About us 
- China Q3 GDP – 18/10 – the various lockdowns that were implemented across China during Q2 had a chilling effect on the Chinese economy, contracting by -2.6%, on a quarterly basis. This was much more than expected, dragging the annualised rate down to 0.4%, from 4.8% in Q1. Consequently, any lingering hope that the Chinese economy might grow by the 5.5% targeted by the Chinese government this year went up in smoke. A lot of the economic data has improved on a month-on-month basis since then as a lot of the more onerous restrictions got relaxed, however the insistence of the Chinese government to continue with their current zero-covid policy has meant that the recovery in Q3 has been very stop start. On retail sales we have seen a solid rebound with a solid 5.4% performance in August, the best performance in 12 months, although most of that is likely to have been the release of pent-up demand after several months of weak growth. With industrial production also looking solid we should see a decent expansion in Q3, with expectations of a 3.5% rebound.
- UK CPI (Sep) – 19/10 – UK inflation got a bit of a respite in August falling back to 9.9% from 10.1% in July, with the fall in petrol prices helping to pull the headline number back below double figures. While welcome news on a headline level, food prices are still acting as a tailwind rising by 13.1% and up from 12.7% in July, with the price of staples like milk, eggs, and butter all up by over 20%. The rise in core prices is now becoming more of a concern with the stabilisation being seen in energy prices the last two months or so. With all the ructions taking place with respect to fiscal policy the Bank of England is facing a dilemma with core prices now at 6.3%, which could shift their focus to be more aggressive in the short term. However, the new government’s fiscal plans could cause it to stay its hand, making any decision as to how much to raise rates by next month a much more difficult decision. Rising wages is also likely to be a factor in any decision.
- UK Retail Sales (Sep) – 21/10 – no one was expecting great things from August retail sales which was just as well given that they tanked -1.6%, which probably means that even with the UK economy avoiding a contraction in Q2, we’ll probably see one in Q3 unless we get a Lazarus like rebound in consumer spending in September. Last week’s BRC retail sales numbers could well be a decent bellwether, although given that they showed an increase of 0.5% in August, it’s probably a coin toss as to whether we see a rebound in this week’s September numbers.
- China Retail Sales (Sep) – 18/10 – August retail sales saw the Chinese consumer bounce back strongly with the best performance in 12 months, rising 5.4%. After months of underperformance, lockdowns and fragile consumer confidence there is a sense that there was an element of some pent-up demand being released here. Whether that can continue when the Chinese government remains committed to its zero-covid policy remains to be seen, especially with the weather starting to get colder and infection rates only likely to increase. This is likely to translate into fairly subdued demand going forward, so while we can expect a better performance in Q3, the upside is likely to be constrained by uncertainty over the outlook heading into year end. Expectations are for a rise of 3.2%, with industrial production expected to rise by 4.9%.
- EU CPI final (Sep) – 19/10 – having seen EU CPI rise to a record 9.1% in August there was a high expectation that the September numbers would be even worse, with the pressure on businesses to pass price increases on reflected in a shocking German PPI number which saw factory gate prices rise by an absolutely staggering 45.8%. For several months now there has been a massive mismatch in PPI and CPI numbers when it comes to EU headline inflation. It now appears that the headline CPI numbers are accelerating. The latest flash number saw headline inflation surge by 1.2% month on month, pushing the annualised number up to 10%, and pushing core prices up from 4.3% to 4.8%. The only reason EU CPI isn’t higher is because countries like France are suppressing the CPI impact on its numbers by price caps, while in Germany headline inflation is at 10.9%, up from 8.8% in August. A confirmation of these numbers this week are likely to see the ECB come under further pressure to go ahead with another 75bps hike when they next meet.
