Retail will be in focus in the coming week, with fashion designer Ted Baker, cushions seller Dunelm and delivery boxes maker DS Smith.
It’s September so we are back in the swing of it after a fairly quiet corporate calendar in August, with heavyweights Morrisons, Vistry and McBride dropping results.
In terms of macro, all the excitement is reserved for the end.
“Friday brings UK short-term indicator day, when they announce monthly GDP [gross domestic product], industrial & manufacturing production, and the trade data. The GDP is the most important number. I think a continued steady increase in growth there despite the newspaper photos we see of empty supermarket shelves would be reassuring to the market and could help GBP [sterling] to rally,” suggested Marshall Gittler at BDSwiss.
GDP is tipped to be up 8.5% year-on-year in July, which most years would be an eye-catching number but as it follows June’s 15.2% gain it might be regarded as a bit underwhelming.
Manufacturing production, which was up 0.2% month-on-month in June is expected to rise 0.1% in July while industrial production is forecast to improve by 0.3% after June’s 0.5% increase.
The balance of trade is seen widening to GBP3bn in July from June’s GBP2.5bn.
The week gets off to a gentle start with new car sales data and the construction purchasing managers’ index (PMI) data releases on Monday in the UK; the US will be having one of its rare public holidays.
New car sales in July were down29.5% year-on-year and the expectation is that in August that decline will have eased to around 16%.
The August Construction PMI – one of those indices where the 50.0 level is the crossover point between expansion and contraction – is expected to clock in at 55.6, down from 58.7 in July.
On Wednesday, the Halifax House Price Index will reveal the temperature of the UK housing market. Spoiler alert: the market is still pretty red hot. Prices in July were up 7.6% year-on-year and with the end of the Chancellor of the Exchequer’s ill-advised stamp duty giveaway in sight, the annual increase should temper to around 7.3%, if economists are to be believed.
Investors may want to divorce McBride
The problem is the not the period to June just ended, but the current fiscal year the own label and cleaning products group warned a few weeks ago.
Rising costs mean profits in the year to June 2022 will be as much as 65% below market estimates of GBP19.7mln.
“The raw material environment remains extremely challenging both in terms of exceptional price increases and supply availability,” it said.
How successful it has been in passing on in some of these costs and when it sees some of the pressure easing will be the things to watch for, but with warnings about shortages almost daily recovery might take some time.
Will Ted Baker stay in fashion for investors?
The fashion designer found itself with big holes in its business model well before the pandemic, which hit it more than other retailers due to its focus on formalwear.
“The decline of the department store is a particularly thorny issue for Ted Baker given its large number of concessions and overall, the high costs of running bricks and mortar stores is a big headache. The group has been cutting costs as fast as it’s been cutting occasion wear ranges and it’s making headway on improving its buying practices,” said Susannah Streeter, senior analyst at Hargreaves Lansdown.
“Its online sales though still need a significant boost so progress made here will be crucial and will be a key metric to watch. Issuing GBP100 million in new shares gave management the firepower to transform the group’s fortunes, but the team is now under pressure to come up with the goods.”
DS Smith unpacks quarterly trends
“We’re expecting to see a huge year-over-year volume increase for the first quarter owing to the pandemic-related weakness baked into last year’s figures,” Hargreaves Lansdown analyst Laura Hoy said in a note. “But the group should be at or close-to pre-pandemic levels, putting it on-track to outperform 2019 sales.
“Volumes improved through the second half of last year, but management flagged inflation as a potential challenge.”
“The increase is expected to be passed seamlessly on to customers, most of which will likely stomach the higher bill. Three months isn’t long enough to say the strategy is iron-clad, but next week should give investors some idea of whether or not things are going to plan.”
Building up Vistry’s interims
Vistry Group PLC (LSE:VTY), the housebuilder formerly known as Bovis Homes, has already spilt some of the beans on first-half trading in July so the focus in the interims will be on the elements missing from the July update, namely profitability and full-year guidance.
UBS is forecasting earnings before interest and tax of GBP173mln, including contributions from joint ventures.
This implies an operating margin of 13.6%; UBS helpfully notes that the market consensus is for an operating margin of 14.1%.
The Swiss bank is forecasting a profit before tax of GBP161mln for Tuesday’s interims.
“We think house price inflation continues to offset pressures in the material supply chain, and weekly reservations remained in the regions of 0.7-0.8x,” UBS said.
Dunelm’s investors may be hard to comfort
Dunelm customers spent 2020 (comfortably) on their backsides but now in 2021 investors are sat on the bones of theirs.
The share is down around 15% in the past year as the soft furnishings firm fell from favour as a lockdown play, as investors have sought out more exciting recovery plays.
Even “very upbeat” trading updates failed to lure back interest, AJ Bell analysts said in a note this week.
“Soft furnishings and homewares retailer Dunelm’s business model proved ideally suited to the pandemic – and lockdown-blighted year of 2020, as its website kept customers served and those customers spent money on their house which may have otherwise gone on holidays or other items,” AJ Bell commented.
However, investors’ affections in 2021 have – so far at least – switched to those firms which may show a faster recovery going forward, if only because their sales, profits and cash flows took a big hit during the worst of the viral outbreak.”
The latest upbeat update in July, with the fourth quarter trading statement, so whilst there’s likely be some interest on Dunelm’s results on Wednesday, but it may prove to be tough crowd.
Any more saucy updates from Morrisons?
The grocer’s re-entry to the big league was confirmed two days ago, but rather like the numbers on Thursday is a sideshow to the bid battle underway between US private equity concerns.
Clayton, Dubilier & Rice (CD&R) is in pole position with its latest bid the highest so far and worth 285p per share or GBP7bn in total, but there is still time for rival bidder Fortress to come back again or even for someone else to enter the fray.
Morrison’s management has seemed keen to accept anything over 250p, so the results are likely to be a plain vanilla affair but at least should give some insight into what the bidders are buying and where it can go in future.
The online channels are growing fast while wholesale is becoming more important as e-commerce demands grow.
Morrisons also own its stores and a reminder of what they are worth in the balance sheet might also prod one of the bidders to go higher.
Switching on for STV’s interims
The release comes after an encouraging pre-close update that flagged strong trading and significant operational progress.
The TV channel later announced the STV Player’s biggest ever content partnership, adding 1,200 hours of quality drama and factual content over the next 12 months, and the divestment of its non-core external lottery management company.
The market will expect news on these dynamics and an update on current trading and expectations for the remainder of this year.
“We regard STV as a very well-managed, entrepreneurial business with strong momentum, clear potential to both build on its dominant position in commercial TV broadcasting in Scotland as advertising spend recovers and deliver transformational growth across its digital and production operations, and a firm commitment to sustainability, diversity, and inclusion,” commented house broker Shore Capital.
“We forecast 12% year-on-year EPS growth during 2021 (driven by a combination of top-line growth and margin expansion) and three-year adjusted EPS and DPS growth of 39% and 64%, respectively, accompanied by robust cash generation – potentially delivering a net cash position by end 2023/ providing firepower to fund content production acquisitions and investments.”
Significant announcements expected for week ending 10 September:
Monday 6 September:
Finals: Dechra plc
Economic data: UK PMI Construction, UK new car sales
Tuesday 7 September:
Economic data: UK retail sales, Halifax house price index
Wednesday 8 September:
Interims: Bakkavor plc, Inspecs Group plc, Pebble Beach plc
Thursday 9 September:
Economic data: US initial jobless claims
Friday 10 September:
Economic data: UK balance of trade, UK construction output, UK industrial/manufacturing production, UK GDP