City diary: Week ahead in the markets

By This Is Money
Updated: 09:49 EDT, 27 May 2011

Investors will have home improvement on their minds with results or updates from B&Q owner Kingfisher, Topps Tiles and Build Center firm Wolseley.

MONDAY

Bank holiday.

TUESDAY

No major company or economic news is scheduled.

WEDNESDAY

The recent history of Plumb Center and Build Center owner Wolseley is littered with profits warnings, restructuring and closures, but the company signalled steadier times in March when it returned to the dividend list.

The builders' merchant, which posts a third quarter update on Wednesday, also moved back into the black with profits of £195m in the six months to January, against a £261m loss a year.

The UK business, with more than 1,400 branches, also put in an improved performance with like-for-like sales up 6% and trading profits up 55% to £51m.

There was also improved trading in the US, but analysts are concerned that new house building will remain subdued due to poor employment and problems with mortgage lending.

The US accounts for 40% of the business and recent downbeat quarterly results from Lowe's, its nearest rival in the US, which did not meet Wall Street's expectations, have added to the unease.

Tom Sykes, an analyst at Deutsche Bank, recently downgraded Wolseley to 'hold' and said repair and maintenance work has buoyed the US arm but that new house building work now needs to pick up for the group to make further progress.

He doubts this will happen over the next six months and suspects this could mean shares in Wolseley marking time. They have already drifted back almost 10% over the past month because of the Lowe's news.

The group, which moved its tax base to Switzerland last year, has played down talk it may move back again. It still has a main office at Leamington Spa but the switch of domicile reduced its tax rate to 30% from 34%.

A sale of Brossette, Wolseley's French plumbing and heating company, has been mooted as a possibility by analysts, while there has been no movement on the sale of the UK-based Bathstore chain despite reports a deal had been struck with private equity group Electra.

For the full year to July, the consensus forecast is for profits of £605m, revenue of £13.6bn and earnings per share of 134p.

Tile and flooring group Topps Tiles is pinning its trading hopes on a sustained housing market recovery.

In March, the UK's largest tile and wood flooring specialist reported like-for-like sales increased by 1.8% in its first half, down slightly on the previous year.

Business has been boosted by homeowners choosing to do up their homes rather than move, but the benefit of this may be wearing off as Topps saw a slow down in the second quarter after a good first three months.

The interim figures will be keenly watched to see if it has reversed that trend especially as competition increases and as chains such as B&Q expand their range.

The group, which has a total market share of about 25%, added total first half sales would be £89.2m, compared to £91.4m a year earlier, though there was an additional week in the comparable half. Sales rose by 1.5% after allowing for an extra week.

Despite the tough background, Topps is adding to its chain and it should confirm next week it has 320 stores open, up from 313 in March.

The consensus forecast for the full year is for profits of £17.3m, up from an adjusted £16.3m last year.

Markit/CIPS is scheduled to release the latest Purchasing Managers Index for manufacturing. Last month it fell from 56.7 to 54.6 - a seven month low.

Nick Raynor, investment adviser at online broker The Share Centre, said: 'Last month "weakened" was the word that seemed to sum up findings of the three reports from Markit/CIPS on manufacturing, construction and services.

'The fact that all three saw a decline is worrisome. The fact that the manufacturing PMI has been steadily declining for some time is especially worrying. If this downward trend continues for much longer, talk of a double dip recession may re-surface.'

The Bank of England will release lending data from April. The Building Society Association will have savings and mortgage figures for April from the mutual sector.

THURSDAY

B&Q parent Kingfisher will provide further insight into the health of the retail sector when it updates on first quarter trading.

With the warmest April on record boosting sales of seasonal items such as barbecues, garden furniture and outdoor toys, Bank of America Merrill Lynch has forecast like-for-like sales growth at B&Q of 1.5% in the three months to the end of April. The bank also expects a 3% rise in group sales to £2.73bn.

But demand for big-ticket items - such as fridges and ovens - is expected to have seen limited growth as UK consumers continue to tighten their purse-strings in the face of high prices and sluggish wage growth.

Aurelie Caspar, a research analyst at BoA, said the company had the scope to 'outperform the sector'.

The City will be looking for further plans for expansion after it pledged to step up growth following a 22.5% rise in pre-tax profits to £670m in the year to January 29.

The company has 492 stores in the UK and Ireland - 330 B&Q and 162 under its Screwfix brand - plus 203 in France trading as Castorama and Brico Depot.

