Abbey National to release UK report next week

Banking and insurance stocks will be at the forefront of minds on the London market next week as a clutch of leading companies issue annual results. They include Abbey National, which will be eager to put a turbulent 2002 behind it.

British American Tobacco, which has been speculated in recent days to be eyeing up rival Gallaher as a takeover target, has been the subject of downgraded earnings forecasts because of the impact of the weak US dollar and lower volumes.

However, annual figures on Tuesday are still expected to show a solid performance with fund manager Gerrard pencilling in profits of £2.54 billion compared with £2.5bn a year earlier.

Among concerns that BAT will have to address will be the increasingly competitive environment in the US tobacco industry caused by weakening demand after strong excise duty hikes.

HBOS – formed out of the merger of Halifax and Bank of Scotland – should have benefited from the strength of the housing market as the UK’s fifth largest banking group accounts for more than a quarter of new mortgage lending.

The group has also targeted the lucrative small and medium sized enterprise sector, building upon Bank of Scotland’s expertise in large corporate banking while looking to maintain the level of its credit quality.

Analysts expect HBOS to deliver against its published targets on Tuesday with underlying pre-tax profits set to rise 16% in 2002 to £4.05bn.

Life assurer Prudential has already published its new business numbers for 2002 with sales of life and pensions products up by 9% at £1.92 billion.

But write-offs and higher expenses linked to the company’s Jackson National business in the US are likely to hit pre-tax profits, which are forecast on Tuesday to show a slight fall from £1.19bn to £1.12bn.

Analysts will be keen to see if Prudential maintains its annual dividend and whether it sees any need to increase its reserves for annuity liabilities because of increased male life expectancy.

Abbey National’s annual results on Wednesday are likely to be the most keenly watched of the banking sector’s reporting season as analysts take in further details of new chief executive Luqman Arnold’s restructuring plan.

He decided to act in November after provisions against junk bonds held by Abbey’s wholesale bank caused a string of profits warnings and which now look set to leave underlying figures for 2002 at £850m, against £1.87bn last time.

Mr Luqman has already said Abbey will focus on retail financial services but he also looks set to become the first chief executive of a bank to announce a dividend cut since Barclays in 1993, fund manager Gerrard said.

The focus for Wednesday’s results from Norwich Union-owner Aviva is likely to be on the strength of its balance sheet with analysts eager to hear what impact the firm’s large exposure to equities has had on its investment portfolio.

NatWest Stockbrokers predicted that the results will reflect a decline in Aviva’s capital base over 2002. Underlying pre-tax profits are expected to be around £1.8bn, a 7.6% decline on last year.

Aviva’s general insurance business is, however, forecast to have registered a further increase in revenues.

Hilton Group, the hotel operator to bookmaker, is expected to report a fall in pre-tax profits when it unveils full year figures on Thursday.

Barclays Private Clients is forecasting pre-tax profits of £271m, on sales of £5.2bn, compared with £280m in 2001. Declining operating profits in the hotels division are believed to have hit the bottom line and the group is expected to remain cautious on its outlook.

Analysts have also predicted that the betting division, which includes Ladbrokes, will show a strong performance. They are also waiting to hear news about any acquisition plans.

Guidance from Legal & General on how it will cope with current market conditions is expected to be the key feature of Thursday’s full year results. Analysts are confident the figures will not contain any surprises.

L&G has already announced it will increase its annuity reserves by £140m to allow for increased life expectancy for male annuitants in the UK. Analysts are also keen to learn how the proceeds of a rights issue will be used.

Barclays Private Clients is predicting a 23% fall in underlying operating profits to £585m for 2002, below consensus forecasts of £598m.

A straightforward and problem-free full year statement is expected from Royal Bank of Scotland on Thursday which is poised to show it has not suffered the same problems as UK rivals in the under-pressure banking sector.

Analysts are predicting RBS’ results will show it has continued to grow revenues, while containing costs and bad debts. The news is expected to be in contrast to the downbeat news from high street rivals Barclays and Lloyds TSB.

Stockbroker Gerrard is forecasting profit growth of 12% from £5.8 billion last year to £6.6bn this time and says the dynamics of the bank’s profit and loss account are working in the right direction.