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- UK Spring Budget – 23/03 – at a time when the UK is facing a cost-of-living crisis and inflation levels that could well head back to levels last seen in the 1990s it beggars belief that the Chancellor of Exchequer is set to go ahead with a National Insurance tax rise, that will add to the tax burden for both business and consumers next month. While it can certainly be argued that taxes must rise to pay for the costs on the NHS of the Covid crisis, the decision to implement these measures was taken at a time when the economic situation today was expected to be quite different. There is a saying in financial markets that when the facts change, I change my mind, and surely it should be no different when managing the public finances. Pursuing a bad investment strategy in financial markets and then doubling down it would usually result in an even worst outcome, and yet what we have here appears to be the political equivalent. When Chancellor of the Exchequer Rishi Sunak gets up later this week to announce his spring statement, he isn’t expected to resile from the increase in NI rates which are due to start next month. This will mean that inflation levels, which are expected increase further in the coming months, will further squeeze consumer disposable income and slow the UK economy over the course of the rest of the year. Businesses of all sizes have already undergone a tough couple of years, and while the government has gone to great length to support them there appears little likelihood of an immediate reprieve in the short term. The OBR will have to set out its latest inflation and growth forecasts for the UK economy, with the Chancellor having to then sketch out how he plans to navigate his way around the challenges being thrown up by the rise in food, energy, and other related rises in living costs. While Sunak has already outlined some measures to alleviate some of the increase in costs this only covers families and doesn’t cover businesses. Pressure from business to reform business rates is likely to go unanswered, although we might see an extension to the super deduction which is due to end at the end of 2023, with some calls that it ought to be made more inclusive so small businesses can use it. We could also see an announcement of a review of defence spending in light of Russia’s war on Ukraine.
- UK CPI (Feb) – 23/03 – having seen the Bank of England raise rates by 0.25% last week this week’s latest inflation numbers are unlikely to offer much encouragement that we won’t see further sharp rises in the cost of living in the coming months. With wages growth still trending below headline CPI we are unlikely to see the gap narrow in the coming months, despite recent above headline inflation pay rises announced by major retailers in the last few months. In January UK CPI rose to a new 30 year high of 5.5%, while RPI rose to 7.8%, and is set to go higher this week with CPI rising to 6%, and RPI set to bust above 8%. Slightly more worrying, for those looking for signs of a top in price pressures, there was little sign of a slowdown in the more forward-looking PPI numbers which continued to rise as output prices came in at their highest levels since 2008 at 9.9%, although input prices slowed to 13.6%, from 13.8%. The modest increase in core prices to 4.4% also showed that underlying inflation is still on the rise, and is likely to rise further. Let’s not forget the Bank of England has already indicated it expects to see headline CPI rise to 7.25% by April, and go even higher later in the year, which suggests that we could see the headline number this week hit 6%, with the very real worry given recent surges in commodity prices that this could head towards 10% by the summer.
- UK retail sales (Feb) – 25/03 – UK consumer spending saw a strong rebound in January, after the -0.4% slowdown seen in December. Not only did fuel sales recover, but we also saw a strong rebound in household goods and furniture, with high street sales showing a decent pickup, as 2022 got off to a decent start with a 1.9% rise. The numbers also show that while demand appears to have picked up, the retail sector still has to confront significant challenges in the months ahead as prices rise, and disposable income starts to reduce. This squeeze hasn’t as yet shown up in the latest BRC retail sales numbers, which showed that total sales rose by 6.7% in February, as the complete removal of Plan B restrictions at the end of January buoyed spending. Like for like sales showed a rise of 2.7% from this time last year, although it should be remembered the UK was one month into its third Covid lockdown. Sales of clothing and footwear saw a decent increase in February, while food sales slowed with the latest data from Barclaycard showing spent 13.7% more in February this year than they did in February 2020. Expectations are for February retail sales to rise by 0.8%.
- Germany/France flash PMIs (Mar) – 21/03 – after a week finish to 2021 economic activity in Germany picked up in the first two months of this year, with both manufacturing and services activity performing well. This doesn’t quite chime with some of the industrial production and factory gate prices, and with input costs surging since the end of last year, one has to question how reliable some of this latest PMI data actually is. The latest factory gate prices for January showed a record rise of 25% year on year, while the same measure in Italy hit 41% in February. This direction of travel is expected to continue for German as well as French factory gate prices, and is likely to prompt shutdowns in some of Germany’s key industries, whose key export markets are in China, as well as Russia. Its Chinese export market appears to be showing signs of slowing while its exports to Russia have been blocked by sanctions. It’s been a similar trend in France, and end of year slowdown followed by a pick up at the start of the year. Expectations for March are for Germany manufacturing to come in at 55.8, and services at 54.2. France is expected to slip back to 55, from 57.2 for manufacturing and 55 for services.
- Kingfisher – FY22 – 22/03 – since Kingfisher reported its H1 numbers back in September the shares have undergone a significant decline hitting an 18-month low earlier this month. On the face of it the numbers were good, sales rising 22.2% to £7.1bn and profits rising to £677m, however it would appear that concerns about slowing sales growth saw the shares come under pressure on the premise that H2 was likely to be weaker than expected, although Screwfix has continued to stand out. Management also pointed to higher costs saying that they were likely to persist in H2. In Q3 these concerns about slowing sales appeared to be borne out although management were keen to point out that they still expected full year adjusted pre-tax profits to come in at the higher end of £910m to £950m. Group sales in Q3 were down by 2.4% on a constant currency basis compared to 2021 but were still up by 15% compared to 2020. The 2021 comparatives appeared to have weighed much heavier on the likes of lockdown winners like Kingfisher, however, there comes a time when one has to question whether the falls are starting to become overdone. Of all its businesses Screwfix has continued to stand out and was the only part of the business in the UK and France to report any sales growth in Q3. In Eastern Europe, Poland and Romania saw decent growth of 4.9% and 17.2% respectively.
