The week ahead: UK Q3 GDP, US CPI, Rivian IPO, M&S, persimmon, AstraZeneca and Disney earnings

China Trade (Oct) – 09/11 – recent China trade numbers have proven to be much more resilient in recent months, despite disruption at Chinese ports, and the various lockdown restrictions that had affected a lot of the country over the course of Q3 and given recent weak retail sales numbers it’s still clear that demand in the Chinese economy has been slowing in recent months. A lot of the improvements in the numbers have been as a direct consequence of the disruptions to global supply chains as retailers bring forward their pre-Christmas order spend in order to ensure delivery in time for the Thanksgiving, Black Friday, and Christmas periods. In September Chinese exports rose by 28.1%, a three-month high and well above expectations of 21.5%. Imports, on the other hand, slowed sharply, almost halving from the September levels of 33.1% to 17.6%, largely due to the various power cuts and production shutdowns of China’s heavy industries during that month, in response to the sharp rises seen in energy markets, which made carrying on trading economically unviable. This should improve in October with a rebound to 26.9% expected while exports growth is forecast to remain steady at 21.5%.

US CPI (Oct) – 10/11 – despite the continued resilience in US PPI numbers, and rising prices paid numbers, the last few months US CPI numbers have shown signs of stabilization, and may well have peaked, assuming you believe what the numbers are showing. Core CPI may well have peaked in June at 4.5% June, however, given it doesn’t include food and energy it is a largely meaningless measure for the average consumer and is still high at 4%. Nonetheless, it does give an indication that the underlying trend is slowing. The wider headline numbers have remained fairly static at 5.4% for the last four months, which while encouraging still suggests that prices are likely to remain fairly sticky for some time to come, particularly since PPI has risen from 7.3% in June to 8.6% in September, and generally tends to be a lagging indicator. The hope is that the October PPI numbers which are due out the day before this week’s CPI numbers start to show signs of slowing as we head towards 2022, as the Federal Reserve starts reducing the amount of emergency stimulus it is putting into the US economy. US CPI for October is expected to rise sharply above the levels seen back in 2008, when it hit 5.6%, with expectations we could see a rise to 5.8%, which would be the highest level since 1990, while core prices are expected to come in at 4.3%, also a multiyear high.

UK GDP Q3 – 11/11 – recent data would suggest that the UK economy has slowed in Q3 after a decent upward revision to the numbers in Q2 saw a rebound of 5.5%. These revisions came in the form of higher household spending on the likes of food services, accommodation, and hospitality. The normalization of economic activity, as well as so-called staycations, appears to have been the main driver here. This trend is likely to have continued in the first part of Q3 given that Q3 also covers the period of the summer school holidays and should be reflected in the index of services numbers. Manufacturing, particularly new car production was and is likely to remain a drag due to the chip shortages, along with maintenance shutdowns in the North Sea. The better-than-expected numbers in Q2 also mean that the UK economy was much stronger than we thought when heading into Q3. It also means that the slowdown we are currently experiencing is coming from a much higher level and as such may be easier to absorb. Monthly GDP numbers over the period do suggest a bit of a slowdown at the beginning of the quarter with a 0.1% contraction in July followed by a 0.4% rebound in August. Expectations for Q3 are for a slowdown to 1.5%, from 5.5%.

Associated British Foods FY 21 - 09/11 – has had a disappointing year share price-wise, the Primark owner has been one of the worst performers on the FTSE100, over 15% down year to date. These declines have come despite seeing a stronger than expected recovery in its Primark business, which had seen all of its stores closed over the winter period and saw a big rebound in Q3 when retail revenue more than doubled to £1.6bn, while also reporting that is expects full-year profits to be broadly in line with 2019/20 levels. Primark sales for H2 are expected to come in at £3.4bn, with operating margins expected to come in at over 10%, however like for like sales in Q4 were 17% lower than they were in 2019, as the pent-up demand seen in the strong Q3 rebound slipped back, while various self-isolation restrictions during Q4 also prompted a slowdown. Once again, the lack of an online operation continues to hamper the business, when footfall dips and consumer confidence reduces. Despite the more positive profit guidance and the improvements seen in its other business areas, notably food and sugar, one has to ask whether this week’s numbers prompt a rebound given how badly the shares have performed this year.

