Taken in aggregate, they should provide a useful indicator of whether profits are heading higher, or whether the market has got ahead of itself in anticipating economic recovery.
So far at least, the signs have been reassuring with no major shocks. A typical example was Rentokil Initial, the business services group, whose interim pretax profits topped £200m despite difficult operating conditoins. In a revealing sign of the times, a company which once prided itself on increasing earnings per share by 20% each year is now setting targets of a different kind. It plans to increase its dividend by 10% a year – underlining how a long bear market has led to increased emphasis on dividends rather than growth.
Some companies will fall short, however. WH Smith has already said that full-year profits from its core UK retail operations will be below expectations as it grapples with intense competition from supermarkets in particular. Margins are expected to fall in the second half, and sales will be little changed from last year, because the recent hot weather put people off shopping. Furthermore, the company gave no indication of when it might offload its US store chain, most of whose branches are in hotels and airports, and which has been a consistent disappointment. WHSmith will soon have a new chief executive, the highly-regarded Kate Swann, who joins from Argos. She will have plenty to do.
Bid rumours are swirling around Canary Wharf, the Docklands property company. Various private equity buyers are thought to have the group in their sights, but there has also been talk that Paul Reichmann will bid for it. He has already rescued the company from the jaws of creditors once. Canary Wharf’s shares have fallen heavily because of fears it won’t be able to fill all the new space it is building with tenants.
Another target of private equity groups is the Drax power station, which is currently in the hands of creditor banks after its former owner AES handed back the keys. AES, an American company, bought Drax for an exorbitant sum, and couldn’t pay its bills when wholesale power prices fell sharply. Another interested party is the mining group BHP Billiton, which wants to buy a stake in the station in order to part-own a consumer of some of its coal, which is mined mainly in South Africa and Colombia. That would be bad news for UK Coal, which operates what remains of the UK coal industry and counts Drax among its biggest customers.
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