The Week Ahead: Citi fears effects of 'regime change' at Reed

Nikhil Kumar
Monday 16 February 2009 01:00

Analysts expect a solid set of final figures from Reed Elsevier, the professional publishing group which is due to post results for 2008 this week, but the outlook is likely be cautious in tone.

The only wrinkle, according to Citigroup, is likely to be the re-inclusion of Reed Business Information (RBI) – the sale of which was abandoned recently – back into continuing operations. Underlying earnings per share growth is forecast to be robust, with UBS predicting a 13 per cent rise, while the group is expected to deliver 5 per cent organic revenue growth for the full year.

Beyond the numbers, the market is likely to focus on the outlook, and on any possible change in direction after Ian Smith takes over as chief executive from Sir Crispin Davis, who is due to step down soon. Here, Deutsche Bank is "quite relaxed" as the company's assets are fairly stable.

Citi is less sanguine, saying that, based on the experience of previous "regime changes" at Reed, Pearson and Wolters Kluwer, management changes at professional publishers have "typically been associated with six to nine months of share price underperformance as incoming CEOs rebase expectations. With so much to do at Reed – integration of ChoicePoint, eventual sale of RBI, two sets of cost savings programmes and a big debt refinancing – it would be a surprise if Mr Smith didn't seek to do the same".

Today: Panmure Gordon expects Fidessa's final results to meet consensus expectations, but anticipates the direction of forecasts for the current year to point "downwards" owing to an uncertain outlook as data prices slip and transaction fees decline under the pressure of the credit crunch and the problems in the banking sector. "In a more competitive market, more exchanges should impact the transaction fee, resulting in lower revenue," the broker said, recommending investors "sell" out of the trading systems and market data provider's stock.

Results/updates: Lancashire, Umeco and Fidessa.

TOMORROW: InterContinental Hotels is due to post preliminary results, with Evolution Securities forecasting $674m (£469m) in earnings before interest, tax, depreciation and amortisation, on sales of $1.981bn for 2008. For the current year, the broker is concerned about the impact of yet tougher trading conditions. "2009 is shaping up to [be] a poor year, with [the company] facing a triple whammy of declining demand, rising supply and falling property values," Evolution said. "Even though [InterContinental] has been badly de-rated, we retain our reduce recommendation [on the shares]. It is too early to call the bottom, with trading deteriorating at an increasing pace, forecasts still declining and no signs of a recovery in asset prices."

Results/updates: InterContinental Hotels, Croda International and DS Smith.

WEDNESDAY: Results/updates: Millennium & Copthorne Hotels, Intec Telecom Systems.

THURSDAY: Deutsche Bank expects news of a solid fourth quarter from Shire, the specialist biopharmaceutical group which is due to post figures for 2008. The broker predicts 99 cents in earnings per share on $805m in revenues, which if achieved will be ahead of consensus estimates. "It is possible we could see a near-term transaction, considering management's recent comments about the increasing attractiveness of strategic opportunities given the difficult macro environment," Deutsche said.

Also on Thursday, BAE Systems is due to report preliminary results. Anal-ysts forecast around £1.85bn in earnings before interest, tax and amortisation on sales of just over £18bn. Invest-ors will be keen for an update and guidance on the outlook for the US defence budget, UBS says. "Investors will also want to get an update on the progress being made by BAE on its large UK programmes and the speed with which upside from BAE's Saudi Arabian activities can make its presence felt," UBS said. "Guidance will also be sought on [the company's] pension deficit and more specifically on the risk of any further cash contributions BAE might have to make into its schemes, as well as the impact that the 2008 deficit will have on 2009 profits."

UBS also weighed in on Kingfisher, the home improvement retail group which is due to post a fourth-quarter trading statement. Forecasting a 6 per cent slide in like-for-like sales, compared with a 5 per cent drop in the third quarter, the broker said recent gross margin gains may have been offset by competition on seasonal lines.

Results/updates: Kingfisher, Go-Ahead, Ladbrokes, Rexam, Travis Perkins, Reed Elsevier, BAE Systems, Shire.

FRIDAY: Results/updates: Anglo American, Prudential, Rentokil Initial.

Diary: Economics

Today: UK – Speech by Bank of England deputy governor Charles Bean; Rightmove house price index; Eurozone – ECB President Jean Claude Trichet speaks in Brussels; US – Market holiday: President's Day.

Tomorrow: UK – CPI, RPI (January); DCLG house price index December; US – Empire State Manufacturing Survey.

Wednesday: UK – BoE MPC minutes (February); CBI monthly industrial trends survey (February); US – housing starts and industrial production (January).

Thursday: UK – Public Finances; US – weekly jobless claims and producer prices.

Friday: UK – Retail sales (January); Eurozone – Manufacturing and services PMI 'flash' estimates; US – CPI (January).

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