Week ahead: House prices, housebuilders and retailers
News on house prices kicks off the week with an assessment on asking prices by Rightmove on Monday.
It has recorded rises in property asking prices all year so far with increase of 2.4% in May and 1.8% in April.
Housebuilders will be hoping for a continuation of that trend. They had a good day yesterday after Taylor Wimpey revealed its forward order book had soared 73% since the end of last year. Its shares rose 9% to 33¾p.
Then on Tuesday, figures from The British Banker's Association will reveal the amount of money lent by banks for house purchases. Economist expet mortgage approvals to have risen to 30,000 for May from 27,685 in April and a low of 18,027 in November 2008. It would only be a marginal improvement - the monthly average over the past 12 years is 61,500.
Berkeley Group will publish its full-year results on Friday. It has so far weathered the storm better than many peers but its profits have been impacted, down 12% at the half-year stage to £79.6m. Management have been trying to reposition it as a specialist urban regenerator in London and the South East to differentiate itself from so-called 'volume housebuilders'.
It recently completed a £50m share placing to raise funds and analysts are expecting the group to start making opportunistic land buys in the depressed market. UBS said Berkeley was 'very well positioned to buy land at the bottom of the cycle', although this may have an impact on shareholder dividend payments. The broker expects earnings for the year to April 30 to have dropped to £117m from £207.8m a year earlier but it added: 'Berkeley has the greatest flexibility in the sector to create value and has a strong position in the most under-supplied markets in the UK.'
Retailers will also be used again as a barometer of the recession. Results from DSG International, owner of Curry's and PC World, on Thursday are likely to be a grim reminder of the impact on consumer spending.
At the end of April, the company unveiled plans for a £310.6m fundraising to strengthen its finances and accelerate its programme of store revamps. Back then it said underlying pre-tax profit for the year to 2 May would be 'not less than £42m' - although a figure around this level would be just a fifth of the £205m posted for the previous year.
Analysts will be looking for any signs of optimism over the outlook after like-for-like sales across the group fell 11% in the second half. The UK and Ireland electricals business saw comparative sales slide even further - down 12% - while like-for-like sales in UK computing slumped 14%.
Excluding the revamped stores and the internet, management are braced for negative like-for-like group sales until the second half of the 2010/11 financial year - meaning a recovery could be at least 18 months away.
Kesa Electricals, owner of Comet, is expected to post a dramatic plunge in profits when it announces its annual results on Wednesday, but recent positive news from the sector could provide hope for an upturn. It reported a 7.3% fall in like-for-like Comet sales between January 9 and April 30 and comparable sales dived 7.7% in the full year to the end of April as consumers cut spending on 'big ticket' and electrical goods.
During the week, Kesa said it was close to selling its loss-making Swiss business. Numis Securities predicts group pre-tax profits to have tumbled to £72.9m. Kesa made £128.8m last year on revenues of £4.5bn. The broker said recent encouraging news from the electronics sector boosted hopes that Kesa could also benefit.
Argos's first quarter figures beat forecasts, supported by a strong performance in consumer electrical goods, while John Lewis has also registered an upturn in the sector.
Numis analyst Andrew Wade said he had upgraded Kesa due to the belief that 'the mixture of positive sub-sector newsflow and management action provides upside'.
The company, which also owns Darty in France and trades across Europe, has said it hopes to save £14m in annual costs from its actions to slash head office staff and consolidate its distribution centres for the Comet business. Meanwhile jobs are being cut across Kesa's Spanish operation as it closes stores and warehouses in the country. Mr Wade said: 'It looks as though Kesa, under new chief executive Thierry Falque-Pierrotin, will be taking a more aggressive approach towards its loss-making divisions.'
The City will be hoping for positive news from Stagecoach on its dispute with the Government over its South West Trains franchise when the rail and bus firm reports results on Wednesday. In April, the Perth-based group warned of 'significant' operating losses in two years on its franchise for services between the south coast and London Waterloo if the row with the Department for Transport is not settled.
The key point of contention is a provision of the deal in which the Government agrees to pay a proportion of a franchisee's losses if it fails to hit revenue targets. SWT believes the contract entitles it to revenue support calculated from April 2010, but the DfT believes the start date should be February 2011.
The recession is bearing down hard on rail revenues. Stagecoach also runs East Midland train services, the Island Line and has a 49% stakeholding in Virgin Rail. It expects the rail business to remain profitable in the current year but said it would 'continue to seek opportunities to achieve further efficiencies and maximise revenue'. There is likely to be better news from its bus arm, which carries around two million passengers in 100 towns and cities in the UK.
Pre-tax profits are likely to be around £187m for the year to April 30, compared with £174.4m last time.
Packaging and office products firm DS Smith has braced investors for a sharp fall in annual profits on Thursday after a difficult year. A gloomy pre-close statement from the FTSE 250 firm - which is the UK's leading producer of recycled paper and corrugated packaging - warned it was facing 'volatile and weaker demand' in almost all markets. Paper and corrugated packaging has been hit by lower demand for boxes and a steady fall in the UK price of corrugated case material since October.
Broker Cazenove lowered forecasts following the pre-close statement and predict a slump in pre-tax profits from £109.1m to £67.9m in the year to April 30. 'The downgrades are to reflect the fact that market conditions are yet to stabilise, and concentrated on the UK packaging markets,' Kartik Swaminathan said.
Bank of England Governor Mervyn King will be back in the spotlight on Wednesday when he gives evidence to MPs on banking reform and his latest inflation predictions. King's comments to the Treasury Select Committee will be closely watched after he repeated his calls for more power to be given to the Bank at his Mansion House speech this week.
Despite the Bank being given statutory responsibility for financial stability in the recent Banking Act, the Governor is frustrated that he has given no extra means to carry it through.
He said the Bank 'finds itself in a position rather like that of a church whose congregation attends weddings and burials but ignores the sermons in between'.
King is concerned that mere warnings will not be enough to deter people from reckless but profitable behaviour. It is the latest uncomfortable intervention from the Government since his comments in April - before the Budget - that the UK finances were not strong enough to handle a second economic stimulus package. He also clashed with Lord Mandelson over support for the car industry.
The governor will also answer questions on last month's inflation report, which lowered growth forecasts for the UK economy. His warnings then of 'relatively slow and protracted recovery' also sparked angry Government briefings.
Meanwhile Financial Services Authority chairman Lord Turner is himself up before the Committee on Tuesday to answer questions on his review of the way forward for banking regulation, published in March. Under a more intrusive regulatory approach, he called for a new regime which would impose tougher capital and liquidity requirements on banks to make them 'a shock absorber in the economy, not a shock amplifier'.
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