The week ahead is likely to see grocery take centre stage with a trading update and AGM due from Sainsbury’s alongside half-year results from delivery outfit Ocado.
Meanwhile, housebuilders Vistry and Persimmon will also be reporting updates to the market, while UK GDP is set to be the main event in a somewhat lighter macro calendar.
Sainsbury’s checks its receipts
Things are starting to get back to what passes as “normal” in the supermarket world, which includes the German hard discounters nibbling away at market share after a prolonged period when their lack of home delivery options checked their growth.
In its full-year results to the end of March 2021, Sainsbury’s revealed that online orders accounted for 17% of grocery sales, up from 8% in 2019/20, with the supermarket claiming to have gained more market share than its competitors.
Meanwhile, Argos saw digital sales increase by 68% year-on-year, and it will be interesting to see whether the growth of digital sales in both sides of the business has come off the boil a bit, especially as groceries delivery specialist Ocado is releasing its interims on the same day.
When last we heard from Sainsbury’s, it said it had started the new financial year strongly but warned: “we have tough comparables ahead as customer behaviour normalises”.
The company had been forecasting underlying profit before tax for the year will exceed the GBP586mln it made in the pre-pandemic fiscal 2019/20 and analysts will be hoping for something a bit less vague in terms of profit guidance in Tuesday’s statement.
Ocado delivers results
Investors who got in early last year or in previous years will still be in the money however but might be looking for some indication in these numbers about whether the demand for the company’s online grocery services seen in the pandemic is likely to continue further forward.
There are several possible reasons for the shares weakening, including concerns about competition from a new breed of smaller and more agile on-demand grocery startups that have sprung up last year – the likes of Jiffy, Weezy, Grocemania, Beelivery and Gorillas Grocery – as well as investors looking for bargains from more downtrodden stocks.
With Ocado not expected to make a profit until 2024 at the earliest, the competition from the one-hour grocery delivery newcomers is also being accompanied by improved delivery services from the established supermarket players, with the likes of Amazon also stepping up its efforts with partner Morrisons.
“That is forcing fresh investment [from Ocado] in new micro-sites customer fulfilment centres and thus again delaying that return to profit,” analysts at AJ Bell noted.
For the year as a whole, analysts are looking for Ocado to grow revenue 16% and losses to be trimmed to GBP167mln.
Marks and Spencer Group PLC (LON:MKS) investors will also be looking for more detail on the UK 50-50 joint venture, where at the Q1 stage the order run rate averaged 329,000 a week, with a basket size of GBP147. There should also be news on a first mini customer fulfilment centre (CFC) in Bristol and plans for large and small CFCs to support the planned Ocado Zoom one-hour delivery service in the UK.
Vistry and Persimmon update as housing market boom continues
To no one’s great surprise except perhaps the chancellor of the exchequer, the housing market continues to roar like a house on fire so updates from The Vistry Group PLC (LON:VTY) and Persimmon PLC (LON:PSN) should be cheery affairs.
Vistry, which operates under the Bovis and Linden brands, said in May it had made a very positive start to the year with strong demand across all areas of the business.
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The average weekly private sales rate of 0.75 per site in the first five months of the year was up 21% on the same period of (pre-pandemic) 2019.
The company’s May update saw full-year profit guidance raised to GBP325mln or thereabouts, up from GBP310mln previously. It would not be a total surprise were the company to raise expectations again although rising material costs may yet upset the housebuilders’ lucrative apple cart.
As for Persimmon, UBS is expecting the number of home completions in the first half of the year will be around 7,521, with an average selling price of GBP228,000, leading to revenues of GBP1.71bn, up from GBP1.65bn in the same period of 2020.
“Key focus will be on the interplay between pricing and cost inflation. We think on balance, there is upside risk to margins as a result of this dynamic, putting some upside risk to the margin outlook for the year,” UBS said.
Jet2 flies in with finals
Package holiday provider and budget airline Jet2 PLC (LON:JET2) will report its final results on Thursday, however, given the last year has been a torrid one for the travel industry investors are more likely to be looking at the group’s outlook statement and how it expects things to shape up as travel restrictions show signs of easing.
In a trading update back in April, the company already flagged the key figures for the year are unlikely to make for happy reading, reporting a loss for the year to March 31 of between GBP375-385mln, swinging from a GBP264.2mln profit in the prior year. However, it added it raised almost GBP1bn in liquidity during the year to mitigate the pandemic’s impacts alongside measures to reduce cash burn.
Jet2 also said it has been “encouraged” by the volume of customer bookings for its flights in the winter 2021 and summer 2022 seasons, so shareholders will be hoping this trend has continued and how well the group has fared since lifting a suspension on flights last Wednesday.
Entain hopes betting cash is coming home
England’s unexpected triumph over Germany may have cost the firm a bit of cash, however, on the flipside France’s surprise loss to Switzerland could have offset any losses, with the company having flagged that around half of UK punters had put their money on the French team to win the tournament outright.
