The Week Ahead: Tesco set for record £1bn-a-week revenues

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The Independent Online

Tesco is expected to swing past another retailing milestone this week, with City analysts anticipating news of record revenues of more than £1bn a week when the supermarket giant posts preliminary results tomorrow.

Annual revenues are expected to swell to just above £54bn, while pre-tax profits are forecast to rise to more than £3bn. Despite the headline numbers, investors are likely to seek reassurance on the prospects for further growth.

Specifically, margins at the UK business and the pace of growth in the international division are likely to come under the microscope. UK sales performance and borrowing levels may also invite scrutiny, with Merrill Lynch forecasting around £10bn in net debt.

The broker remains positive nonetheless, saying that while Tesco may be a more mature retailer than before, it can continue to grow and defend margins domestically. "Meanwhile, [the] international [businesses] and Tesco Personal Finance are now becoming of sufficient scale to keep Tesco group as a 10 per cent-plus earnings grower into the medium term, a prospect not reflected in the shares," Merrill added in a preview note published last week.

Deutsche Bank makes a similar point. "Investors focused on Tesco's UK sales underperformance risk missing a significant positive shift in the group's future cash flow profile," the broker said. "Moreover, a focus on 'what Tesco is doing wrong' in the UK misunderstands that this four-year process has been driven by the normalisation of competitor performances. We believe this is a theme that has run its course and this will become abundantly clear when Tesco annualises the discounter brand launch in September."



TODAY: Results/Updates: Premier Oil



TOMORROW: Analysts are positive ahead of a trading statement from Reed Elsevier, the publishing group whose shares have underperformed recently amid concern about the group's exhibitions business and the impact of the advertising downturn on its Reed Business Information division, alongside uncertainty about the strategic direction under Ian Smith, the new chief executive. Goldman Sachs, which last week added the company's stock to its "conviction buy" list, reckons the worries have been overdone, saying exhibitions should prove resilient, while the impact of softer advertising revenues have already been discounted by the market.

Panmure Gordon agrees, saying that while the company does face certain economic headwinds, the market may be "over-bearish". "In a rising market, Reed is usually seen as a source of funds for more cyclical plays," the broker said, "Additionally, the company is handicapped by an above-average level of gearing. Assuming the update is satisfactory, we would expect the shares to rally."

Results/Updates: Bluebay Asset Management, Reed Elsevier, Record and Tesco.



WEDNESDAY: KBC Peel Hunt expects record earnings figures from Game, the video game retailer which is due to post preliminary results later this week, with pre-tax profits forecast to jump to £123m, up 63 per cent compared to the year before.

Current trading is likely to be less impressive, as the business faced strong comparatives in February. "Should February be as bad as we fear, then we see scope for current trade to be down by 10-15 per cent in like-for-like terms," the broker said, adding that future gross profit and sales are likely to decline in absolute terms for the UK business and the group as a whole.

Deutsche Bank is equally cautious about the first quarter, forecasting a 15 per cent like-for-like decline in the UK. For the international business, the broker anticipates an 11 per cent like-for-like decline.

Results/Updates: Alexon, Carphone Warehouse, Connaught, Game, Arriva, BHP Billiton and GlaxoSmithKline.



THURSDAY: Debenhams is due to publish interim results. Numis Securities forecasts £95.1m in pre-tax profits, although the final figure could be as high as £100m. Although some have been speculating about a possible cash call as the company attempts to deal with its debt pile, Numis reckons management will hold back and seek to reassure investors on the group's cash position and covenants. "With expectations for the full year looking increasingly cautious, we would expect to upgrade our forecasts," the broker said.

Results/Updates: Sports Direct International, Debenhams, Meggitt, Persimmon, WH Smith, Go-Ahead and Smiths News.



FRIDAY: Engineering group Rotork will publish a trading statement alongside its annual general meeting, which is due to take place at the end of this week. Results/Updates: Instore and Rotork.

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