Wednesday preview: Retailers slug it out

Half-year results from retail giant Tesco are probably the main event of the week on the corporate agenda, but in Panmure Gordon's view, the figures won't mean much in the grand scheme of things.

"We don't regard the actual numbers as being that interesting. What we are looking for is progress in the UK, no major adjustments to forecasts and more detail on how Tesco envisage the industry outlook now that the space race is over," the broker said.

"For the record, we look for pre-tax profits to fall by 10% to £1,700m," the broker added.

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Panmure Gordon currently regards the whole food retail sector as "uninvestable" as the main players come to terms with the end of the "space-race" - the pursuit of ever more lumps of land on which to build new outlets.

"At this point, if not before, then we would expect to be told that new space growth has fallen from 7% to 4% to less than 2%," Panmure Gordon continued.

The broker is also looking for "total clarity" on the group's Fresh & Easy US venture. "Despite the amount of capital that has been absorbed and the losses that it has generated, we suspect that if it were announced today that the US was to be closed or sold, then Tesco shares would rocket. This may not be the best long term outcome, but if it is to remain part of the group, then we would expect to see very compelling evidence that this makes sense," Panmure Gordon suggests.

The clock is ticking on the US adventure and Panmure Gordon thinks the company has until the preliminary results next April before the market finally loses patience.

Back on the home front, broker Seymour Pierce wants to see how the aggressive money-off coupon campaign has affected sales and profitability at Tesco.

"Attention will also be focused on whether the international business has slowed much from its Q1 [first quarter] update, particularly South Korea where new opening hour legislation was introduced at the end of Q1, as well as an update on the US where losses are still unacceptably high," the broker suggests.

The broker is forecasting a 6% fall in first half profit before tax to £1,603m and a flat dividend per share of 4.6p. "A fall in profits from the UK is expected to be partially offset by improvements in Asia, US and the bank and flat Europe," they predict.

Jefferies Hoare Govett, meanwhile, is forecasting a major improvement in Tesco's second quarter trading performance in the UK, relatively speaking. A 0.2% decline in second quarter like-for-like sales, which is what Jefferies is predicting, would suggest the group is trailing UK peers by less than a percentage point, the narrowest margin for the past two years.

"Inevitably major vouchering activity has helped, but we expect Tesco to flag that in-store improvements are delivering a much enhanced customer experience, setting the business up well for the balance of the year," is Jefferies's view.

Nomura, meanwhile, forecasts flat LFL sales (excluding fuel), with a first half UK trading margin of 5.2%.

"We expect much of the update and investor attention to focus on the cumulative impact of the group's broad-based UK plan. Notably, we believe that initiatives such as Fresh staff, new Bakery, Refresh store capex [capital expenditure], the Everyday Value own-brand launch, and an enhanced promotional mix have driven a meaningful volume response," the Japanese broker said.

On the same day, Sainsbury, the former number one in the UK supermarket sector, issues a second quarter (Q2) trading update. It is, perhaps, a testament to how well the group has been doing that there has been a lot less written about its trading statement than has been written about Tesco.

Then again ... "While its headline LFL sales number is expected to look good relative to its peers ... Sainsbury should really be doing better given all its recent investment," claims Seymour Pierce.

"We expect its Q2 results to show that Sainsbury is holding its own in a highly competitive trading environment but with inflation expected to return, which is not good news for volumes and profitability given the maturity of the market,

we have trimmed our forecast," the broker revealed.

"We expect sales trend to be similar to Q1 (up to June 9th) when total sales were up 3.6% including petrol, and LFL sales growth ex-petrol was 1.4%. Recent market data shows that Sainsbury maintained a steady performance over the summer," Seymour Pierce notes.

Panmure Gordon sings much the same tune on the LFL sales forecast. "We look for similar like-for-like sales growth in Q2 to that seen in Q1, which delivered 1.4% (ex-fuel). We expect to see continued growth online at around double that recorded by Ocado," Panmure Gordon predicts.

Sticking with the retail theme, the July-September quarter might have seen things get a bit tougher for high-flying home furnishings retailer Dunelm.

