Friday is likely to see a quieter day of corporate news in London with the focus across the Atlantic as the new US earnings season kicks off in earnest.
But there will be macro interest with UK GDP data and retail sales data from the US due on Friday.
For the UK, economists are expecting the steepest monthly decline in output since the sharp global fall in April last year with more bad news in coming months as December, January and probably February will show the effect of stricter coronavirus (COVID-19) lockdowns.
Gym Group in hibernation
Lockdowns will weigh on numbers from Gym Group PLC’s (LON:GYM), which has seen its entire estate of around 180-plus gyms is closed and, depending on the length of the current UK lockdowns, they could remain so until April.
Back in November, when the previous lockdown came in, the gym operator said it expected a cash burn of £6mln during the closures that month as it looked to minimise operating costs and make use of the government furlough scheme.
At the time it said net debt had reduced to £32mln from £35.7mln at the end of July, but that it has £100mln of total borrowing capacity.
Analysts at broker Peel Hunt said with December’s tier-4 restrictions, the new national lockdown begun last week and a more gradual recovery thereafter, it still expects the company to retain plenty of liquidity headroom.
“We estimate it has circa 11 months of liquidity under full closure owing to having £100m of debt facilities. Our debt forecasts include assumptions of growing expansion, which could be flexed if Covid-19 is further prolonged.”
As one of the two dominant operators in a UK market that was growing strongly before COVID-19, and perhaps the best capitalised, the shares trade “at a big discount to its international peers” as “demand should fully return”.
US reporting season kicks off
Across the Atlantic, the latest quarterly earnings season begins in earnest with the banks, as usual, but investors are likely to be looking for forward guidance rather than focusing too strenuously on the past.
Although BlackRock Inc (NYSE:BLK) kicks off on its own today, the results season truly starts on Friday as Wall Street banking giants JP Morgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C) and Wells Fargo & Co (NYSE:WFC) all reporting, ahead of Bank of American, Goldman Sachs and Morgan Stanley next week.
Whilst the earnings numbers will be important, guidance on the upcoming couple of quarters will “be more important than ever”, said market analyst Neil Wilson at Markets.com.
Noting that the S&P 500 rose almost 2% last week to fresh record highs, he said: “Ebullience is a factor of the hope in vaccines leading to a return to normal, corporate earnings improving sharply in 2021, and expansionary fiscal and monetary environment offering succour to equity valuations.”
All else being equal, stretched valuation multiples in 2021 ought to contract slightly as rates rise, Wilson noted, though earnings per share should improve faster with a more expansionary and redistributive pro-cyclical policy in Washington.
On average, S&P 500 earnings are seen falling by around 10% on last year’s fourth quarter, with revenues seen flat, compared to a 7% drop in the second quarter and over 32% in the second.
For the first quarter of 2021, average EPS is forecast to be up 12.6%.
So, said Wilson, “a key theme of this season will be to what extent corporates think the growth trend will pick up at the start of this year, or do they fear of a stop-start recovery?”
Looking forward, FAANG investors get their first kicks next week with Netflix, before Apple and Facebook and Alphabet at the end of the month. Tesla, in case you’re wondering, is due on February 3, 2021.
Significant announcements expected onFriday, January 15:
Economic data: UK GDP, trade balance and industrial production data, US retail sales and PPI