Tesco’s discount range finds every little helps
Dec 1 2008 by Karen Dent, The Journal
SOFTWARE group Sage is likely to warn over the impact of a worsening economic outlook in its full-year results on Wednesday.
The Newcastle company described market conditions as “uncertain and challenging” in August, although it stuck to full-year guidance. It saw “satisfactory” trading in the UK and US, and slower growth in Spain. Better conditions in Germany, Switzerland and France helped it progress in mainland Europe. But the growing financial crisis has made the business climate even more fraught.
Sage, which specialises in accountancy packages for businesses, has also been dogged by operational problems in its US healthcare business which has seen management changes as well as disruption by new legislation regulating the processing of health insurance claims.
Analysts are predicting pre-tax profits of £277m for the year to September 30, a 5% rise on the previous year.
Merrill Lynch analyst Raimo Lenschow said: “In normal times the Sage investment case sometimes can look a bit boring as the large percentage of support contracts (60% of total revenue) means that numbers will never change in dramatic steps. However, we see this as a core strength for the current recession.”
Supermarket and travel sector updates this week will give a view of consumer confidence in the run-up to Christmas. Tesco’s snapshot tomorrow should update on the progress of its discount range launched in September to compete with Aldi and Lidl.
Chief executive Sir Terry Leahy’s comments on the outlook will also be closely watched, as well as any signs Tesco is trimming its long-standing 3-4% UK sales guidance.
Last month Shore Capital analyst Clive Black still had a “buy” rating on the grocer – as Tesco is asset-rich and any turbulence will be put into perspective by greater damage elsewhere. But he has nudged down forecasts to reflect the economic storm clouds.
Morrisons, which updates on Thursday, said its value ranges had helped attract half a million more customers every week. The firm, which relaunched cheaper lines and slashed prices on several everyday items to 50p, saw like-for-like sales excluding fuel rise 7.6% in the 26 weeks to August 3.
Royal Bank of Scotland analyst Justin Scarborough said Morrisons could post like-for-like sales close to 7% for the third quarter.
Voucher and savings club Park, which posts interim profits on Tuesday, has benefited as cautious customers put aside Christmas cash more than a year in advance. The Birkenhead-based group said in its last update that was already taking orders for Christmas 2009. Park has more than 440,000 customers and 102,000 agents, allowing savers to spread the cost of Christmas hampers and vouchers through monthly payments.
The September trading update underlined the group’s continued recovery from the high-profile collapse of rival Farepak in 2006. This shook confidence in the sector and halved Park’s pre-tax profits to £5.2m in the year to March 31.
But its online sales of vouchers for high street stores such as Argos, Marks & Spencer and John Lewis have more than doubled in the past year. Hardman & Co analyst Roger Hardman expects profits to recover to £6.4 million this year.
Transport group Stagecoach has taken recent stock market punishment amid warnings of slowing rail revenues. Shares have fallen almost 50% since September as investors bailed out of a stock previously believed to be a defensive banker in a recession. Stagecoach, which operates the East Midland and South West Trains franchises, believes its business will be “relatively resilient” in a downturn, although rail growth has slowed. It is expected to post a 15% rise in profits to £201m when it posts annual results on Wednesday.
