The week ahead (20/10-25/10)

Turbulence seen in the markets is set to continue this week. Bracing the choppy market conditions will be Spirit Group, Playtech and Whitbread.

Monday 20 October

Trading statements

Novolipetsk Iron And Steel, Sports Direct International.


Spectra Systems Corp, Standard Life Investment Property Inc Trust, Geong International, CPL Resources.

Tuesday 21 October

Spirit Group (SPRT) will report its full-year results on Tuesday, yet these could be overshadowed by M&A spectulation.

'The rejected 100p per share offer in Greene King (GNK) ("buy" at 740p) paper is now worth closer to 90p per share given the fall in the GNK share price (from c.800p to 730p) suggesting any further offer is likely to require a significant cash element,' say Shore Capital analysts.

Analysts' expectations: Shore Capital upped its forward guidance to £60 million after Spirit's pre-close update indicated to like-for-like sales growth to 4.4 per cent and full-year results of between £55.9 million and £58.2 million beating expectations.

The analysts say: 'Recent updates from peers highlight sluggish trading conditions at the end of August and early September although we believe that the more favourable weather in the latter half of the month boosted sales.'

There is potential for managment to outline a new plan to keep the pub company independent, suggests Shore.

Valuation: It has a 'buy' recommendation on the stock with a 91p target price. The analysts believe in the quality of Spirit's pub space, especially with around a third of its profit coming from outside of Central London.

Also to report on Tuesday will be Whitbread (WTB), with its interim results following an strong second quarter.

Analysts' expectations: Pre-tax profit is expected to grow by 11 per cent to £240 million, driven by growth in its hotels and restaurants business and Costa Coffee.

But the analysts warn that the company faces tough comparatives. 'Although Whitbread does not report sales growth in its interim results we would expect the outlook statement to highlight further positive growth with any comments on the economic backdrop keenly watched. Our 2015 forward full-year pre-tax profit estimate of £460 million (earnings per share: 202p) is predicated on 5 per cent like-for-like sales growth in the second half.'

Valuation: Trading on a February price/earnings multiple of 20.3 times and an EV/EBITDA of 11.8 times, says Shore, retaining its 'hold' recommendation.

'It remains a conservatively financed, quality play on the UK economy with a highly attractive self-funded growth story. However, we believe that a full recovery in hotel yields is already factored into the price.'

Economic news

September's public finance figures will be released on Tuesday, the first economic news of the week and the first to be published under the new accounting system. Investec's Victoria Clarke reckons that public sector net borrowing excluding banks will stand at £11 billion, up £600,000 year-on-year.

'If we are right that would imply borrowing has been running above last year's level in five out of the first six fiscal year months,' she says.

She blames the rising figure on the softness of receipts compared to spending numbers.

'Part of the weakness has been on the income tax side stemming from the March 2012 cut in the 50p tax rate that led to a shift in wage payment timings and hence tough base year effects in the early part of this fiscal year. However the softness of income tax flows also looks to have a broader based element to it, reflecting a narrowing in the tax base. This implies the chancellor could find delivering a step up in tax flows over the months ahead a tough ask,' Clarke adds.

Trading statements

B.P. Marsh & Partners, Whitbread, Informa, Reckitt Benckiser Group, William Hill, InterContinental Hotels Group, Go-Ahead Group, GKN.


Ashley House, Leeds Group, Diverse Income Trust, Societatea Nationala De Gaze Naturale 'romgaz' S.a., ASOS, Seeing Machines, Myanmar Investments International.

Wednesday 22 October

Playtech (PTEC) will report on Wednesday, with its third-quarter results.

Analysts' expectations: Revenues are set to rise by 16 per cent if Shore Capital is correct, at $105 million (£65.3 million) and in line with its second-quarter performance. Operational highlights should include strong growth in casino and games, which were ahead by a third in the second quarter, note the analysts. It also advises investors to look out for strong momentum in Asia, progress in the Ladbrokes (LAD) contract and more information on other contract wins.

While there is potential for upside, Shore's has conservative guidance for earnings before interest, tax, depreciation and amortisation (EBITDA), of $193 million for the full year.