Marks and Spencer H1 21 – 10/11 – over the past ten years Marks and Spencer has undergone many false dawns, as well as turnaround plans that have had good intentions but ultimately have failed to deliver. With the pandemic forcing management to make some very difficult decisions with respect to some of its stores, there does appear to be some light at the end of the tunnel, when the company reported Q1 numbers back in August. The company reported a strong start to its trading year with food stores leading the way in terms of revenue growth. The food division saw a rise of 10.8% last year and 9.6% in 2019. General merchandise has continued to be the laggard, but even here there are signs of optimism, with sales down 2.6% on 2019 levels, with a 92.2% improvement revenue-wise from 2020, with clothing and home online sales up 61.8% on pre-pandemic levels. Its partnership with Ocado is clearly paying dividends, with management clearly expecting it to continue to do so. For the outlook management expected to see profits before tax to come in at the upper end of guidance of £300-£350m, and which saw the shares push up to 19-month highs back in September.

ITV Q3 22 – 10/11 – ITV’s H1 results were a little underwhelming, foregoing an interim dividend with a pledge to pay a final dividend of 3.3p per share at the full-year results. The worst appears to be behind ITV, with growth in both ITV studios and advertising revenue over the period, ITV Studios seeing a 26% rise in revenues and advertising posting an increase of 29%, helped largely by the majority of programs being back in production. The improvement in advertising was largely driven by euro2020, which helped push total revenue up 27% from last year to £1.5bn. Since that update back in July the shares have drifted lower, largely due to concerns that the recovery in the advertising market is likely to be limited due to the ongoing problems in global supply chains. Recent numbers from social media companies have pointed to this very problem. Companies are cutting back their advertising budgets on the basis that there is little point in heavily advertising products if there are delays in getting them to market. CEO Carolyn McCall acknowledged this very point at the end of October, although she was bullish about Britbox subscriptions for the current quarter. As we look towards Q4 ITV may well have to lean more heavily on its ITV studios operation to compensate for any drop off in advertising revenues, as we look towards what is normally a lucrative Q4 in the leadup to Christmas and the New Year.

Persimmon Q3 21 – 09/11 – despite the strong performance in the UK housing market, housebuilders have been a bit of a laggard share price-wise. Persimmon in particular has seen its shares decline steadily from its June peaks, before rebounding from their lowest levels since December last year at the beginning of last month. Persimmon hasn’t been alone in underperforming either, the whole sector has struggled for gains this year, with the exception of the smaller players, Bovis and Redrow. With Taylor Wimpey also reporting this week and seeing similar weaknesses, it’s difficult to see what else management can do to arrest the recent weakness in the respective share prices. There is a school of thought that perhaps the recent share price weakness is being driven by increasing rate rise expectations, which is prompting the withdrawal of some cheaper mortgage products, and while that might be true, that isn’t currently being reflected in forwarding booking numbers. At Persimmon’s last set of numbers H1 revenues came in as expected at £1.84bn, a decent increase from last year’s £1.19bn, however, the comparative was affected by some end-of-year disruption because of the first lockdown. H1 profits after tax rose to £391.2m, putting the business well on course to surpass last year’s profit number. Average private sales were also higher, 30% higher than 2020, and 20% ahead of 2019. Completions came in as expected at 7,406, while average selling prices rose by 4.9% to £236,200, which helped to mitigate upward pressure on the cost base. Even with the paring back of the stamp duty tax breaks management were optimistic about the long-term strength of the housing market, with the company expecting to commence work on 85 new sales outlets over the second half of this year, and a similar amount in the first half of 2022, the pipeline appears solid, subject to demand, while dividends are also back on track to the pre-pandemic practice of two payments per year, with the first payment of 125p being made in early July 2022.

AstraZeneca Q3 21– 12/11 –AstraZeneca shares have seen steady gains since reporting that total revenue in Q2 rose 25% to $8.22bn, driven by an increase in vaccine sales of $894m. The company also upgraded its guidance to reflect the closing of its deal to buy Alexion which was completed in July. The outlook for AstraZeneca has become much more upbeat in recent months, with the business able to put behind it the negative PR over its Covid vaccine in the first half of the year. Consensus forecasts for this year are for the company to grow sales by over 33%, and pre-tax profits by over 130%, with the completion of the Alexion deal set to help the business move forward, while its Oxford vaccine is also set to see an improvement in revenues, once it is able to raise its prices. AstraZeneca has said it will use the Alexion deal to set up a dedicated rare disease unit in Boston in order to promote and speed up research in this key area which it thinks will deliver augment its wider research capabilities. Profits are expected to come in at $1.26c a share.

