A raft of central bank meetings, including in the US, UK and Japan, are likely to determine the market mood in the coming week, though further upgrades from ever more corporations will keep the plates spinning.
Compass Group (LSE:CPG) PLC knows a lot about plates and investors will be hoping reports that more of them are starting to be served up when the FTSE 100 contract caterer updates on trading on Tuesday.
The last update showed some progress but due to cost controls such as renegotiating contracts, managing costs and resizing the business.
Revenues and profits tumbled 32% and 83% in the six months to 31 March and the statement will be keenly watched for signs of improvement in sales.
Compass has a big presence in work canteens and with the debate about working from home against returning to the office still raging, some reassurance about medium-term prospects here would also be welcome.
“Compass Group has an overreliance on corporate demand for food services, which has been decimated by a newfound appetite for homeworking in the UK and the US,” said Harry Barnick, senior analyst at Third Bridge.
That might explain why the shares have marked time for almost a year while other sectors have recovered.
Can Kingfisher outfly second-half headwinds
Kingfisher PLC (LSE:KGF), the owner of B&Q and Screwfix, on the other hand was one of the beneficiaries of the lockdowns last year and in January, when people were forced to focus on their houses and gardens.
This year the company has twice upped its guidance for sales and profits, with the first half of 2021’s like-for-like sales up 22% and adjusted pre-tax profit to come in between GBP645mln and GBP600mln compared to GBP415mln a year ago.
With the big numbers covered for the first half, investors and analysts will be looking towards the outlook for the second-half to January 2022 against a tough comparison from last year.
Also look out for a potential GBP1bn worth of dividends, according to analysts at RBC Capital Markets.
Comment on inflation might also be telling, with Credit Suisse (NYSE:CS.) mentioning Kingfisher as one company with the sort of ‘pricing power’ to alleviate the pressure from rising input costs and pass through any price rises they face rather than materially sacrificing margins.
Fuller Smith & Turner (AIM:FSTA) PLC (LON:FSTA) covers all areas of hospitality from pubs and hotels to restaurants and should be a pretty good bellwether for the how the UK sector is recovering from Covid.
In its last update, the FTSE 250 group revealed it was benefiting from the staycation boom and that tailwind should still be strong with travelling abroad still a nightmare.
Expansion plans are also something to watch for as debt has been fallen and opportunities might present themselves among rivals struggling to recover from the Covid slump.
Full-year results from the former London Pride brewer, showed pre-tax losses of GBP49mln, which was less than the GBP53mln consensus forecast and this latest update showed also show an improving trend.
Recent news of Saga PLC (LSE:SAGA)’s censure for nuisance marketing will have provided some distraction and are a blot on the specialist travel and insurer’s copy book – but a GBP225,000 fine for sending some 157mln emails, won’t be material to the financials, with a pre-tax loss of GBP10.7mln expected.
Ongoing disruption to Saga’s travel and tourism operations will be substantially more impactful.
Although the group’s insurance business has held up comparatively, Saga’s cruise operations only resumed in June – and with much of its over-50s customer base in a higher risk bracket, some ongoing reticence may well be expected even as sailings are back.
Nonetheless, Saga’s outlook has thus far erred on the side of bullishness – management expects to retain around 73% of the customers that saw their booking cancelled in the pandemic.
That last week saw the end of the UK’s traffic-light system for travel bodes well, at least for narrative’s sake.
Whatever Saga has to say about the ever-changing landscape for international travel and, indeed, potential risk for further disruption due to Covid-variants, will no doubt be closely watch by the market.
Indebtedness will be a focal point too, though a recent GBP250mln bond sale aided that concern somewhat.
Play on Playtech
In the Playtech’s most recent trading update in July, the gaming group reported its overall performance was “in line”, with a strong performance online offsetting offline bookmaking business in Italy.
Broker Peel Hunt highlighted the potential for upgrades if retail opened strongly and online continued to outperform.
Adding a frisson more interest, an offer for Finalto was rejected last month and a new potential offer from Gopher is now being considered.
“We believe that evidence of progress in the US has the greatest potential to drive valuation. Playtech US could surprise on the upside as it moves from the R&D stage into delivering on its plans. We regard a post-Covid-19 slowdown in online gaming revenue growth as the most immediate risk,” the Peel Hunt analysts reckon.
CVS – a cute investment?
Some 3.2mln homes in the UK added a new furry member of the family during the lockdown, with the country now boasting 17mln pet owning homes, according to stats from the Pet Food Manufacturers’ Association.
