Car insurance group Admiral is due to report its full-year figures on Wednesday, with the market keen to see whether the unusually high frequency and expected cost of new large personal injury claims seen in the third quarter continued into the fourth quarter.
Credit Suisse recently upgraded its rating for the stock from neutral to outperform, saying that it expects the results to "represent the first step for Admiral towards regaining market confidence that bodily injury (BI) challenges are being resolved, with improved clarity expected to provide upside risk to earnings expectations."
The broker expects pre-tax profit to come in at £295m, up 11% year-on-year and similar to the 10% growth guidance provided in the third quarter trading statement. This will translate into earnings per share of 81p.
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Those estimates put the broker ahead of market consensus on profit before tax (consensus: £291m on revenue of £849m) but in line with the market on earnings per share (EPS). The market is expecting the full year dividend to be bumped up to 72.2p.
"The key focus of the result will be on bodily injury, where the content and tone of management commentary may cause volatility (in both directions)," analysts at the Swiss bank said.
Charles Stanley's profit before tax and dividend forecasts are bang in line with the consensus but a bit shy on the EPS figure, where the broker is going with a prediction of 78.9p.
"The market had expected Admiral to increase its full year dividend, but given the downward pressure on profits we will have to see if Admiral is even able to maintain its dividend," suggests Nic Clarke at Charles Stanley.
Nomura echoes Credit Suisse's view that the main focus will be on the claims trends.
"We believe the Admiral investment case centres on two points of view. Either the company has completely lost its way when it comes to underwriting, or its risk pricing and underwriting expertise is in place, and should be able to adjust for recent underlying claims trends. We hold the latter view, and hence believe that even if there is further claims deterioration (over and above the third quarter update), it should be limited to 2011, rather than it becoming an ongoing issue," suggests Nomura.
Engineering solutions provider Costain is expected by the market to unveil pre-tax profits of £22m for 2011 on turnover of £918m. EPS are seen sliding to 25.41p from 36.40p in 2010 but even so the divi is expected to be lifted to 9.92p from 9.25p in 2010.
"The key issue will be the current trading outlook, particularly the UK, where conditions appear to have got tougher. That said, the group has strong infrastructure capability and is trading at an attractive valuation," suggests Panmure Gordon.
The same broker has been running the rule over football pools and totalisator gaming operator Sportech. Wednesday's results will include the first full year contribution from the racing businesses acquired from Scientific Games.
"The group has reiterated its comfort with full-year expectations of c£25.7m EBITDA [earnings before interest, tax, depreciation and amortisation] which is slightly ahead of our forecast of £25.4m," Panmure Gordon noted.
Panmure Gordon forecasts adjusted profit before tax of ££15.1m and EPS of 5.5p.
Peel Hunt, meanwhile, thinks it is too soon for the recently acquired racing business to deliver an acceleration in profits but the broker expects to "hear that things are broadly on track."
"However, management should now be in a position to give a better indication on the scope of the financial opportunity from the Racing business - this is a key factor in driving a sustainable re-rating. For 2011 we expect Racing to deliver around £10m of EBITDA," Peel Hunt said.
"A lot of hard work is going into product development and partnerships within the football pools business. However, we expect another down year and we very much see the business as a declining annuity stream. The majority of this 'annuity' (we estimate c£19m EBITDA in 2011) is being used to pay down debt and as at 31 December we expect it to be around £62.5m (£72.2m)," Peel Hunt added.
Car seller Lookers has full-year figures out which should reveal another year of out-performance, according to Peel Hunt.
"For 2011 as a whole, UK new car registrations fell by 4.4% and we expect Lookers to have continued to outperform the market over the final quarter. Used car volumes were up 4% yoy [year-on-year] for the nine months, although we expect the full year gross profit for used cars to be down yoy due to a tighter margin environment. However, we expect the Parts Division to have continued to deliver robust sales and profit growth for the year, with PBT [profit before tax] also benefiting from a lower interest charge," Peel Hunt said.
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