The Week Ahead: Updates due from Persimmon, Aga Rangemaster and Imperial Tobacco
PUBLISHED: 06:00 17 August 2014
A surge in property transactions will benefit housebuilder Persimmon Homes and cooker maker Aga Rangemaster when the pair post results this week.
Earnings at Persimmon are expected to reflect the resurgent property market when it posts half-year results on Tuesday.
The group, which also trades as Charles Church and Westbury Partnerships, is expected to report pre-tax profit up by almost half to £196million compared to a year ago after selling more homes at higher prices, according to analysts at Deutsche Bank, although the profits rise would only be 2.7% on the previous six months.
In a trading update last month the FTSE 100-listed housebuilder said sale completions jumped almost 28% year-on-year to 6,408 homes during the period, while its average selling price lifted 4% to £186,000.
Persimmon and other house builders are benefiting from the recovery in the economy and the Government’s Help to Buy scheme, which have buoyed house sales.
Fears of a housing bubble saw a new set of rules introduced under the Mortgage Market Review in April to stiffen affordability checks.
This was followed by new rules by the Bank of England in June, which mean lenders must ensure no more than 15% of new mortgages are given to people borrowing more than 4.5 times their income.
Lenders will also have to stress test borrowers’ ability to repay loans if their mortgage rate were 3% higher than the rate at the time the loan was approved.
Analysts say that although the mortgage market is showing signs of slowing it still remains buoyant, with some questioning why Persimmon’s 4% rise in selling prices trails rivals such as Taylor Wimpey. Deutsche Bank said it would “look to explore why house price inflation at Persimmon appears to lag the peers.”
The recovery in housing sales is expected to fire up profits at the group behind the distinctive AGA ovens when it reports half-year results on Friday.
Brokers at Numis expect Aga Rangemaster to swing to a pre-tax profit of £2.3m, from a £2.4m loss a year ago, on the strength of new ranges launched amid a resurgent property market.
The firm last month launched the AGA City60, an electric oven on wheels designed for use in town flats or terraced houses.
At the time chief executive William McGrath said: “The AGA City60 is a breakout product reaching a wider customer base and we are focused on taking the opportunities that provides.”
The group said in July that new product ranges had helped orders lift 6% during the last six months, while sales improved by 4%.
It points to a turnaround in performance since full-year results for 2013 showed pre-tax profits fell 35% to £1.1 million, as the group closed shops, cut costs and serviced its pension scheme. But this period seems to be behind the firm with orders of its Fired Earth tiles brand and AGA Marvel products up 10% in the US so far this year.
Analysts noted than the business suffered a dip in sales in May but returned with positive sales the following month. Brokers at N+1 Singer expect to see the strong pound impact performance in Ireland and America, but overall called the group’s performance “very encouraging.”
Imperial Tobacco’s £4.2billion acquisition of a batch of US brands will be the main talking point when it presents a trading update on Tuesday.
The group, which owns JPS, Golden Virginia and Lambert & Butler, last month bought the brands from US rival Reynolds American l which was required to sell them by regulators as part of its larger purchase of Lorillard.
The deal boosts Imperial’s market share in the US from 3% to 10%, with the world’s second largest cigarette market worth around 90 billion US dollars (£54 billion) a year, though this is declining at 3% annually. The Chinese market is larger but harder for Western firms to penetrate.
The addition of Winston, Maverick, Kool, Salem and e-cigarette brand blu, which is also sold in the UK, takes Imperial from the fifth biggest tobacco firm in the US to the third.
The brands generated sales of 2.4bn US dollars (£1.4bn) last year, producing an operating profit of 600m US dollars (£360m).
Imperial chief executive Alison Cooper said: “This is a great opportunity to transform our US business and secure a significant presence in the world’s largest accessible profit pool.”
Analysts at ETX Capital said the deal will “cause a major shake-up in the US tobacco market, pressuring competitors like Philip Morris.”
The move comes as the firm is going through an enormous restructuring this year as the business focuses on key regions, core brands and cuts costs. In the UK, which generates around 21% of group sales, it will close a factory in Nottingham with the loss of 540 jobs.
The effects of these changes around the world will save the firm £300m a year from 2018, although in the meantime the firm’s full-year adjusted operating profit is set to remain broadly flat at £3.2 billion this year.