Michael Hewson MSTA CFTe
Independent Analyst
- UK Q2 GDP – 12/08 – having seen the UK economy contract by -1.6% in Q1, a much shallower contraction than was originally priced at the start of the year, when most estimates were over double that, expectations are high that Q2 will more than compensate, and more than reverse the damage to the three-month lockdown imposed at the beginning of the year. In the months after March, we’ve seen strong PMIs of over 60 across the board for manufacturing, construction and services for the entirety of Q2. Retail sales growth has also been decent, helped by falling unemployment as businesses reopen, and while rising prices have been a headwind, the comparatives from last year will also add a boost. These comparatives could well flatter the numbers somewhat, due to the Q2 lockdown from last year, which saw the UK economy contract by -19.8%. Private consumption is expected to make a significant contribution to the headline number, of 5.7%, while inventory restocking could also add a tailwind, as all the lost output from Q1 gets dragged into the Q2 numbers. Expectations are for the UK economy to expand by 4.8% on the quarter, and by 22.1% year on year, with decent jumps in imports of 9.6% and exports of 7.7%.
- US CPI (Jul) – 11/08 – the temperature in the US economy went up a notch in the most recent June CPI numbers, as headline inflation saw another big increase, rising to 5.4%, with core prices rising to 4.5%, the highest level since 1991, largely driven by another 10.5% rise in used car prices. We also saw a 1.5% increase in energy prices while food and rent inflation also rose more than expected. PPI prices also saw a big increase in June, which if recent trends are any guide could trickle through into this week’s July CPI numbers. In the most recent core PCE Deflator this trend went in the other direction as prices fell back a touch in an encouraging sign that inflation pressures may well have peaked. While the Fed may well still be able to argue the continued rise in prices is transitory, given where the increases are occurring, if June’s number doesn’t mark the high-water mark, then Fed officials may start to shift a little bit more uncomfortably as we head into the autumn. For now, markets are buying the transitory narrative, however if the current trend continues, “transitory” will be doing a lot more heavy-lifting than it is doing now. Expectations are for July CPI to soften a touch to 5.3%, and core prices to fall back to 4.3%, however if recent trends with respect to PPI are any guide, we could actually see prices rise even higher.
- China Trade – (Jul) – 07/08 – the jury remains out on how well the Chinese economy has been performing in recent months, with some evidence from recent PMI numbers that the economy is slowing. Recent trade data has been encouraging, however we starting to see evidence that imports have been slowing, although it’s difficult to get an accurate picture due to the comparatives from last year’s lockdowns skewing the numbers. In May imports rose by 51.1%, before slowing to 36.7% in June. This week’s July numbers are expected to see another modest slowdown to 33.6%, as Chinese authorities try and slow the recent sharp rises, we’ve seen in commodity prices. The People’s Bank of China also recently cut banks’ reserve requirements in an attempt to help the domestic economy. In terms of the global economy Chinese exports have been performing well but even here with the slowdowns being caused in Asia, as well as some of Europe caused by rising infection rates, we could well see sharp slowdown here from the 32.2% rise we saw in June. Forecasts are for a 20% increase year on year.
- Intercontinental Hotels H1 21 – 10/08 – hotels have been another area hard hit by the pandemic, however Holiday Inn and Crowne Plaza owner IHG has managed to cope better than most. Its international footprint has helped it in ways that more localised hotel chains haven’t. Improvements in its US and Chinese markets in Q1 saw it perform better than anticipated. With its Q2 numbers set to cover the start of the US driving season there is significant optimism that the momentum built up in Q1 will continue into Q2, as the rebound built up from pent up demand starts to ripple into the summer months, as resorts and theme parks reopen. In terms of internal travel there has been a decent rebound inside the US which should also boost occupancy rates. In Q1 Group RevPAR saw a decline of 50.6% vs 2019 levels with occupancy levels of 40%, with management saying that 99% of its US real estate was open at the end of March.
- Deliveroo H1 21 – 11/08 – having got off to a disastrous start when it IPO’d back in March its been a long slog back for the Deliveroo share price and while it is still below its 390p listing price we’ve seen a slow recovery back from the April lows of 225p. In Q2 the company said that the business had seen an 88% rise in orders while raising its GTV guidance for the full year from 30% to 40% to between 50% and 60%, helping to push the shares to the highest levels since the opening day of trading, and up more than 40% from the April record lows. The company has undoubtedly benefited from the slightly slower relaxation of restrictions that we’ve seen over the summer, as well as the summer of sport including Euro 2020. The company has also been extending its reach to a range of new destinations and retailers across the UK. Full year revenues are estimated to rise by 53% from 2020 levels of £1.2bn, to £1.8bn so any sort of number close to a £1bn for H1 is likely to be well received.
