It is another frantically busy day for company results on Wednesday, with Britain's second biggest company by market value, HSBC, keeping the banking results season ticking over while supermarket chain Sainsbury provides another opportunity to take the temperature of the UK high street.
Nomura Securities regards HSBC as an attractive long-term play, with significant opportunities to improve costs, but it is, however, cautious that it may be too early for improved operating trends to show through this year.
"We expect second-half results to be lower than the first; they usually are. We also believe market expectations are vulnerable to disappointment; our 2011 PBT [profit before tax] estimates are 11% below consensus," the Japanese broker said.
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Doing the maths for us, Nomura says that its full-year estimates imply a third quarter profit before tax of $4.3bn, excluding any benefits accruing from the revaluation of HSBC's own debt. That would be down on the quarterly run rate of $5.7bn in the first half of HSBC's financial year, and flat on the corresponding period of last year, adjusted for own debt revaluations.
"We expect the cost/income ratio to rise further to 64% in the quarter, reflecting lower revenue than the first half and a continued rise in expenses. Impairments seem set to stay low outside the US run off books," Nomura speculates.
On a regional basis, the broker sees a marked east-west divide. "Our estimates would see nearly three-quarters from Asia. However, we believe Hong Kong profits may be lower than the first half run rate, due to lower asset yields and deposit competition. We expect other Asia to continue to grow. We expect limited profits in western markets," the broker added.
The broker thinks the core tier 1 ratio, one of the key measurements of balance sheet strength for banks, could improve by one-tenth of a percentage point (10 basis points) to 10.5%.
Moving down the high street we come to Sainsbury, once the top grocer in the country but now a distant third to Tesco, with Wal-Mart owned Asda in second place.
Nevertheless, by most reckonings Sainsbury has been more sure-footed than Tesco in the last year or two, at least in terms of Tesco's UK operations, and Sam Hart at broker Charles Stanley thinks Sainsbury is set to report a solid set of interim results on Wednesday.
Charles Stanley thinks sales will move up to £11.75bn from £11.02bn at the half-way stage last year. Earnings before interest, tax and amortisation are seen rising to £395m from £370m while good old easy to understand profit before tax is predicted to rise to £355m from £332m last year.
The company gave a sales update a month ago so focus will be on operating margins, outlook comments and any update on strategy, Sam Hart reckons.
"New space is central to group strategy, so an update on expansion plans is expected to be provided," Hart reckons.
Credit Suisse expects underlying profit before tax of £355m for Sainsbury as well, and earnings per share of 13.47p.
"Key will be any H2 [second half] margin indicators - as well as a long-held policy to price match Tesco on same quality individual products, we think Sainsbury has recently upped its pledge two notches by: 1) introducing Brand Match, which adds a commitment to match Tesco and Asda A-brand promotions, and; 2) matching many of Tesco's Big Price Drop cuts, including fresh foods," Credit Suisse suggests.
"We are also increasingly mindful now of margin risk. Sainsbury is likely to miss its target of 10-20bps [basis points] margin progress this year due to fuel dilution. Future progress could also be hampered if it cannot offset the margin investment required by the new two notch increase in price commitment," the Swiss broker added.
INTERIMS
FirstGroup, Flybe Group, Great Portland Estates, Sainsbury (J), SSE
INTERIM DIVIDEND PAYMENT DATE
Carillion
INTERIM EX-DIVIDEND DATE
Aga Rangemaster Group, Anglo Pacific Group, Bunzl, Cable & Wireless Communications, First Derivatives, Home Retail Group, Invensys, Lombard Risk Management, Maven Income & Growth VCT, Pace, Scottish Mortgage Inv Trust, Stobart Group Ltd.
QUARTERLY EX-DIVIDEND DATE
Barclays, F&C Commercial Property Trust Ltd., Picton Property Income Ltd
INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Bankruptcies (JPN)
Machine Orders (JPN)
Bank of France Business Sentiment (FRA) (07:30)
Wholesale Price Index (GER)
MBA Mortgage Applications (US) (12:00)
Crude Oil Inventories (US) (15:30)
Wholesales Inventories (US) (15:00)
Q3
Anglogold Ashanti Ltd., Shin Kong Financial Holdings Co Ltd. GDR (Reg S), Smurfit Kappa Group, Talvivaara Mining Company
FINALS
Fenner
IMSS
Admiral Group, Ark Therapeutics Group, Cape, HSBC Holdings, Legal & General Group, SIG, Tullow Oil
SPECIAL EX-DIVIDEND PAYMENT DATE
Asian Citrus Holding, Blackstar Group SE, Microgen
EGMS
Dragon-Ukrainian Properties & Development, Public Service Properties Inves (DI)tments Ltd.
AGMS
Crown Place VCT, Hays, Oilex Ltd., Quayle Munro Holdings
TRADING ANNOUNCEMENTS
Playtech Ltd., Safestore Holdings, Supergroup
UK ECONOMIC ANNOUNCEMENTS
BRC Shop Price Index (00:01)
Balance of Trade (09:30)
UK Trade (09:30)
FINAL EX-DIVIDEND DATE
Asian Citrus Holding, Centaur Media, Craneware, Dechra Pharmaceuticals, Downing Absolute Income VCT 1, Edinburgh Dragon Trust, Genus, Manchester & London Inv Trust, Pan African Resources, Swallowfield, World Careers Network
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