FTSE preview: Comet owner to come under scrutinty

Jun 22 2008

The difficulties facing retailers Kesa Electricals and DSG International will be in the spotlight this week when the pair issue full-year results.

Comet owner and European retailer Kesa Electricals will provide the latest update from the high street on Tuesday when it reports results for a 15 month period to the end of April.

In an update in March, Kesa said strong demand for laptops and flat screen televisions helped electricals chain Comet deliver a slender sales rise.

The chain, which has more than 250 UK stores and comprises just over a third group turnover, achieved a 0.4% improvement in like-for-like sales in the year to January 31. This compared to like for like sales growth of 0.9% during the first six months.

Sales of large white goods such as fridges and freezers were weaker during the second half amid a spending slowdown. And in a sign that prices of bigger ticket goods were coming down to attract more shoppers, retail profits for Comet dipped more than 4%.

Kesa chief executive Jean-Noel Labroue said the group had delivered “excellent” sales growth but warned of difficult trading conditions ahead.

Philip Dorgan at Panmure Gordon said he was expecting pre-tax profits of £127 million for the 12 months to April 30, excluding those of the French BUT business which was sold earlier this year for 550 million euros (£404m). There were no figures available for a year earlier.

Mr Dorgan said the group, which includes French retail giant Darty, was not as exposed to the UK downturn as some of its rivals like Currys owner DSG International, which also releases an update next week.

He said: “Going forward, the good news is that only around 20% of profits come from the UK, with the major contributor being Darty.”

Mr Dorgan said he also hoped to hear what directors planned to do with the BUT sale proceeds.

Meanwhile, Currys owner DSG International is unlikely to offer too many positives to its investors at full-year results on Thursday, given it has already issued two profits warnings this year.

It has already said pre-tax profits for the 53 weeks to May 3 will be between £200 million and £210 million, down from £295 million the year before.

Its UK computing arm was among the worst performers during the 29-weeks to the year end, with sales down 9% on a like-for-like basis. UK electricals was flat.

New chief executive John Browett last month revealed a three year turnaround driven by a “consumer-focused” revamp which will see wholesale retraining of store staff, better choice of products and shop redesigns.

The plan included the removal of 77 under-performing Currys.digital stores from the group’s estate as their leases end over the next four to five years.

A £50 million cost-cutting programme is also planned for the current year, some of which is aimed at the group’s head office in Hertfordshire.

Mr Browett, who was brought in from Tesco at the end of last year, said at the time: “We have an enormous amount to do, and there is no quick fix.”

DSG’s share price has dived 25% since the announcement amid fears over an extended economic slowdown has hit the electrical goods sector.

Official figures showed retail sales rebounded during May 3.5% compared to April, but last month’s good weather was cited for attracting in shoppers off the streets.

To make matters worse for DSG, mobile phone retailer Carphone Warehouse recently said it was planning a joint venture with US retail giant BestBuy to open electrical goods stores in Europe.

Car dealership Inchcape’s pre-close trading update on Wednesday should offer few nasty surprises for investors as the group’s broad global spread offsets its exposure to a weak UK market.

In February the company, which sells marques including Audi, BMW, and Mercedes-Benz, beat forecasts with a 10% hike in underlying pre-tax profits to £235.1 million in 2007, with like for like sales up 3.4%.

With the exception of its Singapore business, where the group has faced fierce competition in a declining car market, this growth continued in the first three months of the year with like-for-like sales 3.3% better.

In the UK Inchcape boasted of outperforming the market by more than 4% in the first quarter, achieving like-for-like sales growth of 3.5%.

While the overall domestic market is expected to decline by 2.5% this year, it expects premium marques to perform more strongly, although bigger discounts may be needed to tempt would-be buyers.

Analysts will also be looking for an update from emerging markets as Russia, China and the Baltic states where car sales volumes growing at 10% a year or more are fuelling growth. New launches should also help the business build momentum over the rest of the year.

Panmure Gordon’s Mike Allen said: “We see the UK new and used car market deteriorating further in the second half of 2008, although we believe Inchcape should be able to offset any further UK weakness given its global diversification and exposure to emerging markets.”

Perth-based transport group Stagecoach is set to post a 7% rise in annual profits on Wednesday after a better than expected performance from its rail business.

