City diary: Week ahead in the markets

 

A three-day trading week will have little impact on the volume of news next week as BP, Royal Dutch Shell, BSkyB and Whitbread are all due to report.

Calendar

 

MONDAY

Bank holiday

 

TUESDAY

The CBI will release its quarterly industrial trends survey.

 

WEDNESDAY

Embattled oil giant BP is expected to reveal a drop in underlying profits as it continues to feel the impact of the Deepwater Horizon spill a year ago.

Analysts expect BP to report a 0.8% decline in profits to $5.6bn (£3.4bn) when it updates on its performance in the first quarter of 2011.

Production levels, which directly affect the amount of profit the company can generate, have fallen by nearly 9% in recent months after the company sold oil fields and refineries and the US banned further drilling in the Gulf of Mexico.

The asset sale has been taking place to meet the $40.9bn (£25bn) cost of the clean-up operation following the explosion on April 20 2010, which killed 11 men and caused the biggest offshore oil leak in history.

The catastrophe in the Gulf caused BP to plunge to its first full-year loss in 20 years in 2010 and forced the resignation of chief executive Tony Hayward who was at the helm when the disaster happened.

It also prompted the company to temporarily suspend its dividend, which accounted for one pound in every six invested by pension schemes. The group's share price is still about a third lower than it was before the disaster.

BP restored its quarterly dividend when it last updated the market in February and investors will be hoping that the company maintains or increases the pay-out as a sign that it is back on its feet following the disaster.

A decline in BP's profits would be another blow to investors following a period when oil prices hit two-and-a-half year highs and soared beyond £100 a barrel.

It also ramps up pressure on the company to rescue its £10bn share swap and Arctic exploration deal with Russian state-backed oil company Rosneft. The company is locked in conflict with its billionaire partners in Russian joint-venture TNK-BP, who have won a tribunal-enforced injunction on the deal.

BP now has until May 16 to secure the deal, in one form or another, or else the tribunal, held in Stockholm, could impose a permanent block on the agreement.

While BP strives to recover after its hellish year, its rival Royal Dutch Shell's first quarter trading update on Thursday is expected to make more pleasant reading for investors.

Tony Shepard, an analyst at Charles Stanley Securities, predicts that it will post a 20% rise in earnings to $5.8bn (£3.5bn) as it benefits from the rising cost of oil and gas and a cost-saving drive.

However, its production volumes may not show much improvement after it was hit by the US moratorium on drilling in the Gulf of Mexico caused by BP's disaster and it carried out maintenance work in the North Sea and Nigeria.

The Anglo-Dutch company nearly doubled its profits to $18.6bn (£11.6bn) in 2010 as it took advantage of higher commodity prices.

When Shell last updated the market it set out ambitious plans to invest $100bn (£62.4bn) on new projects over the next four years, including new projects in Qatar and Canada in 2011.

The company has 20 new projects under construction, which will add more than 800,000 barrels of oil equivalent per day, putting it on course to meet its target of 3.5m barrels per day for 2012.

Barclays is facing a potential row with investors at its general meeting after a leading investor group flagged up fresh concerns about its proposals for executive pay.

Influential shareholder group, the Association of British Insurers (ABI) whose members control about 15% of the stock market, has issued a so-called 'amber top' alert warning that investors should closely scrutinise the bank's remuneration report before next week's shareholder vote.

The ABI has raised concerns about plans to pay new chief executive Bob Diamond £1.35m - 20% more than his predecessor John Varley received. Barclays also plans to pay Mr Diamond a bonus of up to £3.375m and he is entitled to receive shares next year worth £6.75m as part of a long-term incentive scheme.

The ABI report also draws attention to plans to pay some staff bonuses through contingent convertible bonds, or 'cocos', which some shareholders believe are too generous.

The proposed use of cocos, which are effectively loan notes, has drawn criticism because staff would receive interest of 7% a year, allowing executives to earn extra money, while they wait for their bonuses to mature.

The ABI does not give advice to its members on how they should vote and only raises issues that it thinks warrants special consideration. But by flagging up the remuneration report it could increase the chances of a shareholder rebellion at the meeting.

It comes after investor group Pirc last week urged shareholders to vote against Barclays' remuneration plans, claiming the bank's pay proposals were "opaque" and "overly complex".

Hugh Savill, director of investment affairs at the ABI, said: 'We have put the report on an amber top. It is now up to shareholders to make considered judgments on the remuneration report and the use of synthetic cocos to pay executives.'

Associated British Foods will report further profits growth despite a slowdown at its budget fashion chain Primark when it provides half-year results.

When the group last updated the market, in February, it revealed a 'noticeable' drop in UK consumer demand, as same-store sales growth at Primark fell to 3% in six months to March 5 - half the level achieved during its previous financial year.