- Oxford Nanopore Technologies – FY21 – 22/03 – back in September Oxford Nanopore a DNA sequencing company raised £350m at an offer price of 425p, with the shares rising sharply above 700p at the end of last year. The company also supplies rapid Covid-19 tests to the NHS and has also partnered with Oracle to explore new solutions that would use genomic sequencing which would run on its cloud infrastructure on a global scale. Since the start of this year the heat has come out of the share price slipping below 400p at the beginning of March. In January the company upgraded its guidance saying it expected total revenue of £126m this year compared to £113.9m in 2020.
- Next – FY 21 – 24/03 – the decline in the Next share price over the last 6 months appears a rather perverse reaction to a retailer that has upgraded its profit forecasts for this financial year several times, with the share price hitting its lowest levels since October 2020 earlier this month. While costs have increased due to investment in upscaling its picking capacity of the warehouse operations in order to improve its on-line capacity as well its delivery times, sales growth has also remained steady. In Q3 the company was concerned about the effect any sort of pre- and post-Christmas lockdown might have on its business, setting out three different scenarios with a 20% decline in sales being a worst-case scenario. These concerns turned out to be largely unfounded despite the Plan B restrictions announced in England. These concerns were misplaced as it turned out with the Q4 numbers seeing full price sales to the 25th December rising 20%, while full year profits were upgraded to £822m, with an expectation that by year end that this could rise even further to £860m, with the company declaring a special dividend of 160p per share to be paid at the end of January. There was still concern being expressed around the outlook back in January, due to rising inflation as well as the cost of living. These concerns are unlikely to have diminished, which means guidance is once again likely to be cautious in the same way it has been for the last 9 months.
- Saga FY 22 – 23/03 – even before the pandemic hit its cruise ship and travel business Saga’s share price had been in decline since 2016. Having IPO’d all the way back in 2014 the shares have had a shocker since then, dropping to record lows in October 2020. The shares briefly recovered to 460p back in June last year but have since slipped back as the prospect of an easing of travel restrictions has been slowly pushed back. In its financial year 2021, the company posted a full year pre-tax loss of £61.2m which was primarily as a result of a £59.8m goodwill impairment in H1. Its insurance business has been the one area that has performed as expected. In its most recent trading update back in January the company said that motor and home policies were 1% ahead of last year, with a margin per policy of £75, and claims in line with expectations. On the plus side we could see a reserve release due to lower-than-expected claims in 2020 due to fewer people driving. The travel business was still showing signs of a modest improvement with a load factor of 68%, with losses expected to narrow to £45-50m. For 2022/23 the outlook looks more positive with 86% load factor bookings for H1 and 73% for the full year. Saga says it expects to post a small underlying loss before tax for this fiscal year, but that it hopes to return to profit in the new fiscal year as demand for travel and cruises recovers to more normal levels.
- Nike Q3 22 – 21/03 – since reporting in Q2 Nike shares have gone on a big slide despite beating expectations on both sales and profits. Revenues came in better than expected, at $11.36bn, albeit below the levels of $12.2bn in Q1. Direct sales also continued to improve, rising 9% to $4.7bn, cementing Nike’s reputation as a retailer in its own right. Profits came in at $0.83c a share, while gross margins improved to 45.9%. The reopening of its Vietnam factories saw output recover to 80% of pre shutdown levels, raising expectations of a much-improved performance in Q3. These expectations need to be tempered given the slowdown being seen in China since the start of the year, while the decision to suspend its online and retail operations in Russia is also likely to see an impact. Profits are expected to come in at $0.73c a share.
- Darden Restaurants Q3 22 – 24/03 – like most popular restaurant chains the owner of the ubiquitous Olive Garden and Longhorn restaurant chains has been able to offset the effect of a lot of the shutdown periods by not only offering a takeaway service to its clients, but has also slimmed down its menu, meaning less staff. To cut costs the company also embarked on a $35m restructuring program because of the lower footfall that is expected to be the norm going forward, as it looks to reduce its debt load. Over the last two quarters the restaurant chain has managed to shrug off the effects of higher costs, despite having to pay higher salaries to attract staff. That hasn’t helped the share price which has slid back in recent weeks, In Q2 the company followed on a solid Q1 performance with Q2 revenues of $2.27bn, and profits of $1.48c a share. Darden also raised its forecasts for full year profits to between $7.35c and $7.60c a share, while full year sales are expected to come in between $9.55bn and $9.7bn, which is a lot of breadsticks and pasta. Profits for Q3 are expected to come in at $2.13c a share.
- Adobe Q1 22 – 21/03 – we’ve seen a big drop for Adobe shares since the start of this year, despite posting record revenues and profits in 2021. In Q4 the company reported record revenue of $4.11bn, pushing total fiscal revenue to $15.79bn, a rise of 23% year on year. The company saw decent growth in both of its business segments, Digital Media saw a rise of 25%, while creative revenue rose by 23%. The catalyst for the share price weakness appears to have come about due to disappointment over its guidance for Q1, and the rest of the year, with the company predicting a sharp slowdown in revenue growth. For Q1 the company said it expected to see revenues of $4.23bn, and EPS of $3.35c a share, while on a full year basis revenues are expected to rise to $17.9bn.
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The week ahead: UK Spring Statement, UK CPI and retail sales, Next, Saga and Nike results
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