The Week Ahead: Results due from Diageo, WH Smith Bovis and Persimmon

Two of the nation’s biggest housebuilders, Persimmon and Bovis Homes, are set to report strong half-year results as they benefit from building more family homes and capitalising on cheap land bought following the financial crisis.

The results will also reflect a strong spring selling season as first time buyers rushed to take advantage of a stamp duty holiday before it expired in March.

And since then the Government has launched its NewBuy scheme to encourage the return of 95% mortgages, while more recently it launched its Funding for Lending scheme to incentivise banks to boost mortgage availability.

Housebuilders have said these schemes have helped keep market conditions stable in recent months, allowing them to concentrate on improving their performance in the wake of the financial crisis.

Their recovery strategies have seen them build more family homes rather than flats to reduce their exposure to first time buyers and build on cheaper land they bought since the financial crisis, which has helped boost their margins.

Bovis Homes, reporting on Monday, is expected to reveal that pre-tax profits nearly doubled to �15.2 million in the first half of 2012, up from �8.1 million the previous year, according to Numis analyst Chris Millington.

When the Kent-based group last updated the market, it reported an 18% jump in completions to 944 in the first-half although it said buyers were still struggling to get affordable mortgages and taking longer to make decisions amid the economic uncertainty.

However, average sale prices rose 1% to �164,400 as its strategy of building family homes paid off.

Persimmon is expected to report a 30% hike in pre-tax profits to �75.3 million on Tuesday as it benefits from these trends.

The group, whose brands also include Charles Church and Westbury, has already hailed signs the Government’s NewBuy scheme is helping to stimulate demand in its last update. It average selling price rose 7% to �171,400 in the half year, helped by its focus on the more affluent south.

Investec analyst Mike Bessell said: “Persimmon remains the national housebuilding business that is furthest down the road to full recovery and its strategy underpins confidence in that view.”

Britain’s resilient jobs market is expected to have helped the Government’s battered public finances, with official figures for July set to show a welcome boost from tax revenues.

July is a strong month for tax receipts, as both corporation tax and self-assessment income tax payments are due, which is expected to see the Government repay debt rather than borrow.

Experts at Investec Securities predict that instead of borrowing more, Tuesday’s Office for National Statistics figures will show a surplus of �2.5 billion in July, in a similar result to the �2.8 billion surplus seen a year earlier.

This would be a marked improvement on the �14.4 billion of additional public sector net borrowing in June, excluding financial interventions such as bank bailouts.

Recent improvements in UK unemployment levels are thought to have helped. The latest jobs market data showed unemployment fell to its lowest level for a year in the quarter to June, down by 46,000 to 2.56 million.

Most of the quarterly fall in unemployment was recorded in the capital, suggesting a jobs boost because of the Olympic Games.

Investec economists said: “We can be thankful for the surprising resilience of the labour market, which is helping to shore up revenues and putting downward pressure on expenditure and preventing a more serious increase in borrowing.”

But they believe a surplus in July is unlikely to have helped Chancellor George Osborne get back on track with his full-year forecast.

Mr Osborne wants to trim borrowing in 2012/2013 to �120 billion, excluding a one-off �28 billion boost from the transfer of the Royal Mail pension fund into Treasury ownership.

But underlying public finances are already �6.8 billion worse off in the first three months of the financial year than they were a year earlier, according to Investec.

Half-year figures from the UK’s biggest pawnbroker, H&T Group, will be scrutinised on Tuesday for further signs of a slowdown in its gold arm.

The group, which has 174 stores and 55 “GoldBar” units, revealed in June that the gold purchasing division - a star performer in recent years - had “experienced competitive pressure on margins” as gold prices softened and competition increased.

This followed a warning from rival Albemarle & Bond that annual profits would be lower than expected due to the falling price of gold and the possible impact of wet weather.

The value of gold is around 16% lower than its peak last September, currently standing at 1603 US dollars an ounce.

Gold prices soared throughout most of 2011 thanks to its safe haven status as investors sought refuge amid increased global recession fears, but the precious metal has since seen its value ease off.

But H&T said it still expects a good first half as its core pawnbroking operations are expected to report double-digit year-on-year growth in the six months to June 30, boosted by an increased size of the average loan and a bigger pledge book.

Andrew Wade at H&T’s house broker Numis Securities is predicting H&T to report interim pre-tax profits of around �8 million, down from �14.5 million last year, although he said last year’s figures were boosted by unusually high scrap profits after delayed profits from 2009 auctions were added in.

