Tuesday preview: Tesco, CVS, Service Sector

4th Oct 2010 16:21

Britain's largest retail group, Tesco, releases interim figures on Tuesday. The group is famed for driving hard bargains with its suppliers but it announced in the middle of last month that it would start paying its milk suppliers an extra 1.28p per litre from the beginning of October. The move is unlikely to be a sign that management is going soft, and is more probably a recognition that milk producers may have been squeezed too hard recently; Tesco's announcement came a day after Robert Wiseman Dairies issued a profit warning.As is always the case with the supermarkets, focus is likely to be on like for like (LFL) sales, but the company may also reveal a bit more about plans to move into Mothercare's market with a series of standalone "Baby World" stores.UBS thinks Tesco will announce a 9.1% year on year increase in LFL sales, with the UK retail division pitching in with earnings before interest, tax, depreciation and amortisation some 5% higher than at the interim stage last year. UBS predicts that profits will have stagnated at Tesco Bank, as the cost of launching new products will have offset any organic growth in revenue; over the week-end Tesco confirmed it has yet to receive permission from the Financial Services Authority (FSA) to offer mortgages. "The FSA is just being careful. It is a new process and it is very difficult," a Tesco spokesman said. Veterinary services provider CVS has seen its shares stabilise somewhat after a profit warning wiped off a third of their value at the end of June. "We expect to get some further colour behind its last profit warning in June and whether the business has recovered from this," said broker Panmure Gordon."It remains unclear why LFLs have moved into negative territory, but we suspect some of this could be from a competitive standpoint both at a local and national level (Pets at Home Companion Care concept). We note that VCA Antech in the US has also been lowering guidance in the US, although its mix is skewed more towards laboratories, which form just 11% of CVS's mix. However, this could account for an element of the business being later cycle than first anticipated," the broker said. "After a period of significant acquisition growth, we believe the company may need to pause for breath to focus on its existing estate, and has appointed senior management to address current issues of arresting such declines in growth," the broker commented.Panmure Gordon is going for adjusted profit before tax of £8.3m, down just a tad from last year's £8.4m and half a million below the median value of £8.8m in a list of forecasts that ranges from £8.3m to £9.2m.Despite being bottom of the range on profit forecasts the broker is ahead of consensus of £85.2m with its sales forecast of £85.6m, up from £76.9m last year.On the economic front the service sector purchasing managers' index for September is expected to show little change from August's reading of 51.3. A reading above 50 indicates expansion.An unchanged value would at least stop the downward trend; in July the index stood at 54.5, and August's decline raised fears that the service sector - the greater part of the UK economy - is running out of steam.INTERIMSCrawshaw Group, TescoINTERIM DIVIDEND PAYMENT DATEHolders Technology, Kazakhmys, Rexam, Standard CharteredINTERNATIONAL ECONOMIC ANNOUNCEMENTSBank of Japan Target RatePMI Services (FRA) (08:50)PMI Services (GER) (08:55)PMI Services (EU) (09:00)PMI Composite (EU) (09:00)Retail Sales (EU) (10:00)ISM Non-Manufacturing (US) (15:00)ISM Services (US) (15:00)ABC Consumer Confidence (US) (22:00)FINALSCVS Group, EpiStem Holdings, St Ives, Trading EmissionsIMSSNorthern FoodsAGMSUniVision EngineeringTRADING ANNOUNCEMENTSNorthern Foods, TUI TravelUK ECONOMIC ANNOUNCEMENTSBRC Sales Monitor (00:01)Official Reserves (09:30)PMI Composite (09:30)PMI Services (09:30)