- Aviva H1 21 – 12/08 – when Aviva reported its Q1 numbers in May the company announced it had seen record net flows into its savings and retirement arm, along with the best sales in general insurance in a decade. This helped to push the share price up to its best levels since December 2019. CEO Amanda Blanc has been on a disposal’s spree in recent months as she looks to focus on the core markets of UK, Ireland and Canada. In June activist investor Cevlan Capital took a 4.95% stake in the business, while at the same time calling for CEO Amanda Blanc to return £5bn of excess capital to shareholders by 2022. Soon after this intervention the shares started to roll over, and while they are still up on the year the robust nature of the Q1 update suggests that the business does have momentum and that Q2 will be equally as solid. The company is expecting to see the proceeds of the 8 recently sold non-core businesses arrive by the end of 2021, a total of £7.5bn which could well see some of it find its way into the pockets of shareholders.
- Cineworld H1 21 - 12/08 – the reopening of the UK economy hasn’t had the positive effect on the Cineworld share price that you would have expected with the lifting of restrictions over the past few months. The shares have almost halved from their March peaks when the company reported an X-rated $2.6bn loss, over half of which was driven by impairments of $1.34bn. Unlike its peer AMC, Cineworld doesn’t have the Reddit crew watching its back, while its finances remain in a very precarious state. The company has bought itself some time with various plans to restructure its finances as well as raising extra funds last November when management managed to get the extra liquidity it needed to secure a stay of execution, agreeing lending waivers until June 2022, and securing a new debt facility of $450m, which matures on 23 May 2024. In March the company announced a new facility of a new $213m convertible bond due in 2025, with quite a hefty coupon of 7.25%. At the end of July, the company announced another $200m of incremental loans maturing in May 2024, from a group of its existing lenders. This doesn’t change the fact that its debt at the end of 2020 was within touching distance of $8bn. Expectations for 2021 revenues back in March were in the region of $2.5bn, with a return above $4bn expected in 2022, however both of these targets look unlikely now if cinema releases follow the Black Widow model and get released at the cinema and online at the same time. While this week’s first half update is unlikely to make for encouraging reading Cineworld will be hoping that a strong film release slate in H2, which will hopefully include the new James Bond film, will help push its annual revenues up towards the $2bn benchmark of analyst estimates.
- Vroom Q2 21 – 11/08 – in June last year online car retailer Vroom decided to join sector peer Carvana in floating on the New York Stock Exchange in an IPO that saw the fledgling business rise from an IPO price of $22, to close at $47.90 and a market cap of $5.52bn. Since then, the shares have drifted lower, with the prospect of profits no nearer now than they were in 2012 when the company started. Losses increased in 2020 to $202.8m from $143m in 2019. The lack of improvement in 2020 was troubling for a business that saw a decent increase in revenues to $1.36bn, $915.5m of which came from e-commerce. The number of cars sold is certainly going up, with a rise of 21%, however the company is spending a lot of money on marketing, as well as other administration expenses. These expenses increased by $60m to $245.5m in 2020. In January the company completed the $120m acquisition of CarStory, a digital services business that uses AI to help make inventory predictions, which should help with making the delivery process more efficient. When the company reported in Q1 there was some improvement with revenues coming in at $591.1m, while losses also came in lower than expected at $0.57c a share, they were still higher than the same quarter a year ago. Its e-commerce sales increased by 81%, however expenses have also increased, rising by 87% to $109m. As a result, the shares have continued to drift lower over the last three months. Vroom said it expected Q2 sales to come in between $618m and $640m, with losses in the region of $0.55c a share.
- Disney Q3 21 – 12/08 – when Disney reported its Q2 numbers in May there was a lot of anticipation given that US theme parks were starting to reopen, and film and TV production were also ramping back up. In March the shares hit a record high, and while they have since drifted back the outperformance has been remarkable given how much of its core business has been shut down these past 12 months. Losses in the parks were still high, coming in at $406m, while revenues came in at $3.17bn. Total revenues over the quarter came in at $15.61bn, which was below expectations, while the growth of Disney+ subscribers appear to be starting to plateau, as subscribers rose to 103.6m, well short of the 110m target. This shouldn’t be a surprise given the similar slowdown seen by Netflix as the weather gets warmer in the summer months, however there is also an element that a lack of new programming could also be marking a slowdown in numbers. What is more worrying is that streaming revenue declined per head as the company rolled out its India service where prices are lower. Disney were more optimistic about this quarter but still pointed to headwinds on the parks, with an estimate of another $1.2bn impact on revenues due to lower capacity constraints. Profits in Q2 were still better than expected, coming in at $901m, or $0.79c a share, while profits for Q3 are expected to decline to $0.56c a share. There is little doubt that revenues from Disney+ has helped the “Mouse House” through the pandemic and while the service is still operating at a loss, we are now starting to see a host of new content which may attract new users including the addition of Loki, as well as a new animated Star Wars series, The Bad Batch. For UK, Canada and Australia viewers the addition of Star which includes the Fox catalogues of X-Men and Avatar as well as National Geographic is also a plus, along with the fact that users don’t have to pay extra for 4K content like they do for Netflix.
