City diary: Week ahead in the markets

By This Is Money
Updated: 11:12 EDT, 25 February 2011

Another big week for corporate results will see updates from banking giant HSBC and key players in the housebuilding and insurance sectors.

MONDAY

HSBC is the last of the UK's big banks to post annual figures and its results will be combed for details on how much it will pay out to investment bankers and top bosses.

The group's chairman recently told MPs its compensation ratio was likely to be around the same level as in 2009, but this was before the Project Merlin agreement with the government was announced.

The bank paid out around £1.2bn for its investment bankers in 2009.

Amid speculation it may have inflated salaries to avoid a backlash over bonuses, chairman Douglas Flint confirmed earlier this month that it had taken £93m from the bonus pool to boost pay.

Its annual report - due out alongside the results - is expected to confirm how much was paid to former chief executive Michael Geoghegan, who was replaced by investment banking boss Stuart Gulliver in December.

Mr Gulliver's windfall for 2010 is also likely to be laid bare, having taken a a £9m share bonus award in the previous year.

As well as bonuses, HSBC's tax payments are also likely to be in the spotlight after Barclays revealed it paid £113m in corporation tax in 2009, a year when it made £11.6bn in profits.

HSBC, which did not need taxpayer bailout cash during the financial crisis, is set to report a sharp rise in pre-tax profits to around £12.8bn in 2010, up from £4.4bn in 2009, according to analysts.

Its results have been helped by a hefty reduction in bad debt losses, a trend which has boosted figures across the industry.

HSBC said in November that bad debts had fallen to their lowest level since 2007 in the third quarter, which was offsetting lower investment banking revenues.

It did not reveal a third quarter profits figure, but said its performance remained 'well ahead' of a year earlier.

With its heavy focus on Asia and emerging markets, it more than doubled profits at the half year stage, up 121% to £6.9bn.

Analysts at Bank of America Merrill Lynch are expecting UK trends to show continued improvement, with a greater share of the mortgage market taken and faster-than-expected declines in bad debts.

They also believe HSBC will have been shielded from much of the industry-wide slowdown in investment banking business, thanks to its geographic spread.

'Asia did not see the same seasonal revenue slowdown in the fourth quarter as developed markets, hence we expect its investment bank to have held up relatively well - we forecast second half revenues down just 6% versus the first half.'

Hiscox, Pearson and Bunzl will announce results while Associated British Foods is scheduled to issue a trading statement.

Economic news: The Land Registry will release its house price index for January.

TUESDAY

Two of the UK's biggest housebuilders Persimmon (reporting today) and Taylor Wimpey (reporting on Thursday) are due to shrug off the gloom surrounding the property market when they report significant increases in profits.

Both housebuilders have provided bullish trading updates in recent months and are expected to report strong performances in the second half of 2010 despite the Comprehensive Spending Review in the autumn which deterred buyers and the snow in December which disrupted sales and building work.

Rivals Barratt Developments and Redrow have both posted upbeat results in recent weeks after they built more family homes rather than flats to reduce their exposure to first time buyers struggling to get mortgages.

Persimmon is expected to report pre-exceptional pre-tax profits of £88m, up from £7m in the previous year.

In January, it said it had achieved a significant increase in underlying profits for 2010 after turnover lifted by 10% to around £1.57bn.

This followed the completion of 9,384 sales in the year at an average price of £167,000, itself an improvement of 6%.

The housebuilder has doubled its margin to 8% over the past year, helped by building more family-sized homes and fewer apartments.

Persimmon announced the end of a two-year dividend drought in August when it reported improved trading in the first half of 2010. The former FTSE 100 Index company restored its dividend with a pay-out of 3p a share - the first such award since it offered 5p a share in August 2008.

The move followed underlying profits of £39.4m the six months to June 30, which compared with losses of £16.7m last time.

Revenues lifted 27% to £776.6m in the first half on the back of a 16% increase in new home completions and a rise of 8.6% in average selling prices.

GKN, Fresnillo and Coventry Building Society are due to announce results.

WEDNESDAY

ITV is expected to reveal that profits more than doubled in 2010 after it benefited from a revival in the advertising market.

The broadcasting giant, which is home to hit shows I'm A Celebrity Get Me Out of Here! and Coronation Street, is forecast to announce that it made pre-tax profits of £298m in 2010, up from £108m the previous year.

Analysts at Numis Securities predict that advertising revenues increased by 16% in the year after receiving a first-half boost from the World Cup.

A strong line-up of hit shows helped generate further increases in advertising revenues in its final quarter, with the finals of talent show The X Factor reported to pull in up to £250,000 for a 30-second slot. Downton Abbey also drew an audience of more than 10m for its final episode.

Other broadcasters, including Europe's largest broadcaster RTL and Scottish ITV franchise owner STV, have also reported strong results in recent weeks.