Valuation: With a 'buy' recommendation and 665p target price, Playtech is trading on 12 times Shore's forward earnings guidance and an EV/EBITDA ratio of 10.4 times.

'We see this valuation as highly attractive for a leading global player in a structural growth market with high margins and strong cash flow,' says Shore. 'Our DCF analysis suggests that medium-term growth of around 10 per cent per annum would be worth close to 1,000p per Playtech share.

Economic news

Monetary Policy Comittee (MPC) minutes will be released on Wednesday, and Philip Shaw, an analyst from Investec, does not see a large change occuring from last month. In August and September vote on raising the bank rate by 25 basis points each month was backed by two people against seven.

'To us it looks unlikely that the voting pattern changed this time. The hawks probably continued to press their case, while any waverers on the committee will have preferred to wait until the new inflation projections are available next month, and in any case may well doubt how appropriate higher rates in the current environment. Hence we are expecting a 7-2 vote to maintain the bank rate at 0.5 per cent and a unanimous vote on keeping the quantitative easing target at £375 billion,' he said.

Shaw reckons the MPC will hold off on raising the rate until August next year with a 1 per cent forecast by the end of 2015 and 1.75 per cent at the end of 2016, but definately not before next year's election.

Trading statements

Ingenious Media Active Capital, Norsk Hydro AS , GlaxoSmithKline, Home Retail Group, Development Securities, ARM Holdings, Xeros Technology Group, Spirit Pub, Petropavlovsk, Laird, Playtech, Senior, British American Tobacco, Computacenter, Plus500, International Personal Finance.


Petropavlovsk, Laird, Playtech, Senior, British American Tobacco, Computacenter, Plus500, International Personal Finance.

Thursday 23 October

Economic news

Thursday will be the busiest day of the week for economic news, with the purchasing managers index (PMI) for the euro area being released with September's retail sales.

October's euro PMI is expected to remain fragile, with the composite PMI slowing to 51.5, says Ryan Djajasaputra, an analyst at Investec. Last month's PMIs showed a 'further loss of momentum' in the regions recovery, as the Composite index dropped to its lowest level since November last year.

'In terms of sector details lowing expansion was seen across services and manufacturing, the latter only just seeing growth,' he comments. 'Weakening activity looks set to continue with forward-looking components pointing to further softness.'

September's retail sales expects further weakness here too, after a particularly disappointing report last month. The British Retail Consortium (BRC) reported sales down 2.1 per cent after a 1.3 per cent rise in August.

Clarke says: 'We expect the softness of the clothing sales element in particular to be a factor weighing on the ONS's volumes-based measure of retail sales. Hence we look for a notable decline this month, reflecting a large element of the BRC decline.

'Our forecast is for a 0.8 per cent monthly decline in the headline measure, such that sales volumes would stand 2.1 per cent up year-over-year.'

Trading statements

Tesco, Stobart Group, African Barrick Gold, Unilever, Bloomsbury Publishing, Volution Group, Debenhams, Segro, SVG Capital, Reed Elsevier, National Express Group, COLT Telecom Group, Britvic, BATM Advanced Communications, Phoenix Group Holdings, Inchcape, Premier Foods, Anglo American, Mecom Group, Ladbrokes.


Photo-Me International, Rosslyn Data Technologies, Argos Resources, CAP-XX, BHP Billiton, River And Mercantile Group.

Friday 24 October

Economic news

Rounding up the economic week will be the release of the first estimate of third-quarter GDP, with Shaw expecting modest softening. He quotes manufacturing growing slightly by 0.1 per cent in August, construction sliding 3.9 per cent.

'It is not impossible that GDP growth is maintained at +0.9 per cent, but realistically this would require another quarter of service sector growth of +1.0 per cent, which while not infeasible, looks optimistic.'

He pencils in GDP growth of 0.7 per cent in the quarter, the same as the first quarter of the year.

Trading statements

Shire, Magnit Ojsc, Vesuvius, Dechra Pharmaceuticals, Spectris, Ladbrokes.


Immedia Group, Dechra Pharmaceuticals, GCP Student Living, Greenko Group, Go-Ahead Group, Hargreaves Lansdown, Oil & Gas Development Co.

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