A further 161 outlets are located in Poland, China, Spain, Russia and Turkey but Kingfisher said it hoped to double this figure over the long-term.

The company recently bought 31 stores in the UK from DIY rival Focus after the latter fell into administration. However, Focus will be the subject of a closing down sale over the bank holiday weekend and this could have an impact on B&Q during a key trading period for Kingfisher.

Earlier this month, official retail figures revealed a better-than-expected performance in April as a combination of the royal wedding and hot weather boosted sales.

Online fashion retailer ASOS is set to post a 41% rise in profits, driven by strong growth in overseas sales.

Analysts forecast that the group, whose ranges are styled on clothes worn by celebrities, will report that pre-tax profits rose to £28.6m in the year to March 31, on sales up 52% to £339.5m.

While many of its high street rivals have suffered amid the squeeze on consumer spending, ASOS has continued to grow as more consumers shop online and it targets overseas markets with more buoyant economies.

When the group last updated the market, it reported that sales rose 58% to £324.8m in the year to March 31 and said full-year profits were likely to be at the top end of market forecasts of between £24m to £29m.

Its international business was once again the star performer with growth of 161% and ASOS said overseas sales overtook those from the UK for the first time - accounting for 52% of all turnover.

ASOS, which stands for As Seen On Screen, launched a dedicated website in America at the end of September, with sites following soon after in France and Germany. It also plans to launch further sites globally this year.

Sales in the UK, where it faces stronger competition, rose 24% in the quarter, up from 23% in the previous quarter.

The firm has been launching new initiatives to support UK sales, such as Fashion Finder - a new internet shopping platform that allows consumers to purchase goods from a number of popular high street and internet-only clothing retailers.

It offers online access to more than 50 other companies, such as Urban Outfitters, Reiss, Ted Baker and My-Wardrobe.com.

ASOS, founded in 2000, attracts more than 11m unique visitors a month and is geared towards 16 to 34 year olds.

Its success means that founder Nick Robertson - the great grandson of menswear retailer Austin Reed - is now worth £177m according to The Sunday Times Rich List.

He is reported to have come up with the idea for the business after hearing that the producers of sitcom Friends received 25,000 calls asking where they could buy a mirror like the one which hangs on Monica's door.

Improving global car sales should put a healthy sheen on Johnson Matthey's full-year figures.

Johnson makes a third of all the filters, or auto catalysts, used to sift out pollutants given off by car exhausts and is a big supplier of pollution filters for buses and lorries.

Its precious metals division, which refines and markets platinum, is also tipped for a good year on the back of buoyant metal prices for the period concerned. This, and growth in demand from car makers, should underpin a rise in full year underlying profits of more than a third for the year to March.

The consensus market forecast is for a total before tax of £340m, up from £254m last year.

Going forward, any comments about prospects for platinum and silver after the recent wobble in commodity prices will be keenly watched. The Japanese earthquake has reportedly led to stocks of platinum piling up, especially as Japanese car makers have slowed production, which could prove a problem for the company.

Markit/CIPS will publish their monthly construction index.

FRIDAY

Bad weather derailed Hornby late last year, which will hit its figures, but the model railways group should be more upbeat looking forward.

The current year will get the full benefit of Hornby's Olympics products, which it has now started to roll out and includes a range of different coloured London taxis with all of the various events - such as rhythmic gymnastics and archery - represented on the side.

Racing model arm Scalextric also has a new a range of products based on the forthcoming Disney/Pixar movie Cars 2, which is due for release during the summer, while the continued success of Formula One's Lewis Hamilton and Jenson Button should keep interest high in the models of their F1 racers.

The group, which makes Corgi diecast models and Airfix kits alongside its famous trains and cars, had supply issues in the first half with its European subsidiaries constrained by shortages of products.

Hornby has widened its base of suppliers as a result to stop the problem recurring but does not expect sales to recover the ground lost in the first half.

Andrew Wade, an analyst at house broker Numis, cut his profit forecast for the full year to March to £4.6m from £6.4m following the disruption, but maintained his forecast for 2012 at £7.8m to reflect a full year of Olympics merchandise sales.

Shares in the group have rallied in recent weeks, after falling on the weather warning in January, but at 123p are still down a quarter on the twelve month high of 164p.

Markit/CIP will put out their monthly services index.