ITV is undergoing a five-year recovery plan as it rebounds from losses in 2008 when the recession caused one of the worst slumps in advertising revenues in living memory.

Under the leadership of former Royal Mail boss Adam Crozier, who took over as chief executive in April, ITV has launched high definition versions of ITV2, ITV3, and ITV4 on the Sky platform. It has also agreed new three-year deals for The X Factor and Britain's Got Talent.

Total ITV revenues rose 11% to £1.45bn over the first nine months of 2010, with a 16% jump in broadcasting and online sales offset by a 10% drop in external revenues at ITV Studios.

Although the broadcaster is expected to reveal a strong performance in the final quarter it is cautious about its prospects for 2011 as it comes up against strong comparable figures from the World Cup.

Insurance giant Aviva is expected to make further progress on the back of strong recent sales growth, while profits should also benefit from the group's ongoing efficiency measures on Wednesday.

The City expects the company to report operating profits of between £2.2bn and £2.4 bn in 2010 on the back of strong sales growth in the UK, compared to profits last year of £2bn.

When Aviva last updated the market, with its third quarter results, it reported a 26% increase in sales to £2.4bn.

The sales trend improved in the third quarter and pushed the rate for the first nine months of the year up to 16% at £12.3bn, while worldwide new business rose 5%.

The market will also be on the look out for any news of the group's plans to reduce its expenditure. Aviva has earmarked £200m of efficiency savings and £200m of cost savings by the end of 2012, of which half will come from the UK.

This comes after the life and pensions arm saved £500m between 2007 and 2009 in a move that saw it reduce its headcount by 19%.

Aviva, which knocked back a £5bn offer from More Than parent RSA to buy its home and motor insurance operations in the UK, Canada and Ireland in the summer, also announced plans in April to shut the UK final salary pension scheme to future accruals, which will save it £50m in funding costs.

Chief executive Andrew Moss said in November that Aviva was on track for 'strong profitable growth' for the full year.

Worldwide long-term savings hit £8.4bn in the third quarter, up 9% on a year earlier, and in the UK insurance sales rose 15% to £1.2bn.

Aviva is the UK's leading general insurer with an estimated 15% market share. Around 70% of its world-wide profits come from life and pensions.

Admiral Group's growing share of the car insurance market should help it to unveil an increase in earnings.

Pre-tax profits at Admiral, which owns Diamond and elephant.co.uk, are forecast to have risen 20% to £259m in 2010.

Admiral increased the number of cars in the UK on its books by 23% in the first half of the year despite premium rates increasing by 22%.

Analysts said Admiral put up prices by less than many of its competitors, some of which are making losses and cannot afford to chase volumes.

The third quarter saw the rate of new cars it insured increase to 28%, bringing the total to 2.6m, and analysts at UBS predict a further increase in sales in the final quarter of the year.

Meanwhile the Cardiff-based firm is expected to give an update on its price comparison website Confused.com which lost its spot as market leader in the first half of 2010, when earnings dropped by 35%.

The group admitted that Confused had lost out to rivals who have had more success with TV ads such as moneysupermarket's campaign featuring comedian Omid Djalili and Gocompare's opera singer.

Admiral said turnover in the third quarter had stabilised but admitted that margins were under pressure.

But Admiral said in its third quarter update that it was on course to meet full-year targets as an improved performance in the wider business offset weakness in Confused.com.

International Power, Standard Chartered and Serco will release results, while Whitbread is scheduled to issue a trading update.

THURSDAY

Taylor Wimpey is forecast to post pre-exceptional pre-tax profits of £51.2m in 2010 on Thursday, compared to losses of £96.1m the previous year, as it cuts costs in the UK and sees strong sales growth in the US. Revenues are expected to be flat at £2.6bn.

Taylor, which trades as Bryant Homes, Laing Homes and George Wimpey, returned to profit in its half-year results as it focused on margins rather than sales growth and its average sale price increased by 10% as it built less flats.

The group, which builds houses in the UK, US and Spain and Gibraltar, recently said it has driven more cost savings than it expected.

In the UK, it slashed build costs by 10% in the first half of the year and is now expecting to beat targets for 2011 after driving further savings in the second half.

It may also give an update on recent buy-out approaches for its North American arm, Taylor Morrison, as it looks to concentrate on the UK market.

Taylor Wimpey was created through a merger between Taylor Woodrow and George Wimpey in 2007 at the peak of the housing market. It is in the process of rebranding all its divisions under the Taylor Wimpey banner.

Economic news: Nationwide and Hometrack will release housing data.

FRIDAY

Advertising giant WPP is scheduled to issue results. Nick Raynor of online broker The Share Centre commented: 'According to the industry, advertising spend has improved at a stronger than expected rate during the last nine months.

'Rival companies have reported such and we don't doubt that WPP will report the same story. WPP is the world's largest advertising group by revenue and size, and with large exposure to the US, these figures should not disappoint.'