The FTSE 100 will be in focus on the corporate calendar in the coming week, with heavyweights AB Foods, JD Sports, Ocado and Ashtead set to update investors.
Games Workshop, Keywords Studios and Tullow Oil will represent the mid-cap realm, while in terms of economic data we shall see some updates on UK and US inflation, coming after the latest GDP updates.
With the second week of the month usually having relatively few indicators apart from consumer price index updates in the UK, US and elsewhere, the focus will be heavily on inflation and possibly the dreaded spectre of stagflation given the weak UK GDP numbers from the past week.
There will be plenty of space to review where we are with inflation, says market analyst Marshall Gittler at BDSwiss, especially with almost all G20 countries having seen an acceleration of inflation over the last three months.
“The big question earlier this year, as inflation surged everywhere, was whether these higher rates were structural – in case central banks would have to respond with tighter policies – or whether they were due mostly to distortions caused by the reopening of economies, in which case they were likely to fade as supply chains readjust and things get back to normal,” says Gittler.
“That would justify the consensus among central banks that the higher rates are ‘transitory’ and therefore don’t warrant a tightening of policy.”
While price rises have accelerated in recent months, most countries are expected to have lower inflation in 2022 than in 2021, and still lower in 2023 – although the UK, China and Japan are notable exceptions.
Data in the US indicates that the surge in prices in recent months has been due largely to the components that plunged in price when the pandemic started.
“Eventually, one assumes that these effects will work through the system, like a snake digesting a mouse,” says Gittler.
However, the fear is that with the virus still not under control around the world, some economies, including the US and UK could be mired in stagflation, forcing central banks to choose inflation and employment.
Focusing on the UK, the UK headline rate of inflation is expected to rise by a sharp 0.9 percentage point month-on-month, though on a three-month basis it’s expected to slow considerably below the Bank of England‘s 2% central target.
If the market sees the leap in inflation and think “BoE tightening” it would result in a spike for the pound, says Gittler.
“The market is expecting perhaps a 10 bps hike in rates by February or a full 25 bps rate hike by next July. Higher inflation could get some investors speculating about a steeper tightening path. That would be GBP-positive.”
Other macro data in the week includes a UK labour market update on Tuesday and official retail sales on Friday.
First day, AB Foods trading update
The retailer, which doesn’t have an online shop, saw trading booming over the summer with armies of loyal fans pouring into stores as they re-opened.
The easing of social distancing measures in August is likely to have given the retailer an added boost, according to Hargreaves Lansdown, given numbers of shoppers in stores are no longer restricted.
“Although the company has previously noted the outlook is still uncertain, it’s been confident enough to continue with its store opening programme and the retailer is also likely to benefit from the exodus of Gap from the UK high street,” analysts commented.
“Sales in its grocery division are also likely to have been resilient, although have tempered a little since last year’s stockpiling and as the craze for lockdown baking has waned a little. With a diversified business and more than GBP1bn in net cash to rely on, it is well placed to dodge any further curveballs the pandemic may throw.”
JD Sports flexing some interims
“In the UK, we expect that the early promise post restart 3 has persisted as well,” analysts noted.
“Europe has been less rosy, with duties and slower post-Covid-19 bounce-backs, but in general this should be a strong set of group numbers, and the risk to full-year forecasts remains to the upside.”
The market will also want to hear updates on the Footasylum saga, after the FTSE 100 group was hit by a competition ruling that could force it to sell it back.
“It’s a blow to the company’s quest for dominance in the sportswear market which had seen its share price soar. The clock is ticking on providing alternative remedies to the sale, with views on the provisional ruling due by the end of next week,” analysts at Hargreaves Lansdown commented.
“JD Sports’ argument put forward to hang onto Footasylum is that direct competition is increasing from brands like Nike who have capitalised on the shift to digital sales by selling direct to shoppers. But JD is also now a formidable online powerhouse, with heavy investment into e-commerce and a two-year deal with Clipper Logistics signed to improve efficiency in its fulfilment operations.”
Is Ocado past its selling date?
The online grocer saw sales decline for the first time on record in the four weeks to 8 August as UK shoppers shifted away from online and went back to the shops.
That was according to data from research group Kantar data, though Barclays expects next week’s third-quarter trading update on Tuesday from the online giant to confirm the drop.
Analysts at the bank expect revenue to fall by 1.2% year-on-year (vs +5.4% growth in the second quarter and +39.7% in quarter one).
“A fall in sales would be unprecedented, but needs to be seen in the context of capacity limits and fire disruption,” said the bank.
Comparatives are also tough, with sales overall up by 44.4% compared with 2019, the fastest two-year growth in the market said Kantar.
