The week ahead: City heavyweights likely to report mixed fortunes

Published on Sunday 8 November 2009 19:03

HEAVYWEIGHTS from the banking and telecom sectors will dominate reporting this week, with Barclays and HSBC virtually certain to confirm a widening gap in performance with their part-nationalised counterparts RBS and Lloyds.

The banks, which report Q3 figures tomorrow, have avoided government support and the subsequent onerous European Commission penalties that have weighed on Lloyds and RBS. However, half-year figures from Barclays and HSBC suggested mixed fortunes for the groups.

While Barclays is making hay from its beefed-up investment banking operations in the wake of its takeover of parts of bankrupt Lehman Brothers, HSBC is still struggling with mounting bad debts. At the half-year stage, HSBC reported a 51 per cent drop in pre-tax profits to $5 billion (3bn) after its bad debt charges soared 39 per cent to $13.9bn.

Barclays reported an 8 per cent hike in profits to 2.98bn after its Barclays Capital investment banking saw doubled profits of 1.05bn.

More good news is therefore expected from Barclays, given recent stellar returns reported by US investment banking rivals Goldman Sachs and JP Morgan.

Mobile phone giant Vodafone reports half-year figures tomorrow as the group battles against an increasingly competitive market in the UK.

The Newbury-headquartered group largely blamed intense competition for a 4.7 per cent slide in UK revenues during the first quarter. It has been struggling to compete with Apple's iPhone, for which O2 currently has exclusive rights, with Orange coming on stream as distributor this month.

Analysts are forecasting Vodafone's interim underlying operating profits are set for a slight rise to 5.9bn from 5.8bn a year earlier.

Consumers will be on the lookout for any suggestion that energy prices could rise when British Gas owner Centrica and Scottish & Southern Energy provide trading updates ahead of the key winter months.

Centrica is set to outline recent trading on Thursday after an 80 per cent rise in operating profits at its residential arm for the six months to 30 June, at 299 million.

Regulator Ofgem recently criticised suppliers for boosting margins despite falling wholesale costs.

Centrica recently moved to strengthen its business with the hostile takeover of North Sea oil and gas production firm Venture. Buying Venture should mean that Centrica will be able to supply 60 per cent of its energy from its own assets and resources, after the firm also acquired a 20 per cent stake in nuclear power firm British Energy from French energy giant EDF.

SSE, whose brands include Scottish Hydro Electric and Southern Electric, will release its half-year figures for the six months to end-September on Wednesday, having already said it expects profits to be higher than the 302.6m in the same period last year.

Supermarket Sainsbury's, which reports half-year figures on Wednesday, has already warned of slowing sales growth as inflation begins to ease. Analysts forecast higher underlying pre-tax profits of 300m, up from 272m last year.

The improvement comes amid tough conditions in the UK supermarket sector as the major players battle to attract cost-conscious shoppers. Sharp falls in food price inflation is also closing the gap between the main rivals, with Tesco clawing back lost ground, according to recent figures.

The Bank of England could express some optimism on the UK recovery on Wednesday as it releases its latest predictions for inflation and the economy.

The City will be hoping for more signs of easing conditions in the newspaper sector when media groups Trinity Mirror and Johnston Press – owner of The Scotsman – post trading updates this week.

The credit crunch and recession has hit income from property and recruitment advertising, while there has been the structural impact of more activity moving online.