"The weather boost to footfall has ended, while industry data from the BRC [British Retail Consortium], John Lewis and BDO High Street Tracker suggests a deterioration in home-related sales, measures which Dunelm normally outperforms," Peel Hunt notes.

Referring to the BDO survey covering the first quarter of Dunelm's financial year - i.e. July to September - Peel Hunt reports "the BDO Q4 performance average was +7.4%, deteriorating to -9% in Q1."

Panmure Gordon is predicting LFL sales growth for Dunelm of around 2% for the quarter in a declining market.

"To put this in context, our FY2013E [fiscal 2013] LFL sales estimate is +1.8% (total sales +10.1%)," the broker said.

"Q1 (July-September) is not a key quarter for Dunelm, with neither pre-Christmas nor pre-Easter trade falling into the period, but investors will nonetheless want to see market outperformance, which our forecast anticipates. We have seen a consistently improving digital marketing campaign from Dunelm in recent months, which should be good for the top line and for margins," Panmure Gordon suggested.

The fourth quarter trading update from online bookie Sportingbet might attract a bit more attention than usual, given the company is fending off unwanted advances from William Hill and its bid-partner GVC Holdings.

The pair have offered 52.5p a share, which Panmure Gordon believes undervalues the company. "We believe Sportingbet is worth over 60p a share excluding any bid speculation and expect Wednesday's FY [full year] results to show the business continues to make strong underlying progress," Panmure Gordon said.

Market consensus forecasts are for pre-tax profit of £28.94m on revenue of £199m. Earnings per share are expected to be 3.68p, and while the median forecast among the gaggle of investment analysts following the stock suggests a small dip in the full-year dividend to 1.67p, an attempt to buy a bit of shareholder loyalty with an increase in the divi ought not be ruled out.

INTERIMS

Tesco

INTERIM DIVIDEND PAYMENT DATE

Greencore Group, Kazakhmys, Novae Group, PPHE Hotel Group Ltd, Rathbone Brothers, TUI Travel

INTERIM EX-DIVIDEND DATE

Advanced Medical Solutions Group, Ashley (Laura) Holding, Barr (A.G.), Bodycote, Brammer, Charles Taylor, F&C Asset Management, F&C Private Equity Trust, Fairpoint Group, Fiberweb, Fisher (James) & Sons, GVC Holdings, Henry Boot, Huntsworth, Inmarsat, Judges Scientific, Martin Currie Global Portfolio Trust, Motivcom, New Britain Palm Oil Ltd. (DI), Northbridge Industrial Services, office2office, Petropavlovsk, Severfield-Rowen, Staffline Group, Tandem Group, Weir Group, Witan Pacific Inv Trust

QUARTERLY EX-DIVIDEND DATE

British Land Co, Investors Capital Trust 'A' Shares, JP Morgan Chase & Co, Mercantile Investment Trust (The), Merchants Trust, Schroder Income Growth Fund, Torchmark Corp.

INTERNATIONAL ECONOMIC ANNOUNCEMENTS

Crude Oil Inventories (US) (15:30)

ISM Non-Manufacturing (US) (15:00)

ISM Services (US) (15:00)

MBA Mortgage Applications (US) (12:00)

PMI Composite (GER) (08:55)

PMI Services (GER) (08:55)

Retail Sales (EU) (10:00)

Q4

Sportingbet

FINALS

AI Claims Solutions, Sportingbet

SPECIAL EX-DIVIDEND PAYMENT DATE

TR European Growth Trust

AGMS

Aurora Russia Ltd.

TRADING ANNOUNCEMENTS

Marston's, Sainsbury (J), Dunelm

FINAL DIVIDEND PAYMENT DATE

Betfair Group, Stagecoach Group

FINAL EX-DIVIDEND DATE

Abbey, Alumasc Group, City of London Investment Group, Galliford Try, JPMorgan Mid Cap Inv Trust, Smith (DS), TR European Growth Trust, Tricorn Group, Utilico Investments Ltd (DI), Zetar

JH