Updates on the partnerships with such as Marks & Spencer will be something to watch out for, as will the spending on automation.
Mid-week sparkles with Fevetree
Some of the fizz has gone out of mixers maker Fevertree with a recent update indicating strong sales growth but questions over margins, so investors will keep an eye on this in Wednesday’s trading update.
Global revenue in the first half of 2021 was up 39% to GBP141.8mln but UK revenues were just 4% higher at GBP50.3mln.
UBS says things to watch for this time are pricing, the pace of the on-premise channel recovery in Europe and the UK, online trends and expanding local production in the US
The broker says sentiment remains negative ahead of the results as investors are increasingly worried about FeverTree’s expectation of “some” margin progression in 2022 in light of rising cost pressures.
For the year to end December 2021, FeverTree’s sales guidance is GBP295m-304mln and an EBITDA margin of c.20%. Whether there is any change here will be key.
All fun and Games Workshop
In advance of its annual general meeting, Games Workshop PLC may have an update on Wednesday.
Although up against the exceptional start last year, the Warhammer gaming company should have a good start to the year, reckons broker Peel Hunt.
“Recent launches (Kill Team, Age of Sigmar) have gone well and the company is struggling to keep up with demand. The launch of Warhammer+ at the end of August provides a new revenue opportunity and recurring revenue.
“There is also a very strong slate of upcoming video releases. As ever profits turn into cash, which means that capital returns should continue to be attractive,” the analysts said in their preview.
All fun and (video)games with Keywords Studios
Video games contractor Keywords Studios PLC (AIM:KWS, FRA:KS3, OTC:KYYWF) is likely to get a warm reception when it releases results on Wednesday, and it wouldn’t be unheard if there was some acquisition news (or at least some commentary).
The acquisitive firm has built up substantially in recent years and is presently seeing a boost from positive trends in the sector.
Last month, stockbroker Liberum lifted its forecasts for the group.
“While margin trends may moderate in H2 as certain costs return post-lockdown, we see this strong demand persisting; we therefore raise our FY21 forecasts again, with our profit estimate now 9% ahead of consensus,” Liberum analyst Olivia Honychurch said in a note.
“Near-term upside could come from additional M&A this year, with the business still reviewing a healthy pipeline despite Day’s departure.”
Tullow Oil to platform results
Tullow Oil PLC (LSE:TLW)’s July trading update reported gross production slightly ahead of expectations in Ghana, though the positivity didn’t particularly last – with the shares languishing for much of the summer.
The company’s emphasis on production, cashflow and debt repayment leaves the stock as something of an ordinary play on oil prices.
Tullow albeit said it now had a strong financial footing, the outlook statement will no doubt be a highlight of Wednesday’s results statement.
Construction updates from Ashtead
A trading update from Ashtead Group (LSE:AHT) PLC on Thursday will detail first-quarter trading for the company, which will reveal more about how the US and UK construction markets have been performing.
Management is also likely to comment on the Sunbelt strategic ambitions they laid out in April’s investor event.
These results also mark the transition to reporting in US dollars for the FTSE 100 group, which means the consensus forecasts are a bit distorted.
“Overall we suspect that group has performed well through the quarter, with continued volume and rate momentum in Sunbelt US,” said broker Peel Hunt.
“The outlook remains robust and we see upside risk building to FY22E estimates.”
Significant announcements expected for the week ending 17 September:
Monday 13 September:
Tuesday 14 September:
Interims: Accesso Technology PLC, Bluejay Mining PLC, Corero Network Security PLC (AIM:CNS), Filta Group PLC, JD Sports Fashion Group PLC, Made.com Group PLC (LSE:MADE), Property Franchise Group PLC, Sanne Group PLC (LSE:SNN), Smart Metering Systems PLC (AIM:SMS), Staffline (AIM:STAF) PLC, STM Group PLC (AIM:STM), TP Group PLC (AIM:TPG), VR Education Holdings PLC (AIM:VRE)
Economic data: UK unemployment rate, US inflation rate
Wednesday 15 September:
Interims: Fevertree Drinks (AIM:FEVR) PLC, Keywords Studio PLC, Pendragon PLC, Restaurant Group PLC (LSE:RTN), Science in Sport PLC (AIM:SIS), Surgical Innovations Group (AIM:SUN) PLC, Trackwise Designs PLC (AIM:TWD), Trinity Exploration & Production PLC (AIM:TRIN), Tullow Oil PLC (LSE:TLW)
Economic data: UK inflation rate, UK retail price index, US industrial production
Thursday 16 September:
Economic data: US retail sales, US initial jobless claims
Friday 17 September:
Economic data: UK retail sales