- Deliveroo Q3 22 – 21/10 – the last three months has seen the Deliveroo share price slip to a new marginal record low around 76p, as it struggles to convince investors that its business model can deliver the type of returns that prompted the pre-IPO optimism of early 2021, when it launched at 390p. At its last set of numbers back in August the shares did initially pop higher, however the improvement being seen its numbers over the past few quarters have been overshadowed by underperformance from across the entire sector, with its biggest rival Just Eat Takeaway seeing its own shares taken out to the woodchipper by the market after it offloaded its GrubHub stake for a fraction of what it paid for it. Deliveroo has continued to grow over the last 15 months, and in its full year numbers back in March, revenues rose 57% to £1.82bn. Losses also increased to £298m from £213m in 2020, with a decline in margins from 8.7% to 7.5%, as market and overhead spend rose by 75% to £628.7m. Deliveroo has made great strides in recent months in signing deals with Amazon and Waitrose, helping to push GTV in Q1 up to £1.79bn, a rise of 11% from the same period a year before. For H1 of this year the GTV rose 7% to £3.6bn, within its revised guidance of 4% to 12% growth for this year, pushing revenues to just over £1.01bn, and gross profits up by 16% to £300.9m. When marketing overheads were added this wiped the profits out with the company posting a £68m EBITDA loss for H1. The company did say it was taking steps to address the rise in advertising costs, but they are still 10.4% higher from the same period last year. Deliveroo said it was confident that it would be able to deliver revenues of over £2bn this year, back in August with the company maintaining its full year EBITDA guidance. This week’s Q3 numbers are likely to confirm that, but that isn’t where the company needs to address its focus. It still needs to show that it can generate a profit, and on that the jury is still out.
- IHG Q3 22 – 21/10 – back in August, Holiday Inn owner IHG reported that business in the US was leading its recovery from the pandemic disruption, with the various restrictions and lockdowns in China acting as a brake on its Asia operations. The US business saw Q2 RevPAR up 3.5% on 2019 levels. In the Greater China region RevPAR, there saw a 48.9% decline. Revenue came in at $840m a rise of 49% on the same period a year ago but was also slightly below expectations. The most profitable region was the US which accounted for $351m of the $377m of H1 operating profits, with the hotel chain deciding to reinstate the dividend, and announcing a $500m share buyback. Soon after the release of those Q2 numbers the shares started to slip back and have continued to slide ever since, back close to the June lows. The darkening economic outlook has inevitably weighed on the entire sector here, although a data hack which came to light in September brought the company some unwelcome publicity about how it handles customer data, and caused disruption to booking systems.
- ASOS FY 22 – 19/10 – the decline in the ASOS share price has been something to behold over the last 18 months, the share price hit a record high just shy of £60 back in March 2021, and since then has lost over 90% of its value to be now trading at record lows. In the first half of this year the fast fashion clothes retailer reported an H1 loss before tax of £15.8m, compared to a £106.4m profit a year ago. This was despite a rise in revenues to just over £2bn. The losses in H1 appear to have come about due to a sharp drop in profit margins from 5.6% to -0.2%, which has been driven by elevated freight costs, as well as higher wages, not to mention the suspension of its business in Russia. In June the company downgraded its revenue forecasts for the year, downgrading full year sales to 4% to 7%, from 10% to 15%. Q3 revenue fell to £983.4m with an expectation that full year profits were likely to be in the region of £20m to £60m, with higher costs expected to be the main drag. In September ASOS said it expected that profits would be closer to the bottom end of guidance, between £9m and £43m, with total sales growth of circa mid 3.2%.
- Netflix Q3 22 – 18/10 – Netflix shares appear to have found a short-term base, rallying from 5-year lows in May of $163, although the rebound has been hard won, and the shares are still down over 60% year to date. The Q2 numbers in July appear to have been the catalyst for the slow recovery, as it announced that it would be looking at a cheaper ad-based model and even as the outlook for the business continues to look challenging in the face of the deeper pockets of Amazon, Disney, and the emergence of Paramount+. The new ad-based model is set to be introduced on November 3rd and cost up to $7 a month. In Q2 the company lost subscribers for the second quarter in a row, albeit less than had been forecast. The loss of only 970k subscribers was a relief given that a 2m loss was expected. Revenues were a plus, rising 9% to $7.97bn. For Q3 Netflix said it hoped to start adding back subscribers, with hopes that they will see growth of 1m, reversing the decline in Q2. For Q3 revenue forecasts were lower than expected at $7.84bn, although it’s still a 4.7% increase on the same quarter a year ago. Profits forecasts also came in lower at $2.14c, below estimates of $2.72c a share. Netflix did reiterate that is expects full year operating margin of 19% to 20%. There is a risk that the addition of an ad-based model could cannibalise its more premium offering as some customers trade down. The stronger US dollar is still expected to have a material impact on its numbers with 60% of its revenues coming from outside the US it is bordering on incompetence that the board doesn’t have a mitigation strategy for this. With Netflix producing films and TV in more than 50 countries, and three out of its six most popular TV seasons using non-English language titles it should be monetising its user growth much more efficiently, and it’s surprising that shareholders aren’t being more vocal about this huge hole in the company’s global strategy.
