Stock Market Week: Reckoning time for the FTSE big hitters
Monday 22 February 1999
With 15 big-hitters scheduled to unveil figures, dealers will be bracing themselves for some hectic trading in blue-chip shares. Financial stocks will dominate proceedings once again, with the tail-end of the banking season and the start of the insurers' figures set to provide most of the talking points.
NatWest Bank will tomorrow close the high street clearers' reporting period with a bang. Headline pre-tax profits at NatWest are forecast to more than double to over pounds 2bn. However, the figures will be flattered by some pounds 500m of exceptionals and from falling losses from the now departed equities business.
Strip those out, and profits should still be over 28 per cent ahead of last year. Good news is expected from the bond-trading unit Greenwich NatWest, which should turn in a profit after much chopping and changing in recent times. The shares have had a good run in 1999, touching a 12- month peak of 1,379p last Tuesday, but some analysts fear a re-rating as pressure remains on UK retail banking.
The "Hong Kong Twin Towers" - HSBC and Standard Chartered - will lend some oriental spice to the banking feast. The Asian economic turmoil is expected to deliver a huge blow to HSBC's profits, due out today. Bad debts at the owner of Midland Bank are expected to have soared to $2.5bn from $1.1bn in the first half. Analysts believe that these provisions will be behind a fall of around 17 per cent in profits to just below $7bn.
HSBC will also have to come clean over its exposure to real estate in Thailand. Recent reports of "huge" losses in HSBC's Thai loan portfolio triggered a slide in the shares, which are now well below their12-month peak of pounds 20.25p.
Standard Chartered, out on Wednesday, has also been mauled by the Asian tigers. Analysts are shooting for profits of around pounds 680m, a good 20 per cent less than in the previous year. The bad debt burden may have risen almost four-fold to around pounds 500m as the Asian economies failed to recover from their chronic depression.
Shareholders in CGU, the insurance giant born from the marriage of Commercial Union and General Accident, know a thing or two about depression. The stock has under-performed the index by some 30 per cent since the summer as the market took a dim view of the group's prospects. The figures are set to bolster the doom-mongers. Profits are not expected to be much higher than pounds 550m - down from the pounds 565m in 1997 - although an accounting change will make them look more like pounds 700m. Expect a severe hit from weather claims after the December storms to depress the general insurance numbers. The cost of last year's merger will also be revealed, with the smart money on a figure of more than pounds 300m.
Wednesday will be "insurance day" with the Prudential set to rival CGU in dealers' affections. Two issues threaten to overshadow the Pru figures. The first is the start-up costs of Egg, the cracking new low-charge bank launched at the end of last year. The mooted number of pounds 60m should offset the improvement in the life insurance operations. The other mystery is the size of the Pru's "orphan asset" - a pot of money left in the insurer's coffers which could be returned to shareholders. David Nisbet at BT Alex.Brown believes the asset could be worth up to pounds 1.8bn.
Utilities will provide some much-needed relief from the financial indigestion. BG and Centrica, the offspring of the old British Gas, are linked by talk of a return of cash to shareholders. BG, with fourth-quarter figures tomorrow, could go for a special dividend or share buyback of some pounds 1.5bn later this year to boost its ailing share price. It also has to decide what to do with its very profitable gas pipeline business Transco. A flotation or a restructuring have been mooted in the past and will no doubt be mentioned this week after BG posts an expected increase in profit from pounds 290 to around pounds 350m.
Centrica, the former trading arm of British Gas, on Wednesday could confirm one of the market's favoured rumours - that it is planning a pounds 700m special dividend some time this year, after receiving a pounds 450m payment from Transco. The unveiling of strong results, say pounds 94m from pounds 86m in 1997, could be the perfect setting for the announcement.
If rapid revenue growth and no profits is what you are after, alight on Colt. The telecom operator on Thursday is expected to unveil a 150 per cent rise in revenues to around pounds 210m, thanks to the exponential rise in its European operations. Losses will almost double to around pounds 60m, due to the investment in its European network. But the red ink is unlikely to stop the mega-bull run which has seen Colt soar more than 400 per cent over the past 12 months.
British Aerospace will have to use Thursday's results to reassure the market over the fate of its Al Yamamah arms-for-oil deal. The defence group's denial of last week's rumour that the Saudi government had frozen payments on the contract, which accounts for half of its sales, did not stop a slide in the share price. BAe will also have to dispel fears that the fall in the stock could derail its cash and paper takeover of GEC Marconi. The figures should be solid, with profits of, say, around pounds 675m against pounds 596m, underpinned by healthy orders from the Airbus consortium.
Two "consumer stocks" will fall under the market spotlight this week. Cadbury Schweppes will report an increase in profits to around pounds 600m after a week of rumours of a deal with Hershey, the US chocolate-maker. An update on the sale of its non-US drinks to Coca-Cola would also sweeten the market.
Unilever, the Persil-to-Vaseline group, will have to wash out the market's fears over some tough trading conditions in emerging markets. Questions on ice-cream sales in Brazil and washing powder turnover in Thailand could overshadow the 1998 profits, set to come in at around pounds 2.80bn compared with pounds 2.4bn.
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