model and dividend to the current circumstances."
Today: Xaar, the print technology group, is due to publish its preliminary results this morning and, according to the broker Panmure Gordon, "unless the company pulls something amazing out of the bag", the share price, which has rallied very strongly over the past three months, is unlikely to climb significantly higher.
The headline figures have already been flagged, with full-year profits and revenues falling by around 12 per cent and 40 per cent respectively.
"We like the technology and the company's position in the market, but believe the macro conditions will remain tough for some time," Panmure said in a note to clients last week.
"Recent product launches should help to reduce pricing pressures but will not offset the macro headwinds."
Also today, Ceres Power, the Alternative Investment Market-listed fuel cell specialist, is due to post interim results and updates on development milestones that are more important than the actual figures, as the company is not expected to make a profit until 2014.
Results/updates: Daily Mail & General Trust, Huntsworth, Ceres Power, Xaar.
Tomorrow: Results/updates: Motivcom, Sportech, Bioquell, Severn Trent, Ferrexpo, Renewable Energy Generation, Carnival.
wednesday: J Sainsbury is due to post a fourth-quarter trading update. Citigroup expects a 6.5 per cent hike in ex-fuel like-for-like (LFL) sales, which would be the supermarket group's best performance in three years. The broker highlights that its forecasts factor in the around 90 basis points impact of the new VAT rate, and are adjusted for a later Easter.
"So far, we only have TNS market share data covering the first seven weeks of the 11-week period – and the next set of data we receive will not come out until after these Sainsbury figures," Citi said.
"So TNS is only a partial guide, but it suggests that Sainsbury has made a very solid start to the year, with growth of over 7 per cent in both of the last two periods. For this reason, we expect [the company] to report better LFL sales growth than the 4.9 per cent it reported for its third quarter."
Results/updates: Smiths, TUI Travel, Henry Boot, Eurasian Natural Resources Corporation, Hochschild Mining, Imperial Tobacco, Melrose Resources, Nichols, Salamander Energy, Vislink, Pinewood-Shepperton, J Sainsbury, Legal & General.
Thursday: The advertising agency M&C Saatchi is due to publish preliminary results. Numis Securities forecasts £14m in pre-tax profits, with 14.9p in earnings per share.
Saatchi is expected to follow in the steps of the large advertising holding groups, several of whom have already reported a deterioration in trading in the fourth quarter of last year and warned of a difficult start to 2009.
Results/updates: Abbey Protection, Kingfisher, Premier Oil, PV Crystalox, United Utilities, M&C Saatchi, Northern Foods.
friday: Results/updates: Clinton Cards, Dairy Crest, Trading Emissions, JKX Oil & Gas, Just Retirement.
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