Thursday preview: Glaxo, Debenhams, retail sales

20th Oct 2010 15:17

Drugs firm GlaxoSmithKline is scheduled to give a third quarter earnings update at noon on Thursday. Nomura Securities thinks net sales will be £6,716m and earnings per share (EPS) 27.2p. Charles Stanley is more optimistic on the sales side, going for £6,820m, but thinks EPS will be 25.6p. Market consensus is for sales of £6,826m and EPS of 26.8p.Nomura is forecasting pharmaceutical sales of £5,497m, 1.4% below market consensus of £5,576m and lower than last year's third quarter figure of £5,593m. The Japanese broker thinks consumer sales will be £1,219m, 2.5% less than the market consensus of £1,250m but better than last year's £1,165m."We see gross margin compression, resulting largely from the replacement of high-margin Valtrex sales with revenues from Stiefel and Avandia write-offs, having an impact on 2H [second half] 2010," Nomura said.On the dividend front, Charles Stanley thinks the quarterly pay-out will be upped to 16p from 15p last year. "We are not expecting any fireworks in what has proved a relatively quiet quarter for the business," Charles Stanley said. "Investors should note that while Q1 [first quarter] and Q2 2010 benefited from pandemic flu preparation sales, Q3 will not (and Q4 should face a tougher comparator as pandemic flu preparations featured heavily in the equivalent period in 2009). Year on year comparisons are, however, likely to be influenced by the genericisation of Valtrex," the broker added. "Overall pharmaceutical sales are expected to be flat to marginally lower, offset in part by continuing strength in consumer health and a marginally favourable FX [foreign exchange] movement," Charles Stanley said. Panmure Gordon thinks the results will be dominated by flat pharmaceutical sales and charges on the withdrawal of Avandia in Europe affecting the gross margin. "Currency impact is providing modest tailwind but we still expect the business to show 10% decline on EPS to 25.6p," the broker predicts. Department store group Debenhams is not expected to spring any surprises on the market in its full year results so soon after last month's trading update and a recent investor analyst visit to one of the company's stores."While we do not expect a current trading update, we believe LFL [like for like] sales remain in positive territory and we expect margin upside too, as Debenhams is set to outperform," said KBC Peel Hunt, which is a fan of the stock.Market consensus is for profit before tax of £148.2m on sales of £2,554m. Peel Hunt thinks profits may even hit £150m, excluding bank fee amortisation of £5m. The broker is predicting that net debt will come down to about £518m, a reduction of some £72m on the year. The broker is expecting the retailer to resume dividend payments, but not just yet; shareholders will have to wait until the interims for a return to divis, Peel Hunt believes, at which point it predicts the shares will yield around 3.5%."While all retailers are clearly conscious of the economic backdrop, Debenhams continue to offer good levels of 'self-help' from range changes and the EBIT [earnings before interest and tax] contribution from Magasin. Management is also showing an increasing level of confidence for spring/summer 2011, with management pointing out this has historically been an area of weakness for Debenhams, having typically failed to be as successful in casualwear. It would appear the ranges have been targeted at offsetting this in 2011," Peel Hunt said.Panmure Gordon thinks a lower interest payment this year will contribute to a rise in adjusted pre-tax profit of £151.0m and adjusted EPS of 8.3p. The company has indicated it will not provide any information on current trading until next year. "This implies no information on trading from the end of August onwards, which might be uncomfortable for some, especially since Debenhams has had at least 3 sale periods since the end of August. It is currently running a 'Blue Cross' (up to 70% off) promotion until October 24th. Discounts appear to be deep but fairly thinly spread as opposed to the 5 day sale in early September, where reductions of 25% appeared to be rather broad, having been capped at 20% last year (and 10% in 2005)," Panmure Gordon noted.In contrast to Peel Hunt, Panmure Gordon is a seller of the stock. "We are inclined to stay away from the shares due to the company's relatively constrained balance sheet, reflected in a high adjusted net debt/EBITDAR [earnings before interest, tax, depreciation, amortisation and rent] ratio, higher relative exposure to public sector pay freezes and job cuts and the need to considerably update the store portfolio," the broker said. Switching to the economy, retail sales data is due out with volumes in September forecast to have risen by 0.3% from August, taking the year-on-year gain up to 0.7% from 0.4% in August."Survey evidence for September from the Confederation British Industry (CBI) was robust, but the British Retail Consortium's (BRC) survey was appreciably weaker. As the BRC survey is released much later in the month than the CBI's this suggests that retail sales may have moderated towards the end of September," suggests Dr. Howard Archer of the I H S Global Insight forecasting agency. INTERIM DIVIDEND PAYMENT DATEoffice2office, RPS Group, ToLunaQUARTERLY EX-DIVIDEND DATECaterpillar Inc.INTERNATIONAL ECONOMIC ANNOUNCEMENTSContinuing Claims (US) (13:30)Initial Jobless Claims (US) (13:30)Leading Indicators (US) (15:00)Philadelphia Fed Index (US) (15:00)PMI Composite (EU) (09:00)PMI Services (EU) (09:00)PMI Manufacturing (EU) (09:00)Consumer Confidence (EU) (15:00)PMI Composite (GER) (08:55)PMI Services (GER) (08:55)PMI Manufacturing (FRA) (08:00)PMI Services (FRA) (08:00)Production Outlook Indicator (FRA) (07:45)Business Confidence Indicator (FRA) (07:45)Q3GlaxoSmithKline, Lilly (Eli) & CoGMSAEA Technology, MediaZest, Richoux GroupFINALSDebenhams, Smiths NewsIMSSAnglo American, Henderson Group, Inchcape, Manganese Bronze Holdings, PetropavlovskEGMSCobra Holdings, Guaranty Trust Bank GDR (Reg S)AGMSBHP Billiton, City of London Inv Trust, Gold Oil, Jupiter Primadona Growth Trust, Ludgate Environmental Fund Ltd., SpiriTel, Tanfield GroupTRADING ANNOUNCEMENTSBritvicUK ECONOMIC ANNOUNCEMENTSInternet Retail Sales (09:30)Mortgage Approvals (09:30)Retail Sales (09:30)