- Tesla Q3 22 – 19/10 – Can Tesla deliver a record H2 as it looks to increase maximum output at all four of its factories, so that it is able to easily pass the 1m mark by the end of this year for vehicle deliveries? While Q2 profits surprised to the upside, revenues slipped back below the last two quarters, while operating margins also declined. In H1 Tesla was able to deliver 565k, with 255k of those in Q2, as it looks to hit its end of year target of 1.3m deliveries. This will be the key challenge for the electric car company as Musk himself acknowledged back in July when he said that production was the main issue facing the business. In August shareholders approved a 3-1 stock split, thus making the shares more affordable to retail investors from 25th August. CEO Elon Musk also said that he wanted the company to be able to produce 2m vehicles per year by the end of this year. In the week since then the shares have fallen back towards the lows of this year, after Musk sold $6.9bn of his own shares according to a regulatory filing, perhaps related to the Twitter deal. For Q3 Tesla reported 343k deliveries, slightly below expectations, with rising costs prompting Musk to announce redundancies in some areas of its business. There have also been regional problems with its Shanghai factory losing most of its July production due to plant upgrades, although since then production has picked up. Operating margins are likely to be closely watched given recent problems. They fell from 32.9% in Q1 to 27.9% in Q2. Profits are expected to come in at $1.04c a share.
- Goldmans Sachs Q3 – 18/10 – when Goldman reported its Q2 numbers the shares rallied strongly having traded back at levels last seen at the beginning of January 2021 the week before. That rebound took the shares up to 6-month highs in August where since then the shares have slipped back on a combination of concerns over the impact of the Fed’s tightening cycle is likely to have on some of its key markets, as well as the US and global economy. Goldman has always been strong on the trading side of the business, in Q2 revenues rose 32% to $6.47bn, with strong beats on both FICC and equity trading of $3.61bn and $2.86bn respectively. This outperformance helped offset weaker than expected activity in investment banking, and equity underwriting, which came in below expectations. In Q1 Goldman set aside $561m in respect of provision for credit losses related to growth in its credit card portfolio, and in Q2 added another $667m. Profits were also lower than Q1, coming in at $7.73c a share, but they still managed to beat expectations of $7.05c. The bank said it is increasing its dividend by 25% to $2.5 a share in Q3. As we look ahead to this week’s Q3 numbers not only will the amount of loan loss provisions be keenly assessed, but also how the bank sees the outlook for Q4, and the rest of the year.
- Snap Q3 22 – 20/10 – has in the past been the canary in the coal mine for the social media space when it comes to giving a flavour of what to expect when it comes advertising sales and consumer behaviour. In Q2 their numbers prompted a sharp fall in not only their share price to two-year lows, but also saw similar share price weakness in the likes of Meta and Alphabet. Since the July lows, Snap shares have struggled to rally. In Q2 after revenues came in at $1.11bn, which while still a decent increase of 13% was below expectations of $1.14bn. Losses came in higher than expected at $442m, or -$0.02c a share, with the company also declining to offer specific guidance for Q3, other than to say that revenues were expected to be flat. The long tail of Apple’s new app tracking rules appears to be affecting the likes of Snap more than its peers. Snap is looking to address the slowdown in ad revenue by a new subscription service calls Snapchat+. Losses are expected to come in at $0.03c a share.
15
2022-10
2022-10-15
The Week Ahead: UK CPI, retail sales, China Q3 GDP, Deliveroo, ASOS, Tesla and Netflix earnings
previous