Aviva Q3 21 - 11/11 – when Aviva reported their H1 numbers back in August it was announced, that because of the recent measures to refocus the business towards its core markets, the intention to return up to £4bn to shareholders by next June. CEO Amanda Blanc had been under pressure from new activist investor Cevlan Capital to improve shareholder returns in the leadup to this announcement, with the £4bn expected to be funded by the £7.5bn proceeds of the 8 recently sold non-core businesses which are due to arrive by the end of 2021. Overall business in the first half was positive building on a solid Q1, seeing a 24% increase in inflows to its savings and retirement business, an increase of £1bn to £5.2bn, adding over 100k new workplace customers. Operating profits from continuing operations rose 17% to £725m.

Vroom Q3 21 – 09/11 – when Vroom reported in Q3 the share price reaction was disappointing despite posting better than expected numbers for Q2. The company reported a loss of $0.48c a share, or $66m, which was better than expected and also sold more cars than ever before. Revenues rose to $762m from $253m a year ago selling 18,268 vehicles in the quarter. The problem for investors was the guidance which was disappointing. The company projected higher losses of $0.75c a share, despite higher revenues of between $858m and $891m. The company also said it expects to sell over 20k cars in Q3 below market expectations of 22k.

Coinbase Global Q3 21 – 09/11 – If Robinhood Market's recent numbers are any guide then this week’s numbers from Coinbase could well miss to the downside. A collapse in crypto trading revenue in the most recent quarter saw Robinhood shares plunge, a fate that appears to have been avoided by Coinbase shares thus far with bitcoin trading up to record highs over the past three months. When Coinbase reported back in Q2 management was somewhat circumspect about Q3 guidance despite a strong performance in Q2, largely driven by Ethereum trading. Q2 trading volumes came in at $462bn, well above expectations of $381.6bn, while revenues soared to $2.03bn. Profits that were expected to come in at $2.41c a share rose to $6.42c, or $1.6bn, although this was flattered by what Coinbase called a one-off “tax benefit” of $737.5m, while verified users rose to 68m. Q3 profits are expected to come in at $1.75c a share, and with the shares up over 10% since August the risk of a pullback is clearly a risk if the numbers disappoint.

Disney Q4 21 – 10/11 – market expectations over Disney’s Q3 numbers were high leading into the numbers for several reasons. Not only was the company adding new subscribers to its Disney+ streaming platform at a healthy clip, but the start of summer also marked the reopening of its theme parks and holiday resorts. Although operating with lower capacity constraints and higher costs Disney was able to beat expectations. Q3 revenue came in at $17.02bn, while profits came in at $0.80c a share, both beating expectations. The parks division generated an operating income of $356m, however, the company said it was still seeing disruption in film and TV production. The extra costs involved in this are expected to reach $1bn. A range of new content helped Disney+ beat expectations on new subscribers, coming in at 116m, above expectations of 113.1m. Q3 profits are expected to come in at $0.48c a share.

AMC Entertainment Q3 21 – 08/11 – from being a meme stock at the beginning of the year AMC Entertainment’s share price has settled down a lot after the volatility seen in the first half of this year. Cinemas are another area that has borne the brunt of the pandemic and while AMC owes its survival to its Reddit fans the company remains some way short of turning a profit, even as its share price still sits well above the levels, we saw back in 2016 when its finances were in much better shape. The rise in the share price this year has allowed the business to raise $1.8bn in cash and $2bn in liquidity. The improvement in US vaccination rates saw many more people return to the cinema in Q2, 22.1m compared to 100k a year ago. The performance in Q2, which saw revenues of $444.7m and losses narrow to $344m was also a marked improvement on Q1, which saw a loss of $567m on revenues of $148.3m. Q3 is expected to see another improvement, with the James Bond film “No Time to Die” likely to have prompted a rush back to the box office. AMC said that it still expects to be cash-flow negative for at least the next two quarters, and while management will be hoping for an improvement in the second half of the year, its biggest problem will be persuading those cinemagoers who used to like an evening out at the cinema to come back on a more regular basis. Losses are expected to come in at $0.54c a share.

Rivian IPO – 10/11 – Rivian, an electric vehicle maker, which to date doesn’t have the cachet or brand that Volvo, or even Tesla for that matter, is hoping to raise $8.4bn in its own IPO when it looks to sell 135m shares at between $57 and $62 a share, which would equate to a valuation of over $60bn, just shy of Ford and GM which have market caps of between $70bn and $80bn. To date, the company hasn’t generated any revenue to speak of, although it has taken a number of $1k refundable deposits for pre-orders. This makes it rather difficult to establish key metrics like how much it costs to make a vehicle in terms of parts, labor, and other costs, in order to establish a margin, and in turn establish a baseline for profitability. In its latest Q3 numbers the company said it expected to see a loss of up to $1.28bn and said it doesn’t expect to be profitable in the near future, which makes the upcoming IPO somewhat of a leap of faith for both the wary and unwary.