It certainly adds up to a positive outlook for veterinary services firm CVS which has an operation spanning some 1,900 vets across 480 practices.
A trading update in July said that sales were up 17.4% and told investors its profits would be above previously upgraded targets.
Investors may hope to see expansion news in Thursday’s trading statement, as the group typically grows by acquiring extra practices, along with keenly watched guidance for the period ahead.
The US Federal Reserve policy decision on Wednesday is the biggest macro news of the week if not the month, with the conclusion of the Bank of England‘s monetary policy committee’s meeting on Thursday and the equivalent’s for Japan, Switzerland, Brazil, Turkey and South Africa and also adding more potential for some volatile markets action.
More market-moving events will be around the release of ‘flash’ purchasing managers’ index reports for manufacturing and services industries so far in September, both on Thursday.
Political events are also taking place, with Canada’s election on Monday and Germany’s next weekend.
“The market calendar ramps up this week as we arrive at an array of central bank meetings that will set the stage for investors as we move into Q4,” said analysts at Deutsche Bank (NYSE:DB), mostly the US Federal Open Markets Committee (FOMC) on Wednesday.
This meeting is particularly significant as we’ll get the FOMC’s latest economic projections and the ‘dot plot’ of expected future rate hikes.
Fed chair Jerome Powell has said lately that a reduction in the pace of asset purchases – or QE – is appropriate “this year” as long as the economy remains on track.
Deutsche economists see Powell maintaining “optionality” about the exact timing of that announcement, their view is that the effective message will be that “in the absence of any material downside surprises, the bar topushing the announcement beyond November is relatively high. For the dot plot, they expect there’ll be an upward drift in the dots that raises the number of rate hikes in 2023 to 3 followed by another 3 increases in 2024.”
Fawad Razaqzada, market analyst at ThinkMarkets adds: “Heading into the weekend and looking forward to the week ahead, sentiment is quite cagey. Inflationary pressures have risen sharply due to supply bottlenecks and rapidly rising oil, gas and electricity prices.”
He added: “What is not clear yet is whether, when and by how much will energy prices come down again. Expensive energy prices directly impact consumers’ disposable incomes, and indirectly lower their purchasing power through inflation. Rapidly rising energy prices in Europe has forced some factories to halt production. Rising input costs are going to squeeze manufacturers’ margins and hurt their profits.
“The drop in buying power of consumers will only make things worse. Against this backdrop, the stock market outlook appears uncertain, to say the least.”
Significant announcements expected for the week ending 24 September:
Monday 20 September:
Interims: Frenkel Topping, Open Orphan
Tuesday 21 September:
Interims: Alliance Pharma PLC (AIM:APH, FRA:DVL), Alphawave IP Group PLC (LSE:AWE), Cambridge Cognition Holdings PLC (AIM:COG), Dignity (LSE:DTY) plc, Fintel plc, JTC PLC (LSE:JTC), Kingfisher plc, Learning Technologies Group plc, M&C Saatchi PLC (AIM:SAA), Pensionbee plc, Personal Group plc, SIG PLC (LSE:SHI)
Trading announcements: Compass Group plc
Economic data: UK public sector net borrowing, CBI industrial trends orders
Wednesday 22 September:
Interims: Deepmatter plc, Ecsc Group PLC, IGAS Energy PLC, Oxford BioMedica PLC (AIM:OXB), Pennant International (AIM:PEN) Group plc, Quixant PLC (LSE:QXT), Saga plc, Ten Entertainment Group PLC (LSE:TEG), The Mission Group plc, Trellus Health PLC (AIM:TRLS), Wandisco PLC (AIM:WAND)
Economic data: US Fed interest rate decision, FOMC economic projections
Thursday 23 September:
Interims: Arecor Therapeutics PLC (AIM:AREC), City Pub Group PLC, Distribution Finance Capital Holdings PLC, Ebiquity PLC (AIM:EBQ), eve Sleep plc, Everyman Media plc, Playtech PLC (AIM:PTEC), Safestyle UK PLC (AIM:SFE), Xeros Technology Group PLC (AIM:XSG), XLMedia PLC (AIM:XLM, FRA:7X3)
Economic data: UK flash manufacturing/services PMIs, BoE Interest Rate Decision, US initial jobless claims, US flash manufacturing/services PMIs
Friday 24 September:
Economic data: UK GFK consumer confidence