It’s set to be a food-themed week in the UK market, with grocer Tesco, high street baker Greggs and posh chocolates retailer Hotel Chocolat due to update investors.
Tobacco giant Imperial Brands (LSE:IMB) plc and distributor Electrocomponents (LSE:ECM) will also appear on the corporate calendar, while there will be a huge interest for job releases in the US and various PMIs on both sides of the Atlantic.
If the monthly US non-farm payrolls (NFP) report is seen as important in the financial world, this month that is especially so.
Elsewhere, there’s a meeting of the powerful OPEC oil producers on Monday, services sector PMI data for the UK and other economies on Tuesday, construction PMIs on Wednesday, Halifax house prices on Thursday, while China follows the weeklong ‘National Day’ holiday with services PMI data on Friday, which along with a statement from the Bank of England‘s Financial Policy Committee, acts a prelude to the NFP report later.
Market analyst Marshall Gittler at BDSwiss made a special plea to his readers to stress how extra-special the report on last month’s jobs is, pointing out that several members of the Federal Open Market Committee (FOMC), the US Fed’s rate-setting body, specifically said that they want to see the September jobs figures before deciding what to do about their $120bn-a-month bond purchases.
“Now they will,” he said.
There are two reasons why September is so important, Gittler says: “One, some people were no doubt staying out of the labor force because they had to take care of their children. With school starting up in person in September in many places, those people can now go back to work. Secondly, the federal government’s exceptional unemployment benefits expired on Sept 6th. Some people imagine that these folks preferred to sit home watching Netflix and collecting unemployment and now that their checks have stopped arriving, they’ll be forced to get off their duffs and look for work.”
Weekly jobless claims figures over the month are not pointing to good news, with continuing claims falling only gradually, meaning “no sign of the Netflix-watchers getting off their couches en masse and taking minimum-wage jobs with uncertain schedules and no benefits”.
While the NFP averaging a strong 876,000 per month through May to July, the resurgence of Covid contributed to a significant slowdown in August to 235,000.
With Covid cases falling away sharply, the market is expecting September to have seen a re-acceleration to around 500,000.
Jobs growth is set to improve further in the coming months, given high-frequency data points to a decent uptick in economic activity such as in restaurant dining, travel and hotel stays, economists at ING are not the only ones expecting the FOMC to announce at the 3 November meeting that tapering of its bond-buying will start from December onwards.
Hotel Chocolat to delight investors’ palate
The chocolatier stressed this was due to a delay in the routine practices rather than concerns on the actual results.
The AIM-listed group raised GBP40mln to boost its growth, with analysts at house broker Liberum forecasting a 25% compound annual growth of 25% by 2026, based on the GBP500mln sales target.
This would mean the current financial year would deliver GBP205mln of total sales with a gross margin of 61.7% and underlying earnings (EBITDA) of GBP39mln.
“Brand authenticity, deep innovation and a sustainability focus now give HOTC multiple touchpoints with households across gifting, in-home and leisure. This includes nascent US and Japan operations, where each market is 3-5x larger than the UK,” analysts commented.
Greggs results fresh out of the oven
The Geordie baker is tipped to serve up encouraging results close to pre-pandemic levels, though analysts remain understandably cautious given the potential for a negative surprise around supply chains and the impact of inflation.
“If Gregg’s half-year results are anything to go by, then next week’s results are likely to see sales within touching distance of 2019’s pre-pandemic level,” said Hargreaves Lansdown analyst Nicholas Hyett. “However, the big unknown at the third quarter is cost inflation.”
“Food input inflation was already creeping up 3 months ago, but well-reported labour shortages and supply chain disruption across the economy is likely to have increased that pressure.”
New products, new store openings, and home delivery may provide some distractions too, according to the analyst who said that Greggs will be hoping it can continue to deliver the “impressive growth baked into market expectations.”
Imperial Brands (LSE:IMB) may smoke expectations
Imperial Brands plc is dropping a trading announcement mid-week, where analysts at Barclays expect it to “modestly” beat its 2-5% underlying earnings (EBIT) growth guidance for the full year.
At its half-year results, the tobacco group said results would be hit by charges of GBP49mln due to lower US cigarette inventories, GBP42mln due to US MSA settlements and GBP90mln due to lower Australian stock profit.
“This would normally set an easy comparison for financial year 2022,” the bank said.
“But we do not expect IMB to upgrade its 2022 EBIT guidance for flat growth, considering it is still losing share in Germany and it has just launched HNB pilot markets in the Czech Republic and Greece. There is potential for US excise tax hikes as well.”
Tesco in the bagging area
UBS says the grocer’s customer experience or net promoter score (NPS) is at its best level ever and closing in fast on Aldi.
External data from Kantar continues to show that the industry growth has been steady with Tesco outperforming its peers throughout the first half.
UBS has raised its earnings forecast for this year and next by 6% and 4% respectively, while the half-year statement should have good news on cash flow and shareholder returns.
In theory, therefore, Wednesday should be an easy-win for the supermarket giant, but as the headlines will tell you it’s not as straightforward as that.
Sector wise, the Morrisons bid is set to be resolved this weekend though Tesco has been the one supermarket not caught up in bid talk.
More pertinent is the chaos surrounding delivery driver shortages and other supply chain issues.
Tesco has warned that supplies might be disrupted at Christmas unless the situation is resolved and whether that might affect its own performance should become clearer after Wednesday.
Forecasts for interim underlying profits (EBIT) range from GBP1.35bn (UBS) to the consensus of GBP1.26bn.
CMC Markets won’t bear many surprises
The trading platform guided for net operating income of GBP250-280mln in a recent announcement.
“We believe the investment case for CMC is based on the significant investments being made in technology, which should ultimately allow the business to diversify further and reduce reliance on leveraged trading,” analysts said.
Is Electrocomponents (LSE:ECM) market share holding up?
Electrocomponents plc ends the week with a trading update coming after an impressive 37% jump in revenue in the first quarter.
The distributor of industrial and electronics products continued to see good market share gains across its key regions, thanks to its product availability, strong service solution and digital offer compared the smaller competition.
“We see this continuing, as management continues to invest in the business,” analysts at Peel Hunt said.
“However, the exit rate into the second quarter was not as strong, and management back in July was guiding to a slowdown in top-line growth in the balance of the year due to a combination of supply chain constraints reducing product availability and customer demand. We see no reason for this to have changed since then.”
“Despite the note of caution on the rest of the year, the signs of market share gains are clear, and the ongoing investment in the business gives us confidence in the long term outlook and we expect the momentum to continue.”
Significant announcements expected for the week ending 8 October:
Monday 4 October:
Economic data: US factory orders
Tuesday 5 October:
Economic data: UK/US services PMI, UK/US composite PMI, UK new car sales, US balance of trade
Wednesday 6 October:
Economic data: UK construction PMI, ADP US jobs survey, US oil inventories data
Thursday 7 October:
Economic data: Halifax house price index, US initial jobless claims, US consumer credit
Friday 8 October:
Trading announcements: Electrocomponents plc
Economic data: US non-farm payrolls, US unemployment rate