With this in mind, and with England’s prospects now looking up, investors will be eagerly watching for an update on betting numbers, hoping that any reticent England fans have now decided to take a punt in the wake of its two major rivals now out of the tournament.
AGM hunting season
Aside from its trading update on Tuesday, Sainsbury’s annual shareholder meeting on Friday will also be under scrutiny for potential bloody noses after the fireworks at retailer JD Sports’s AGM and rival chain Morrisons last month saw the biggest revolt of the AGM season so far.
Around 70% of Morrisons votes failed to back its remuneration report following the company’s decision to exclude Covid-19 costs of GBP290mln from annual bonus calculations.
The pay of Sainsbury’s bosses during the pandemic will continue to be under scrutiny as the board opted to apply some upward discretion to its remuneration for 2020/21, said Lee Wild, head of equity strategy at Interactive Investor.
Investors should not support the grocer’s remuneration plans, Glass Lewis said.
Though the impact of the upward discretion was relatively modest the institutional advisory group said it could not support the company’s remuneration report in a year when the chain reported a bottom-line loss of GBP261mln and underlying profits fell 39.2% to GBP356mln.
Glass Lewis added: “We note that adjustments of this kind have been rare among the company’s FTSE-listed peers, the majority of whom have not acted to apply upward adjustments to awards when targets have been missed.”
Sainsbury’s made two ‘thank you payments’ to around 140,000 hourly-paid workers and 12,000 managers last year, plus another special recognition payment to hourly-paid staff in May this year, totalling not much over GBP800 for full-time staff.
Shareholders, meanwhile, are due to receive a GBP164mln final dividend later this month, or 7.4p a share, with the shares up 50% since last September, Wild noted.
Another retail AGM is also taking place for Marks and Spencer Group PLC (LON:MKS), though it is expected to be a slick affair with no major ructions as Glass Lewis has recommended a vote in favour of the company’s remuneration report and praised M&S for keeping executive pay in line with the experience of shareholders and staff after no dividend was paid for a second year running and the share price fell sharply over the year.
Ex-BBC editorial director and economics editor Kamal Ahmed will be ‘shareholder advocate’ on the AGM, aiming to ensure as many questions as possible are put to the M&S board, and with shareholders able to raise an issue in person by pre-recording a video.
“M&S got through more than 30 questions at last year’s AGM, with topics spanning the company’s commitment to healthier products and approach to plastic packaging through to the impact of Covid-19 on overseas suppliers,” observed Wild.
“One questioner wanted to know if M&S shareholders could expect priority delivery slots in the Ocado joint venture and another if board members regularly wore M&S suits. The answers were no to the first and yes to the second, albeit in relation to their appearance at the AGM.”
For UK macroeconomic wonks, Monday and Friday are the big days, with June services purchasing managers’ index (PMI) data at the start of the week and then the final bookends being announcements on monthly GDP, industrial and manufacturing production, and trade data.
In May the UK composite PMI hit a record high, with services PMI hitting a 24-year peak in May of 62.9 before the ‘flash’ number for last month slipped to 61.7.
With prices-paid looking “a little on the hot side, they aren’t for now acting as a brake on the reopening trade” observed market analyst Michael Hewson at CMC Markets.
“The flash numbers two weeks ago showed that June activity had subsided somewhat however it still remains robust. The biggest worry remains around inflation and an element of cost-push inflation.”
Looking to Friday GDP, this could continue the run of improvement in monthly GDP after the year started with a 2.9% contraction.
We’ve seen a steady pick-up in economic activity with a 0.4% rebound in February followed by 2.1% and 2.3% rises in March and April as lockdown restrictions were eased.
GDP for May is expected to grow at the same robust pace as in April but could be even higher, given other economic indicators.
“That may help to reassure people that the UK is bouncing back despite the rise in virus cases, which would be positive for the pound,” said market analyst Marshall Gittler at BDSwiss.
The focus in the US is likely to be on Wednesday’s release of the minutes to the June meeting of the rate-setting Federal Open Market Committee (FOMC).
“That’s the meeting where they changed their forecast to show not one but two rate hikes by the end of 2023. Investors will scrutinize the minutes for details of the discussion that led up to that decision and any insights that they can glean about the Committee’s views on the economy. We’ve heard from so many FOMC members since then that I’m not sure we’ll learn much, but there always seems to be one or two nuggets of information or nuance that affect the market,” said Gittler.
Significant announcements expected for week ending 9 July:
Monday July 5:
Economic data: UK services PMI
Tuesday July 6:
Trading announcements: J Sainsbury PLC (LON:SBRY)
Economic data: UK construction PMI, US services PMI
Wednesday July 7:
Interims: Schroder European REIT PLC (LON:SERE),
Economic data: US Fed minutes, UK house prices
Thursday July 8:
Economic data: US jobless claims
Friday July 9:
Economic data: UK trade balance, UK GDP