The Week Ahead: Wolseley cost-cutting expected as debt mounts

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The Independent Online

Debt and covenants are likely to be the key talking points when Wolseley posts a trading update for the five months to the end of December.

The construction materials group's £2bn-plus debt pile has evoked concern among analysts ever since the housing market began to sour here and credit markets dried up. Last week, the issue resurfaced after reports that the company was in talks with investors and private equity firms to raise between £300m and £500m to try to ease the burden on its balance sheet.

The stock retreated in response, with traders speculating about the proportion of funds the group may raise via issuing new equity to shareholders. The timing was also questioned, with some anticipating an announcement with today's update.

UBS, however, reckons it is too early. The broker, which forecasts £128m in first-half pre-tax profits with 14.1p in earnings per share, said that while the group is likely to raise equity to reduce its debt in due course, it is unlikely to move on the issue at this stage.

Instead, analysts highlight the prospect of further cost-cutting, possibly in the form of a reduction in stock held at the company's branches.



Today: Results/updates: Smiths Group, WH Smith and Wolseley.



ToMORROW: Results/updates: Aquarius Platinum and Future.



WEDNESDAY: Results/updates: 3i, Brit-vic, BSkyB, Greene King, Renishaw, Standard Life and Vedanta Resources.



THURSDAY: Royal Dutch Shell is due to post fourth-quarter results and, given the slump in the price of oil since the summer, the risks to profit estimates are still on the downside, analysts at Charles Stanley say.

"In the first nine months of 2008, RDS produced strong results which generally exceeded stock market ex-pectations. For the nine months to September 2008, Brent Oil prices averaged $111 per barrel and in the third quarter net earnings were $8bn, which was again ahead of consensus expectations," they said, adding: "In the fourth quarter, the average price has halved to $55 per barrel and currently stands at $43 per barrel. This will lead to quite a large shortfall in [exploration and production or E&P] earnings compared with the third quarter... we estimate E&P will make a $3bn contribution compared with $4.9bn in the third quarter."

Elsewhere, Deutsche Bank expects weaker currencies to be a key feature of AstraZeneca's fourth-quarter results, hurting ex-US revenues that are rep-orted in dollars and also hitting costs. The broker forecasts $8.237bn in sales, with $2.426bn in earnings before interest and tax.

"We estimate that AstraZeneca can achieve core earnings per share (EPS) of $5.81 in 2009, representing 8 per cent growth in local currencies but 13 per cent reported growth – the impact of weaker sterling on costs [are] likely to dominate a weaker euro impact [on] revenues, on our estimates," Deutsche said. "That said, a number of uncertainties, including Medicare pricing and the impact of the recession on prescription filling may lead AstraZeneca to guide conservatively early in the year, perhaps to core EPS of $5.10-$5.40 in local currencies (ie flat to 5 per cent up)."

Also on Thursday, Hansard Global will report on new business sales for the six months to December 2008. Panmure Gordon expects no upsets, forecasting £11.9m in new business on an annualised premium equivalent basis.

"While we are not anticipating any major surprises, given that we already know the four-month new business figures to the end of October 2008, the fourth quarter of 2008 was the most 'difficult' investment quarter of [the year]," the broker said.

"We are consequently forecasting a slight deterioration in the final two months of 2008. This is partly on the basis that investment market deterioration picked up pace in the quarter and partly because December tends to be a big month for insurers."

Results/updates: Imperial Tobacco, Kazakhmys, Legal & General, Lon-min, Mitchells & Butlers, Hansard Glo-bal, AstraZeneca and Royal Dutch Shell. Other: Cobham investor day.



FRIDAY: Misys is due to report first-half results. UBS is forecasting £270m in sales, up 6 per cent year on year, compared with a consensus estimate of £278m. "With 'mid-single' digit pro-forma growth in the first half, we estimate Banking/Treasury & Capital Markets growth to have slowed down to 3 per cent in the second quarter from 9 per cent in the first quarter," the broker said.

It added: "Comments on prospects for [the electronic medial records business] under the Obama presidency are likely to remain upbeat, although we think there remains a lot of uncertainty as yet on how much support and how it will be provided to healthcare IT."

Results/updates: Close Brothers, Mitie and Misys. Others: John Lewis weekly sales data.

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