It was one of a raft of retailers to report a change in mood among UK shoppers since the start of the year as the increase in VAT to 20% from 17.5%, high inflation and the Government's austerity cuts took their toll on consumer confidence.

The update was a rare disappointment for investors after a series of strong results which made Primark the group's star performer in recent years, as it rode the boom in demand for budget clothing on the high street.

The group said profit margins at Primark, which has 214 stores in the UK and overseas, will be lower than last year as it struggles to pass on the soaring cost of raw materials including cotton, as it keeps prices low to attract cautious consumers.

Despite the slowdown in growth, the division's profits will still be in growth as it benefits from the increase in organic sales and new store openings.

Investors are expected to quiz the company for more information on how Primark has traded in recent weeks and whether there is any let-up in the squeeze in consumer spending.

AB Foods has also said profits from the rest of its operations, which make Kingsmill bread, Silver Spoon sugar and Pataki's spicy food range, saw a better first half for trading.

The group's sugar manufacturing operations have benefited from the rising cost of the commodity, particularly in Asia.

Julian Hardwick, an analyst at RBS, expects AB Foods to report a 6% rise in underlying profits to £352 million as the slowdown in Primark is offset by the growth in the sugar business.

GlaxoSmithKline and ARM Holdings will release first quarter results.

 

THURSDAY

Satellite broadcaster BSkyB is expected to reveal further growth in customer numbers and profits, heaping more pressure on News Corp's bid to take full control of the company.

Matthew Walker, an analyst at Nomura, expects the company to post a solid update for the first three months of 2011 and recently increased his estimate for the number of net customers added to 40,000 from 32,000 in the period.

He forecasts that underlying profits will increase 15% to £252m as the group benefits from strong growth in the number of customers subscribing to high definition TV and broadband services.

The average amount paid by a Sky customer has risen 8% to £544, he estimates, as the company signs up more customers to 'bundled' packages of services such as broadband, landlines and TV deals.

The group recently described its first-half performance as 'outstanding' after it posted a 26% jump in operating profits to £520m and it smashed through the 10m customer mark.

Another strong trading performance would place further pressure on Rupert Murdoch's News Corp to offer more money as it tries to buy the 61% of the company it does not already own.

News Corp's offer of 700p per share for the company was rejected by BSkyB last year although it said it would recommend an offer if the price was right.

Culture secretary Jeremy Hunt has been considering whether to allow the takeover to take place, amid concerns that the deal would threaten media plurality. NewsCorp already owns The Sun, News of the World and The Times newspapers.

Last month Mr Hunt said he was minded to give it the go-ahead after NewsCorp offered to spin-off Sky News and give it funding to run as a separate company for the next 10 years.

An alliance of media groups including BT, Guardian Media Group, Associated Newspapers, Trinity Mirror, Northcliffe Media and Telegraph Media Group, opposed the deal, arguing that it is 'fanciful' to believe Sky News would be genuinely independent.

A decision is expected before the end of the month.

Whitbread is set to report a 20% rise in profits in its full-year results, following a strong performance from its Premier Inns and Costa coffee brands.

Like-for-like sales across the group increased 6.7% in the 50 weeks to February 17 as it benefited from a resurgence in consumer spending and invested in advertising its brands.

It has run television commercials featuring comedian Lenny Henry, while Costa placed newspaper adverts claiming that consumers preferred its coffee to that of its rivals.

Analysts forecast that underlying profits will rise to £286m in the year to March 3, while dividend payments are expected to increase 13% to 43p per share.

That would represent a strong recovery for Whitbread, whose profits slumped during the recession as consumers cut discretionary spending.

However, investors are concerned that like-for-like growth slowed to 3.9% in the 11 weeks to February 17 when trading was affected by the snow in December and it came up against stronger comparatives with the previous year.

They will scrutinise its results for an update on current trading for any clues as to whether the recent drop in consumer spending in 2011 has affected its momentum.

The group also has ambitious expansion plans, which should help its sales to grow even if consumers spend less.

Its Costa arm, which is one of the UK's largest coffee shop brands with more than 1,200 UK outlets and 650 overseas sites, is on track to open 300 stores in the current financial year and recently announced a £59.5m deal to buy Coffee Nation, which runs 900 self-operated coffee machines in locations such as service stations.

Premier, which currently operates 593 hotels, previously said it was on track to open 22 new sites in the year, amounting to more than 2,000 additional rooms. It has plans to increase its number of rooms by a third, to 55,000, over the next three years.

Whitbread has also added to its 378 restaurants, which include Beefeater, Brewers Fare and Table Table, by opening eight new eateries over the past year.

Santander, Shire Pharmaceuticals and AstraZeneca are scheduled to release first quarter results.

WPP, Unilever, BAT. International Power and Hammerson are due to put out trading statements.

 

FRIDAY

Bank holiday

 
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