Friday preview: Rentokil Initial, Smith & Nephew, Producer Prices

4th Nov 2010 17:21

It's an unusually busy day for a Friday with announcements expected from heavy hitters such as Rentokil, Smith & Nephew, Carphone Warehouse, HSBC and Royal Bank of Scotland.Rentokil Initial used to be known for its ability to deliver earnings growth of 20% or more each year back in the eighties and nineties, but those days came to an abrupt end at the end of the last century, and for four out of the last five years it has seen its earnings per share decline.The company stopped the rot last year, but the fact that the shares have underperformed the market by 15% over the last 12 months indicates that the pressure is back on.Broker Charles Stanley thinks the share price weakness is a bit harsh "as the group has reported strong results for the year to date and has accelerated structural change across the group." The broker is predicting third quarter pre-tax profit of £54m, versus £49.6m the year before. "Although the third quarter will show slower profit growth than in the previous quarters, the group's turnaround remains on track and the valuation is reasonable. In our opinion, the key priority is to deliver profitable growth through organic actions (Rentokil's 5th strategic thrust) and progress on this strategy is eagerly awaited," the broker said.KBC Peel Hunt notes that although Rentokil's results are being announced on Guy Fawkes Day, "we do not foresee any 'fireworks' in terms of explosion of growth vs. last year, and expect progress to be broadly stable.""City Link is likely to remain a key sentiment driver, and while management expect this business to be profitable in the full year, most of the progress will be made during the fourth quarter in our view," Peel Hunt said.Smith & Nephew is another company reporting on Friday where the shares have underperformed the market of late. The catalyst for the sluggish share price performance was concerns regarding the outlook for the medical devices firm's orthopaedic operations after a poor second quarter."Estimates for 2010 have been routinely lowered reflecting ongoing concerns regarding the outlook for Reconstruction," observes Charles Stanley. "Whilst revenue expectations have been lowered, this has been offset somewhat by the expectation that the company will deliver on its Earnings Improvement Programme (EIP) which is due to conclude at the end of the year. At issue is the concern that Smith & Nephew might have cut costs so aggressively in order to meet its margin targets that the top line suffers. We continue to take the view that the slowdown in US volumes is cyclical rather than structural but the low level of visibility relating to when the market may improve is fuelling investor doubts on this matter," the broker added.Charles Stanley is predicting third quarter group sales will rise to $925m from $915m the year before. It has pencilled in 15.5 cents for earnings per share, down from 16.8 cents the year before. Dealings in Mail.ru global depositary receipts (GDRs) will commence on a 'when issued' basis on Friday. The Russian internet group is raising up to $876m through the placing of 16% of the company. The indicative price range was set at $23.70 to $27.70 per GDR, which implies a market capitalisaton of between $4.86bn to $5.71bn, including new shares to be issued. The order book for the public offer closed on Thursday and the price is expected to be near the higher end of the range. Unconditional dealings are expected to start on 11 November.UK Producer Prices data is expected to show that output prices rose by 0.3% in October, as they did in September, while input prices are forecast to have risen by 0.9% from 0.7% the month before."Manufacturers have clearly looked to take advantage of improved manufacturing activity this year to push through price increases to support their margins in the face of elevated costs," Dr. Howard Archer of the economic forecasting unit IHS Global Insight suggests. "However, it seems likely that manufacturers will find it increasingly difficult to raise their prices over the coming months, given significant excess capacity and likely slower expansion. Significantly, the CBI's October industrial trends survey revealed that the balance of manufacturers expecting to raise their domestic prices fell back markedly to +6% in October from +15% in September," Dr. Archer added.INTERIMSCarphone Warehouse Group, Toyota Motor Corp.INTERIM DIVIDEND PAYMENT DATEAtlantic Global, Bodycote, Derwent London, Dillistone Group, Fiberweb, Forth Ports, Huntsworth, Hydrogen Group, Judges Scientific, Matrix Income & Growth 4 VCT, Mears Group, Motivcom, Nationwide Accident Repair Services, Northbridge Industrial Services, S & U, UK Select Trust Ltd., Weir GroupQUARTERLY PAYMENT DATEInvestors Capital Trust 'A' SharesINTERNATIONAL ECONOMIC ANNOUNCEMENTSRetail Sales (EU) (10:00)Factory Orders (GER) (11:00)Non-Farm Payrolls (US) (13:30)Private Sector Payrolls (US) (13:30)Unemployment Rate (US) (13:30)Pending Homes Sales (US) (15:00)Consumer Credit (US) (20:00)Q2Toyota Motor Corp.Q3Commerzbank AG, ReneSola Ltd. (DI), Smith & NephewGMSRockhopper ExplorationANNUAL REPORTFeedbackIMSSAer Lingus Group, Biome Technologies, Dechra Pharmaceuticals, HSBC Holdings, Phoenix Group Holdings (DI), Royal Bank of Scotland Group, Unite GroupAGMSDechra Pharmaceuticals, Galliford Try, Real Estate Credit Investments Ltd.TRADING ANNOUNCEMENTSCarphone Warehouse Group, Rentokil InitialUK ECONOMIC ANNOUNCEMENTSProducer Price Index (09:30)FINAL DIVIDEND PAYMENT DATEFiltronic, Photo-Me International