Consensus forecasts put underlying pre-tax profits for the year to April 30 at £173.1 million, compared with £162 million the previous year.

Its UK rail business, which includes the commuter service South West Trains and its Virgin Rail joint venture, delivered a 13.1% rise in rail revenues in the 48 weeks to March 30, a period which included the Easter break.

The company has also taken on the East Midlands rail franchise, with services running to London St Pancras and around the regional network. Revenues for the operation between November 11 and March 30 were 9.9% higher than the previous year.

Although rail profits are under pressure from a more competitive bidding environment for rail franchises as well as lower subsidies from the Department for Transport, analysts remain upbeat.

Credit Suisse’s Gerald Khoo says: “The group has clear positive earnings momentum and continues to deliver consistently. We continue to assume that rail revenue growth will moderate from the current near-record pace.

“However, this assumption proved to be far too conservative for the current financial year, so the risks to estimates in rail would appear to be on the upside.”

Stagecoach said it was “encouraged” by the current performance and maintained a positive outlook despite other cost pressures such as increased fuel prices on its bus business. Hopes for a better than expected performance from Stagecoach will have been fuelled by a recent update from Go-Ahead, which said more commuters were ditching their cars because of high petrol costs.

Around two million UK passengers travel on Stagecoach buses every day in around 100 towns and cities in the UK. The firm has a fleet of around 7,000 buses.

Housebuilder Berkeley Group will report its full-year results on Friday amid signs of worsening gloom in the property market.

Berkeley shares have been battered in recent months in line with the entire housebuilding sector as the property price slowdown appears to be fast turning into a deep slump.

While other housebuilders have suffered more high profile share woes, such as Barratt Developments and Persimmon, Berkeley has also endured stock market misery on the back of a raft of broker downgrades.

But the group has sought to reassure that its prospects remain good despite the sector’s troubles, stating in March that full-year profits for the year to April 30 would be at the higher end of analyst expectations.

It admitted that sales reservations were down 20% in the four months to mid-March, although it said forward sales for the year ended April 30 2009 were “well in excess” of the levels seen this time last year.

Analysts have said the group’s strong forward sales position and conservative balance sheet help set the firm apart from more mainstream property developers.

It is also focused on London and the South East, which may also help shield it from some of the price drops.

Broker Goldman Sachs has forecast the group will deliver annual pre-tax profits of £194 million, up 3%. But, as Goldman said in a recent note, it is unlikely to “remain immune” from the housing downturn.

“We expect it to experience the negative impact of the downturn later in the cycle, as tighter credit and falling buyer demand feed through to weaker reservations and forward order growth,” said Goldman.

TV cook Hugh Fearnley-Whittingstall will urge Tesco shareholders on Friday to back a call for the retailer to improve the quality of life of the chickens it sells.

The star of Channel 4’s River Cottage series has put forward a resolution at the company’s annual general meeting in Birmingham demanding the retailer adopt RSPCA rearing standards.

This would see Tesco use slower growing breeds, a lower stocking density and environmental “enrichment” to allow chickens to express natural behaviour.

It would also meet the Farm Animal Welfare Council’s “Five Freedoms” for livestock, which Tesco has said it endorses.

Mr Fearnley-Whittingstall, who will be attending the AGM at Birmingham’s National Motorcycle Museum, raised the near-£90,000 requested by the supermarket giant so the resolution could be sent to all 235,000 shareholders.

Corporate advisory body PIRC has lent its support to the Dorset-based celebrity.

It said: “We consider the resolution to be in line with Tesco’s stated animal welfare policy commitment and believe the specific request does not represent an attempt to micro-manage the business.

“PIRC considers it constructive that the resolution is not unduly prescriptive, allowing for a relative timeframe and the opportunity for continued engagement between both parties.”

A Tesco spokesman said: “We believe that the chickens we purchase are already produced in systems capable of providing the five freedoms”.

PIRC is also recommending that shareholders oppose the remuneration report, which enables directors to earn annual and long term bonuses of two and a half times their salary, depending on performance.

It said: “Combined awards under the annual bonus and long term incentives are considered excessive in the year under review and considered highly excessive on a potential basis, particularly in light of high executive salaries.”

Group chief executive Sir Terry Leahy’s salary July 1 last year was £1.32 million.