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The week ahead...
By Darshini Shah | Fri, 5th July 2013 - 17:00
High-street retailers will step back into the spotlight over the coming five days, with Marks & Spencer and Supergroup among the firms reporting.
Monday 8 July
The British Retail Consortium (BRC) retail sales monitor for June will be published overnight on Monday/Tuesday and should provide an indication of whether retail sales were able to build on May's robust rebound.
The latest hard data from the Office for National Statistics (ONS) show retail sales volumes jumped 2.1% month-on-month in May after falling 1.1% in April, when sales were hampered by ongoing poor weather hitting demand for summer clothing and outdoor goods as well as by Easter occurring in March this year.
"The consumer will play a crucial role as to whether the economy can sustain and build on its recent signs of improvement," stresses Howard Archer, chief UK and European economist at IHS Global Insight. "There are certainly some positives for consumer spending and it is encouraging that consumer confidence rose further in June to be at a 25-month high. In particular, employment rose to a new record high in the three months to April having shown signs of faltering early on in 2013.
"In addition, low and recently reduced mortgage interest rates free up extra money for spending. An improving housing market is also likely be supportive to consumer spending."
However, he points out: "Consumers remain under pressure on a number of fronts which suggests that the upside for consumer spending could be limited for some time to come. In particular, annual underlying earnings growth remains very low and at 0.9% in the three months to April was only a third of May's consumer price inflation rate of 2.7%. Tighter fiscal policy is also affecting many families, while debt levels are still high despite significant progress having been made in deleveraging.
"It is also notable that consumer confidence is currently still at a relatively low level compared to long-term norms despite reaching a 25-month high in June."
RM, Bovis Homes.
Queenco Leisure International.
Tuesday 9 July
General retailer Marks & Spencer (MKS) is scheduled to update the market with its first-quarter trading on Tuesday.
Recent news: Management has already revealed trading was "in line with expectations" for the first seven weeks of the first quarter of the 2014 financial year.
Analysts' expectations: The consensus prediction is general merchandise (GM) like-for-like sales of between -1.0% and -2.0% and between 1% and 2% in the food division.
Jean Roche, analyst at Panmure Gordon, rates the stock a 'buy'.
"We are positive on M&S for four reasons," she explains, attributing her positive stance to "strength in the food division, potential for turnaround in the GM division, a growing, capital-light international business and a recent commitment to delivering improved returns to shareholders."
Valuation: Marks & Spencer is trading on a 2014 price/earnings (P/E) ratio of between 13 and 14 times.
This will be followed by a trading update from Young and Co's Brewery (YNGA).
Recent news: In its full-year results, the pub group reported like-for-like sales growth of 10.6% for the first seven weeks of 2014's first quarter. However, this benefited from a relatively weak comparative of -2%.
Analysts' expectations: The consensus forecast is pre-tax profits of £24.8 million.
"We expect trading to have remained strong, but slowed over the remained of the quarter reflecting a stronger comparative," comments Simon French, analyst at Panmure Gordon, predicting a 6% rise in like-for-like sales for the full quarter.
Valuation: "The stock trades on a 2013 adjusted enterprise value (EV)/EBITDAR of 10.7 [times] for 8.5% three-year compounded average growth rate (CAGR) in earnings per share (EPS) compared to 11.4 [times] at Fuller, Smith & Turner (FSTA) for 5.6% EPS CAGR over the same period," calculates French. "We therefore continue to prefer Young's and reiterate our 'buy' recommendation."
Tuesday will see May's manufacturing output and industrial production figures unveiled. Archer expects manufacturing output to have risen by a perfectly respectable 0.3% month-on-month in May, having dipped 0.2% in April; while overall industrial production is seen rising 0.2% month-on-month in June, after an increase of 0.1% in May.
The total trade deficit figure for May will also be announced. Archer believes the figure will have moved back up to £2.8 billion in May after moderating to £2.6 billion in April due to imports rising more than exports.
Looking ahead, Archer's hope is that the overall marked weakening of the pound earlier in 2013 will increasingly feed through to boost exports and the beneficial impact of this is reinforced by global growth gradually improving.
"It would be particularly helpful if eurozone economic activity can at least stabilise, and there are some signs that this may finally be happening," he adds.
Marks & Spencer, Young & Co's Brewery.
JSC KazMunaiGas Exploration Production, Young & Co's Brewery, 3i Infrastructure, MITIE Group, Taihua, Sierra Rutile, Tangent Communications, Marks & Spencer Group, AVEVA Group.
Wednesday 10 July
Online gambling company bwin.party Digital (BPTY) is set to release its first-half pre-close update on Wednesday.
Analysts' expectations: "We expect the update to show a further decline in net gaming revenue, reflecting tough prior-year comparatives but in addition the payment of the 5% turnover tax on German sports betting, reduction in acquisition-based marketing within unregulated markets and the completion of the casino and poker migration," predicts Karl Burns, analyst at Panmure Gordon.
The stockbroking firm forecasts a 20% year-on-year decline in revenue for the second quarter. However, it maintains a 'buy' rating on the stock. Burns explains: "We feel there is little value implied for US online gambling in the current share price, whilst the company's strategy of focusing on regulated markets is the correct one and will allow significant value creation through a re-rating, given the higher-quality cash flow.
Valuation: Shares in bwin.party are trading on a 2013 EV/EBITDA ratio of seven times.
Bwin.party Digital, Barratt Developments, Igas Ebergy.
RPC Group, Taliesin Property Fund, Aqua Bounty Technologies, UK Mail Group, Sainsbury, Churchill Mining, Booker Group, ICAP.
Thursday 11 July
Fashion retailer Supergroup (SGP) will unveil its preliminary full-year results on Thursday.
Recent news: In May, management appeared confident that the high-street chain was on track to deliver pre-tax profit in line with expectations at around £51 million. Group sales had reportedly risen by 14.7% to £360.1 million for the year at that time.
Analysts' expectations: "We do not expect any surprises," says Bethany Hocking, an analyst at Investec, adding that Supergroup is unlikely to upgrade any of its forecasts for the 2013/14 financial year.
But Hocking believes the company "has significant future earnings growth potential and strong cash generation which are not reflected in the current rating", thus labelling its stock a 'buy'.
Valuation: Supergroup is trading on a price/earnings ratio of around 21 times.
Supergroup, Hays, Coral Products.
API Group, Wynnstay Properties, Xcap Securities, Telford Homes, Blinkx, Boussard & Gavaudan Holdings, Shires Income, BTG, Babcock International Group.
Friday 12 July
Burberry Group, Thor Mining.