He said: “The pledge book has continued to show encouraging double-digit growth, while gold purchasing volumes have been consistent year-on-year, although margins have come under pressure as expected.

“We continue to expect the group to achieve a full-year profit of �16.2 million.”

WH Smith recently saw its share price hit a new high as investors continue to be convinced by the retailer’s strategy to expand its UK travel arm and international division.

A final trading update on Thursday before it publishes full-year results in October is expected to reveal improved like-for-like sales across the group.

The travel division, which features stores at airports, railway stations and motorway service areas, has offset declines in the under-pressure high street outlets in recent months, which are forecast to show a 2% dip for the year to August 31.

The travel arm now makes up 50% of the group’s pre-tax profits and analysts expect it to continue being the key driver for growth, supported by its plans to expand internationally.

WH Smith currently has 42 international stores and the division is starting to win contracts in airports and hospitals, such as in India.

However, the third quarter also showed improved like-for-like sales in high street stores as slowing price inflation has buoyed consumer spending.

Despite recent strong share gains, Seymour Pierce analyst Kate Calvert said she still believes the market is undervaluing the business at around �748 million and that shares at around 575p could go further.

She said: “The business model is becoming increasingly more flexible as travel accounts for a greater proportion of group underlying earnings and its high street position is benefiting from market consolidation.”

The group, which has around 1,200 stores, including 586 in the travel division, is also expected to give an update on the success of the Kobo e-reader, which it introduced to stores earlier this year to compete with Amazon’s Kindle.

Guinness-to-Smirnoff drinks firm Diageo is expected to cheer strong profits growth on Thursday as sales in emerging markets continue to outperform the UK and Europe.

Latin America, Africa and Asia will be the key drivers behind an expected 11% increase in pre-tax profits to �2.94 billion for the year to June 30.

The group’s performance in the UK has been hit by widespread pub closures as more people buy cheaper alcohol from supermarkets where special offers drive down prices.

This, along with the economic woes in Ireland, has contributed to weaker sales of Guinness, while its exposure to several eurozone economies, such as Spain and Greece, have also put pressure on sales.

However, Diageo sells its drinks in 180 countries across the globe, giving it huge exposure to emerging markets, which is expected to buoy its full-year results.

Latin America, Asia and Africa have shown strong growth, with Guinness, Johnnie Walker and Smirnoff brands proving popular.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: “Growth in the emerging markets is again expected to prove the key driver of performance.”

The City will also be looking for detail on its recently unveiled plans to invest �1 billion in Scotch whisky production over the next five years.

The group, which produces Scotch brands Bells, J&B and Johnnie Walker among others, said it plans to build a major new distillery and expand a number of its existing 28 distilleries.

It also recently bought a brand of Brazil’s national drink called Cachaca, which is made from sugar cane, Mey Icki raki brand in Turkey and Meta Abo beer in Ethiopia as it looks to increase its exposure overseas.

Diageo, like many manufacturers, is also likely to have benefitted from softer input costs in recent months as inflation has come down.

The double-dip recession may not be as deep as originally feared, as analysts have forecast an upward revision to Gross Domestic Product (GDP) figures on Friday.

The second estimate of GDP, a broad measure for the total economy, is expected to show a 0.5% decline between April and June, against the first estimate of a 0.7% drop.

The slight improvement is set to be driven by better-than-estimated performances from the construction and industrial production sector, while a lift to services output may also be on the cards.

However, City experts warned the underlying picture of a struggling economy, mired in the longest double-dip recession since the 1950s, will remain.

As a result, any such improvement is unlikely to relieve pressure on Chancellor George Osborne to ease his strict austerity measures, which some have said are choking off the recovery.

Victoria Clarke, economist at Investec, said: “Such an out-turn would make for less scary headlines, whilst still indicative of a UK economy stuck in the mud.”

The 0.7% decline in the first quarter was driven by a 5.2% drop in construction output, a 1.3% quarterly fall in industrial output and a 0.1% drop in service sector output.

The additional bank holiday for the Queen’s Diamond Jubilee in June, which knocked out a day of output, also accounted for some of the weakness.

But recent sector data from the Office of National Statistics (ONS) showed a smaller decline of 3.9% over the quarter for construction and a smaller 0.9% for industrial production.

The revisions were put down to a smaller impact from the Jubilee effect, which could also be applied to the powerhouse services sector, which makes up 75% of the total economy.