Tuesday preview: Whitbread, Home Retail, Chemring, inflation

18th Jun 2012 15:32

Whitbread holds its annual general meeting on Tuesday, and is likely to give shareholders an update on trading in its first quarter.Aided by relatively easy comparisons from a year ago, broker Jefferies thinks Whitbread will pour out like-for-like (LFL) sales growth of around 3%, with the Premier Inn hotel chain returning to "slightly positive" LFL growth, with Jefferies citing data which shows revenue per available room (revPAR) in London and the provinces rebounding strongly in April, after an indifferent start to the year. Credit Suisse, however, says that with revPAR growth in the UK still subdued, it is not expecting the update to lead to earnings forecast upgrades for Whitbread. RevPAR in Whitbread's fourth quarter was down year-on-year by 1% but the Swiss bank thinks that in the March to May quarter it will turn positive by a similar amount. For the group's Costa Coffee chain, Credit Suisse has pencilled in like-for-like (LFL) sales growth of 4.0%, down from +5.2% in the preceding quarter. Jefferies, however, sees no reason for Costa's momentum to have slowed, and it is tipping LFL growth of around 6%, aided by the recent wet weather.The pubs & restaurants division is seen by Credit Suisse achieving LFL growth of 1.5%, little changed from the fourth quarter, "but the issue remains the recovery of cost inflation given growth has been volume not price driven," Credit Suisse says. Jefferies is once again of a more optimistic bent. It points to relatively solid numbers by competitors which indicate LFL sales growth of between 2% and 5%, although it does concede that Whitbread's pub-grub dispensers will probably achieve growth at the lower end of that range. Credit Suisse's current estimates assume Whitbread's margins will fall by one percentage point in fiscal 2013. "It seems unlikely consensus numbers will change after the Q1 [first quarter] update and we see greater upgrade potential elsewhere in the sector," Credit Suisse said, citing sector peers Accor and InterContinental Hotels Group as better picks. As for the second quarter, Jefferies thinks trading could be a lot more volatile. "We think that the timing of the Diamond Jubilee, the Euro 2012 football tournament, and the Olympic Games could all cause volatility in trading (with the continued wet weather as an added factor) - with the risk that people just stay at home and lost trading is not made up," the broker said.Panmure Gordon, meanwhile, is going for 2.0% LFL growth at Premier Inn, 1.0% LFL sales growth in Restaurants and 3.0% LFL sales growth in Costa.The same broker takes a look at struggling retailer Home Retail which owns Homebase and Argos. "We expect that the poor weather in April will have impacted both Argos and Homebase, the latter in particular. Argos should have seen some benefit from the digital switch over and generally decent consumer electricals' sales, but industry conditions will not have been helpful," the broker said.It predicts a LFL sales decline of 4% and flat gross margins. "This is in line with early consensus, although the range is wide, from -1% to -6%," Panmure Gordon notes.DIY chain Homebase will not have been helped by the wettest April in 100 years, prompting Panmure Gordon to forecast a like-for-like sales decline of 5% in this division, assisted by an improvement in May and June. "Consensus is for -8% but, again, the range is wide, from -4% to -12%," the broker informs."We look for flat gross margins, compared with a consensus for 25 basis points [a quarter of a percentage point]. Overall, falling like-for-like sales and high fixed costs means that profits will be down for the group," Panmure Gordon predicts.Moving away from the high street to the defence industry, the market's focus is likely to be on cash,according to Credit Suisse, when military counter-measures specialist Chemring issues interim figures on Tuesday."With US defence uncertainty likely to persist for the rest of this year (and amply discounted in Chemring's valuation), we believe investor attention will be on the proposed H2 [second half] share buyback," the Swiss bank said.It is forecasting net outflow of £12m over the first half of the financial year, taking net debt to £275m."Adding proceeds from Marine disposal announced last week (£32m) indicates a £40-50m buyback looks realistic to us and at 320p share price this could be 4% accretive to earnings (net of the 4% dilution from Marine). While we view the multiple for Marine as low, it is a positive sign that Chemring is willing to divest under-performing assets," Credit Suisse stated.The bank is going for interim sales of £332m, underlying earnings before interest and tax (EBIT) of £55m and underlying earnings per share (EPS) of 18.9p."We view our forecasts as conservative and would be surprised if Chemring misses numbers, particularly given this year's US Continuing Resolution only lasted three months which should support short-cycle orders," Credit Suisse advised.Britain punches above its weight in the world of computer chip design and though it is usually ARM Holdings which gets the bulk of the spotlight, Imagination Technologies is no slouch either when it comes to servicing the flourishing hand-held communications devices market.Nevertheless, the shares have tumbled from a 52-week high of 717p at the start of April to around 485p now, suggesting a certain amount of nervousness around Tuesday's full year figures, with some wondering how much long the explosive growth in demand for smartphones can carry on at the current rate.Market consensus is for profit before tax of £31.4m, which would be almost double what it achieved the year before. Sales are tipped to rise to £126.9m from £98.0m. Broker Jefferies is above consensus with its revenue forecast of £132m, driven by an expected to% increase in royalties to £62m. UK inflation data for May is out on Tuesday, and there is likely to be encouraging news on the Core Consumer Price Index (CPI) annual inflation rate, which is tipped to narrow to 2.2% from 2.9% in April.The regular CPI is seen rising 0.2% in May after April's 0.6% increase, leaving the annual advance unchanged at 3.0%. The Retail Price Index (RPI) is also forecast to rise by 0.2% in May, having jumped 0.7% in April. RPI inflation is expected to decline slightly to 3.3% from 3.5%.INTERIMSChemring GroupINTERIM DIVIDEND PAYMENT DATELowland Investment Co, Matchtech GroupINTERNATIONAL ECONOMIC ANNOUNCEMENTSBuilding Permits (US) (13:30)Housing Starts (US) (13:30)ZEW Survey (EU) (10:00)ZEW Survey (GER) (10:00)GMSAll Nippon Airways Co Ltd.FINALSImagination Technologies Group, TrifastANNUAL REPORTPolar Capital HoldingsIMSSHome Retail Group, WhitbreadAGMSCoastal Energy Co (DI), Fortune Oil, NB Global Floating Rate Income Fund Ltd GBP, NB Global Floating Rate Income Fund Ltd USD, Ophir Energy, Regal Petroleum, Richoux Group, Surgical Innovations Group, Tiger Resource Finance, WhitbreadUK ECONOMIC ANNOUNCEMENTSConsumer Price Index (09:30)Retail Price Index (09:30)FINAL DIVIDEND PAYMENT DATEHiscox Ltd.JH