- Coinbase Q2 21 – 10/08 – it’s been three months since Coinbase listed on the Nasdaq back in April and to say the share price performance has been less than impressive would be an understatement, with the shares languishing just above $200. On the first day of trading the shares shot up above their $250 reference price peaking at $381, before sliding back. In their prospectus the company said it expected to make between $730m to $800m in Q1. The company also said it had 56m verified users and that it expected to turn over $1.8bn in the first three months of its fiscal year. When the company confirmed these numbers in its May update, they were pretty much in line, but the market reaction was disappointing. Q1 net income came in at $771.5m, while revenues rose to $1.8bn, which was still more than the company turned over in the whole of 2020. It was a little lower than market expectations and probably helps explain why the shares have struggled a little. With all the volatility being seen across the crypto space maybe expectations were a little on the high side. The number of verified users was confirmed at over 56m. In terms of the outlook, management were somewhat cautious predicting flat transaction volume for Q2, though they did revise up their guidance on the number of monthly transacting users to 7m from 5.5m. Talk of crackdowns and increased regulation could weigh on the numbers in Q2, along with recent declines in bitcoin and cryptos in general, this week’s Q2 numbers could be at risk of missing expectations. Profits are expected to come in at $2.41c a share.
- Airbnb Q2 21 – 12/08 - Airbnb shares have been on a downward track since they posted record highs back in March, as some of the early enthusiasm for the IPO wears off. It’s not hard to see why when you look at its lofty valuation, and even though we’re down by over 30% from those peaks it’s still worth over $80bn, a figure that puts well above the likes of Marriott and IHG. The most recent Q1 numbers saw sales beat expectations with gross bookings surging to $10.3bn, while revenues came in at $887m. Losses widened to $1.95c a share, or $1.2bn, largely due to a debt repayment, while Q2 revenues are expected to be at a similar level to the same quarter as 2019, which is a little disappointing. Over 50% of Airbnb’s revenue came from the US which suggests that there is potential for plenty of upside in a global sense, however given virus flare ups globally, the rest of the world is likely to take a bit longer to pick up the slack, which suggests that while the US market is likely to show a strong performance, the rest of the world might be another matter. Losses are expected to come in at $0.36c a share.
- AMC Entertainment Q2 21 – 09/08 – cinemas have borne the brunt of the various lockdowns because of the pandemic, not that you’d know it from the performance of AMC Entertainments share price this year. The shares finished 2020 at a lowly $1.35c as speculation abounded that the company was on the verge of bankruptcy. That outcome was only averted at the end of January with a $917m cash infusion, with half coming from investors who purchased shares in a stock offering held the month before. At the end of its last fiscal year the company was burning through $125m a month to keep 438 of its US real estate open, with little or no customers and not many films to show. In 2020 the company lost $4.6bn, and while some US states have allowed cinemas to open, they have all been on condition of various restrictions. AMC has enjoyed some good fortune on the way, without the Reddit meme stock fallout which saw it get swept higher along with GameStop it probably wouldn’t have been able to raise any of the additional capital it has raised this year as it shares soared to record highs of $72, valuing the business at over $30bn, despite having little or no revenue coming in. The rise in US vaccination rates has seen more people return to the cinema, however AMC’s biggest problem is a lack of big box office films to get customers through the door. As the shares hit a new record high in June, company management decided to seize the opportunity to raise more money by selling another 11.5m shares in order to pay down some of its debts, as well as build up its balance sheet further. This did see the shares drop back modestly, but certainly not by enough to suggest the air was coming out of this box office turnaround story. In May, just a month before the June share sale the company posted a quarterly loss of $567m on revenues of $148.3m. With a lot of the new shareholders being amongst the so-called Reddit traders, the shares seem on a much firmer base despite the awful state of the finances. AMC still expects to be cash flow negative for at least the next two quarters and will be hoping the release of summer blockbusters like Black Widow will have helped boost its numbers in Q2. AMC’s biggest problem will be persuading those cinemagoers who used to like an evening out at the cinema to come back, having got used to streaming on demand, as well as the luxury of the pause button, on a 55-inch TV. The shares did come under pressure in the days after Marvel’s Black Widow release at US cinemas, when the data showed that $60m of streaming transactions took place for the film. If this was replicated with other simultaneous releases it would suggest the potential loss of 5-6m worth of potential footfall, if future releases are done the same way, and facemasks remain a requirement to go to see a film in the longer term. Losses are expected to come in at $1 a share, or $510m.
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