The Week Ahead: Tesco can weather storm with solid UK growth

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The Independent Online

Tesco is due to publish a first-quarter update tomorrow and despite evidence of declining sales performance, analysts expect the company to report a solid start to the year in the UK.

"[The recent TNS data on supermarkets] suggests that Tesco sales performance relative to the rest of the industry has waned slightly since March's bounce-back, but we wouldn't read too much into this – over the quarter as a whole, Tesco's growth has improve relative to [the fourth quarter]," said Deutsche Bank, whose analysts forecast 4 per cent like-for-like sales growth, excluding petrol, in the UK.

Citigroup made a similar point. It expects the company to be "well on target to hit its full-year "planned performance" of 3-4 per cent [ex-petrol like-for-like growth]".

Beyond the UK, however, things may not be going so well. JP Morgan believes there has been a "marked slowdown" in international sales growth. The broker points out that the 19 per cent growth achieved in the first five weeks of the year "already benefited from a weaker sterling, perhaps implying ex-currency gro-wth in the very low double digits" from the 21.7 per cent in the fourth quarter for last year. JPM adds that the fourth quarter was boosted by about 6 per cent by consolidation in China. As such, the broker assumes 13 per cent growth at constant exchange rates in the first 13 weeks of the year. Currency changes are estimated to boost international growth by 12 percentage points to 25 per cent.

TODAY: Hyder Consulting, the international design consultancy which worked on the Ski Dubai resort, is due to publish final results today and, after the company's positive pre-close update in April, Panmure Gordon is anticipating some solid figures. "[The April update] confirmed that trading was in line with expectations, and the order book [was] running at record levels," the broker said, forecasting adjusted pre-tax profits of £13.9m, compared with £10.4m in the year before. It added: "With in excess of 30 per cent upside to our target price [of 500p], we believe the recent share price weakness has been overdone, and maintain our 'Buy' recommendation ahead of the results."

Also today, the City of London Investment Group is due to publish a trading update. Evolution Securities, which maintains a "Buy" rating on the stock, is positive on the company's prospects.

"At the interim results announcement in January, management commented it had just won two significant mandates which, together with continuing out-performance, should offset the underlying fall in assets under management in [the second half]," the broker said. "We now estimate year-end assets at $4.9bn, up $300m or 6 per cent from the November 2007 half-year end Confidence in CLIG's prospects was boosted by the CEO spending [more than] £1m in April 2008 to augment his personal holding. He now owns 4.9 million shares, or nearly 20 per cent of the issued share capital."

Results/Updates: Intelek, Latchways, Volex, Workspace, City of London Investment Group, Hyder Consulting.

TOMORROW: Results/ Updates: Bango, Media Square, Redstone, Warner Estate and Tesco.

WEDNESDAY: A first-half trading statement is due from Royal Bank of Scotland. As UBS notes, this will be the first time the bank has spoken to the market since its rights issue, the offer period for which ended last week. "We would expect an update of the current position of the Treasury Asset securities that drove the capital raising to be the key focus of the update," the broker said.

Results/Updates: Driver, Chapelthorpe, Rensburg Sheppards and Royal Bank of Scotland.

THURSDAY: Carphone Warehouse is due to publish preliminary results and analysts are not expecting any surprises. As Landsbanki, whose analysts forecast £215m in pre-tax profits with 19p in earnings per share, pointed out in a recent preview note, "[the fourth quarter update] gave guidance on key figures".

UBS, whose analysts predict £217.5m in pre-tax profits and full diluted earnings per share of 18.2p, made a similar point and added: "Looking ahead, there are the usual plethora of key issues: whether the handset market can remain relatively immune to a consumption slowdown, the scale of start-up losses for the Best Buy JV in the UK, incremental returns on broadband subscriber growth, the Ofcom LLU [local loop unbundling] pricing review and [the company's potential interest] in Tiscali UK."

Home Retail Group is due to publish a first-quarter trading statement. UBS is forecasting -2 per cent like-for-like sales at Argos and -7.5 per cent at Homebase.

"Last seen, Argos sales were low single-digit negative, slightly ahead of expectations, for the first two months of the quarter. This reflected continued strength in flat panel and games," UBS said. "However, this had impacted the margin mix so the profit out-turn may not have been too different from management estimates."

UBS attributed the weakness at Homebase to tough-er comparatives from last year and poor weather.

Results/Updates: Charles Stanley, Home Retail Group and Carphone Warehouse.

FRIDAY: Results/Updates: Oxford Instruments.