City diary: Week ahead in the markets

By This Is Money
Updated: 10:19 EDT, 4 February 2011

Heavyweight stocks including Rolls-Royce, drinks giant Diageo and medical devices firm Smith & Nephew are scheduled to report results.

MONDAY

Randgold Resources will report full year results.

TUESDAY

An update from package holiday operator Thomas Cook will be scanned for guidance on how the unrest in Egypt and Tunisia has affected its business.

Riots on the streets of Tunisia last month caused 3,000 British citizens to return home while the uprising in Egypt prompted the Foreign Office to advise against all but essential travel to the cities of Cairo, Alexandria, Luxor and Suez.

Thomson Holidays owner TUI Travel has warned the disruption in the two countries could cost it up to £30m in the second quarter after it cancelled trips.

Thomas Cook sells 900,000 holidays to Egypt a year and 600,000 to Tunisia and holidays to the two countries make up an estimated 8% of the company's sales, according to Wyn Ellis, an analyst at Numis Securities.

The operator cancelled excursions from the Red Sea resorts to Cairo as a precautionary measure but other than that it is not yet known how much disruption the civil unrest has caused Thomas Cook.

But Mr Ellis said many of Thomas Cook's holidays in the Red Sea resorts such as Sharm el-Sheikh and Hurghada have been largely unaffected by the chaos although he admitted that holidays to Luxor could be 'an issue'.

He expects Thomas Cook to reveal smaller losses in the final quarter of 2010 than the £41.3m it reported a year ago because the market in Germany has picked up.

Thomas Cook reported a 34% fall in UK adjusted operating profits to £107.5m in the year to September 30 as good early-summer weather in the UK, the closure of European airspace in April, the weak pound and declining UK revenues all took their toll.

It recently announced tie-ups with the high street shops of Co-operative Travel and Russian travel agency VAO Intourist.

BG Group and Xstrata will also report results.

WEDNESDAY

Strong demand in emerging markets is expected to boost full-year results from household goods giant Reckitt Benckiser.

The Cillit Bang-to-Dettol firm said in November that it was targeting annual growth of 6% in revenues and a 16% rise in net income despite a lacklustre performance in Europe.

The Slough-based company, which recently completed its acquisition of Durex and Scholl owner SSL International, reported a 16% rise in third quarter profits to £426m due to strong sales in emerging markets.

Revenues in Europe were flat at £843m in the third quarter as the region - which accounts for 43% of total sales - suffered from increased competition and weak demand for laundry detergent, fabric conditioner and water softeners.

The market will also be looking for Reckitt's views on the impact of rising raw material costs.

Consumer product firms have been hit by soaring commodity prices and Carex and Imperial Leather maker PZ Cussons revealed recently that it was impacting soap costs, with palm oil prices racing higher.

This could have a bearing on Reckitt, given its personal care brands.

Investec Securities analyst Martin Deboo expects rising input prices to put Reckitt's profit margins under pressure in 2011.

He is forecasting 2010 pre-tax profits to rise by 21% to £2.3bn, but to remain largely flat in the current financial year in the face of inflation and a cautious consumer environment.

THURSDAY

Hip and knee replacement maker Smith & Nephew, due to report full year figures, has seen its shares jump to all-time highs in recent weeks on rumours of takeover interest.

Despite denials by S&N that it is in discussions, shares have remained at record highs as speculation refuses to die down.

It is thought that S&N rejected a reported £7bn approach from US rival Johnson & Johnson before Christmas, while privately-owned American player Biomet is now said to be mulling a bid.

Many analysts are unconvinced that a bid will transpire, but are hopeful of trading for the year ahead.

Experts at Evolution Securities said in a recent note: 'We continue to value the stock on a standalone basis - we remain positive on improving results for S&N in 2011.'

Recent results from larger American rival Stryker have been encouraging, with the group reporting orthopaedic sales up 4% in its fourth quarter.

Most analysts are expecting Hull-based S&N to report fourth quarter trading profits of £155.6m on revenues of £642m. This would see it notch up full-year trading profits of £586m, up 10% on 2009.

As Evolution's team noted, the year ahead will be determined somewhat by economic conditions, such as employment and consumer confidence.

But S&N's market is still growing and takeover rumours are expected to continue driving shares higher in the short-term.

Rolls-Royce is likely to provide more details on the cost of dealing with the aftermath of an engine explosion on a Qantas superjumbo when it reports full-year results.

The firm is expected to report a 3% rise in pre-tax profits to £945m in 2010 and an 8% increase in sales to £10.9bn, despite the investigation and remedies required following the incident, according to analysts.

The Qantas A380 superjumbo was flying between Singapore and Sydney when it was forced into an emergency landing after a Rolls Trent 900 engine caught fire in mid-air, causing the airline to ground its entire fleet.

The Derby-based company quickly identified the cause of the problem and said it had agreed a series of checks and inspections with authorities, Airbus and operators of the Trent 900-powered jets to begin allowing affected planes to resume flights.

While the cost to the UK firm has yet to be revealed, the engines giant admitted the response would lead to 'slightly lower' underlying profits growth, compared with previous forecasts of 4% to 5%.

But the company's profits are still expected to exceed those of the previous year following strong performances in its marine and defence divisions.

The company's defence business continues to perform well and recently won a contract to supply gas turbines and waterjets for ten of the US Navy's high speed Littoral combat vessels.

In December, Rolls signed a £3.2bn deal to supply British Airways with engines for up to 61 aircraft, in the first sale of its Trent 900 engine since the explosion.

The manufacturing giant will provide the airline with Trent 900s for 12 Airbus A380 planes and Trent 1000 engines to power 24 Boeing 787 Dreamliners.

Rolls' chief executive Sir John Rose is due to be replaced by former British Airways finance chief John Rishton in April after 14 years at the helm.

Guinness and spirits maker Diageo is expected to show continued sales and profits growth when it reports its half-year results.

Diageo, which makes Captain Morgan rum, Gordon's gin and Smirnoff vodka, should grow sales by 5% to £5.5bn and operating profits by 6% to £1.6bn in the second half of 2010, according to analysts at RBS.

Diageo reported in its last trading update, in October, that organic net sales grew by 5% in its first quarter and reiterated its forecast that organic operating profits growth in the full year will improve on last year.

Diageo said that weak consumer markets in Europe have been offset by strong performances in North America and emerging markets such as Russia.

In the UK, sales of Guinness have been flat in the year to June, bucking the declining beer market, with the help of its Bring It To Life adverts to celebrate the black stuff's 250th anniversary.

The company has benefited from a trend in the UK and across Europe that has seen consumers stay at home to drink rather than go out, partly because people have more at-home entertainment such as games consoles.

Diageo has launched cans of ready-mixed spirits drinks such as Gordon's and tonic and Smirnoff and cola, which it hopes will boost sales of the growing take-home market.

Chief executive Paul Walsh has hinted in recent weeks that he may consider moving the company abroad if it the Government does not lessen the tax burden on Diageo and its employees.

Shire Pharmaceuticals will also report results.

Economic news: Bank of England's Monetary Policy Committee will make its latest interest rate announcement. The Council for Mortgage Lenders will release buy-to-let housing data for the fourth quarter of 2010.

FRIDAY

No major corporate news is scheduled.