Tuesday preview: KCOM, Enterprise Inns

21st Nov 2011 16:11

FTSE 250 telecoms group KCOM is scheduled to announce interim numbers on Tuesday, but Altium Securities is more interested in whether it will announce new corporate contract wins that could prompt profits upgrades."Kcom's position as the market leading managed service provider has enabled it to win two of the three Public Sector Network (PSN) contracts awarded to date plus other corporate contracts. Should Kcom win any of the estimated 30-70 PSN contracts that are expected to be awarded, each of which has a minimum revenue range of £20-60m spread over 10 years, then this will have a material effect on profitability with relatively little additional capital requirements," Altium notes. The pre-close trading statement issued at the end of September indicated that the group was trading in line with expectations and generating pots of cash. Net debt at the half year stage is expected to be about £76.0m, down from £82.0m six months earlier at the end of March. It is hard to believe that highly geared pubs group Enterprise Inns was trading above 750p in the middle of 2007, given that the shares can now be bought for 28p or so and that beer prices seem to have risen inversely to the company's share price. The company will announce full-year results on Tuesday but, as broker Charles Stanley points out, the Enterprise Inns story is all about reducing debt. "Sentiment towards highly indebted businesses remains negative and despite demonstrating serviceability of the debt, absolute debt reduction would prove the most beneficial way to release equity value," the broker said, in a preview of the results.Unfortunately, reducing debt has necessitated the disposal of a number of prized pub assets, with the result that the revenue trajectory is on a downward path, as is the profit before tax trend, although declining consumer confidence has also played a part in the slide in fortunes. Market consensus is for profit before tax of £157m, down from £175m last year, on revenue of £702m, down from £758m. Earnings per share are seen sliding to 22.69p from 25.79p last year, while dividend payments remain but a fond memory."The fundamental issues still remain with this stock, specifically, when the group will be able to return to sustainable LfL EBITDA [like-for-like earnings before interest, tax, depreciation and amortisation] growth, debt serviceability/reduction plans and pub portfolio contraction progress," Charles Stanley's James Dawson reckons. Dawson has a "buy" recommendation on the stock but acknowledges it is a higher risk investment. INTERIMSBig Yellow Group, CML Microsystems, Digital Barriers, FFastFill, Halma, Hamworthy, Heath (Samuel) & Sons, Homeserve, Intermediate Capital Group, KCOM Group, Telecom Plus, VictoriaINTERIM DIVIDEND PAYMENT DATECapital Shopping Centres Group, Fujitsu Ltd.INTERNATIONAL ECONOMIC ANNOUNCEMENTSConsumer Confidence Indicator (EU) (10:00)GDP (Preliminary) (US) (13:30)Q2Big Yellow GroupQ3AFI Development, JSC Halyk Savings Bank of Kazakhstan GDR (Reg S), Signet Jewelers Ltd.GMSCadogan PetroleumFINALSEnterprise Inns, Mitchells & Butlers, Optos, Paragon Group Of Companies, Renew HoldingsEGMSPlaza Centers NVAGMSDiscovery Metals Ltd. (CDI), Eurovestech, Fluormin, Greatland Gold, Pantheon International Participations, Smiths GroupUK ECONOMIC ANNOUNCEMENTSPublic Sector Finances (09:30)FINAL DIVIDEND PAYMENT DATEClose Brothers Group--jh