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Strong Start For Europe On M&A And Corporate Earnings Tsunami

By CMC Markets (Michael Hewson)Market OverviewFeb 25, 2021 10:44
Strong Start For Europe On M&A And Corporate Earnings Tsunami
By CMC Markets (Michael Hewson)   |  Feb 25, 2021 10:44
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European markets have picked up where they left off yesterday, with a positive start to the day, with the main focus on corporate news and earnings announcements.

Spanish markets are outperforming after O2 owner Telefonica (MC:TEF) saw Q4 revenues beat expectations, coming in at €3.75bn, while net income came in at €911m.

In a surprise move the company cut the dividend to €0.30 from €0.40, however while not particularly welcome from a shareholder point of view, it is a sensible move for a company whose debt levels currently sit at €35.2bn and like most other telecoms providers faces the challenges of investing in 5G as well as competing in a market where margins are wafer thin and competition is fierce.

The best performer today on the FTSE100 is packaging company DS Smith PLC (LON:SMDS), which has jumped sharply on reports that sector peer Mondi (LON:MNDI) is mulling a bid.

Mondi shares are slightly lower, as investors absorb that news along with the company’s full year numbers which showed that group revenues declined 8% over the year to €6.66bn, on lower selling prices. As a result, profits before tax fell by 30% to €770m, with higher costs eating into its margins.

Mining stocks are higher after Anglo American (LON:AAL) reported preliminary full year numbers which were better than expected, pushing the shares to 52-week highs. Revenues saw an increase of 3% to $30.9bn, while adjusted earnings also beat expectations, on the back of the recent surges in copper, iron ore and palladium prices.

Associated British Foods (LON:ABF), who own the Primark brand has announced that for the first half of this year, revenues in its other businesses of Grocery, Sugar and Agriculture are ahead of expectations. Retail on the other hand is another matter, with all of the Primark stores currently closed and no online operation, the loss of sales is expected to be in the region of £1.1bn.

Sales for the first half of the year are expected to come in at £2.2bn, compared to £3.7bn the year before, however management are hopeful that some of this can be caught up when stores do finally reopen.

British Gas owner Centrica PLC (LON:CNA)’s share price has been in freefall for years, struggling to retain customers and with a management who appeared to have no idea of how to turn the business around. Under a new management team, the company is trying to develop a new strategy that focuses on the changing energy environment, and focus on energy supply and services. It is still losing energy customers; these were down 2% for the year to 6,916.

The company still intends to exit its oil and gas production business and sell Spirit Energy, however this process was paused due to the pandemic, along with the decision to divest the nuclear business.

The company has already completed the sale of its North American business Direct Energy, generating cash proceeds of £2.7bn.

This morning’s full year numbers have seen the company report a statutory operating profit of £52m, from both continuing and discontinued operations, on revenue of £12.25bn.

BAE Systems (LON:BAES) shares have hit a one month high after outperformance in its defence unit saw the company post an increase in revenues and operating profits for 2020. Sales rose to £20.86bn. Management painted a positive outlook with an expectation of an 8% profit boost for 2021, on a stronger book.

Standard Chartered (LON:STAN) became the latest UK bank to restore the dividend after reporting its full year numbers this morning. In addition to paying a dividend of $0.09c a share, the bank also said it would be buying back $254m of its shares despite missing expectations on earnings and profits.

While the restoration of the payout is welcome the shares have slipped back after due to the bank posted a bigger than expected Q4 loss of $449m, which served to pull its full year pre-tax profits down to $1.6bn, a decline of 57%. The loss did include a restructuring charge of $248m, while total provisions for non-performing loans for the year rose by $391m to $2.3bn.

The bank went on to say that further restructuring charges of $500m were likely over the course of the next few years, related to changes in the way the bank does business.

It’s been a turbulent year for Aston Martin Lagonda Global Holdings PLC (LON:AML), posting a £227m loss in H1, as new boss Lawrence Stroll set about the huge task of turning the ailing business around, with a divergent strategy of focussing on the new DBX SUV, as well as its involvement in Formula One.

Anticipation of a better H2, as well as the restructuring of the business has helped pull the share price up strongly from its May lows of 555p from last year with the shares up over 200% since then.

In October Aston announced a new £1.3bn refinancing package that involves a 20% stake taken by Mercedes, which has helped boost sentiment in recent months. This investment will help boost development in providing engine and hybrid electrification technology, with Aston management looking to target the sale of 10,000 vehicles a year by 2025.

At the time Aston Martin said that the pace of recovery in sales of its cars was likely to vary on a region-to-region basis, particularly at a time when covid-19 restrictions have hindered demand. Last year the Aston Martin Vantage saw only 324 coupes sold, a decline of 67%.

This morning the company said that Q4 revenues came in at £341.8m, well above expectations, helping to push annual revenue up to £611.8m, well above average estimates of £565m, though this was still well below last year's £980.5m.

The outperformance in Q4 hasn’t prevented the company seeing its losses increase to a hefty £466m, but in terms of revenues at least they appear to be going in the right direction.

In terms of the outlook trading is in line with expectations, with deliveries of the Valkyrie on track for H2 2021, with the company saying it expects to almost double vehicle production to 6,000 for 2021.

All in all, the update offers some encouragement that the worst could well be behind it, however a lot of faith appears to be being put into the new DBX SUV, where orders are currently looking strong. This still comes across as a risk given that most Aston Martin owners are probably not your typical SUV buyers.

Continued resilience in oil prices, now at 13 month highs, is also helping to underpin BP (LON:BP) and Royal Dutch Shell (LON:RDSa), though reports that OPEC+ might be considering a relaxation in production curbs from April could limit the upside.

US markets look set for a mixed open despite this morning’s gains from Asia and European markets, with the tech heavy NASDAQ Composite lagging behind as we look towards the latest weekly jobless claims numbers and second iteration of US Q4 GDP.

On the earnings front we have the latest Q4 numbers from pharmaceutical success story Moderna (NASDAQ:MRNA). Unlike its larger peers Moderna’s share price has seen massive gains over the last 12 months, as the small company in Cambridge Massachusetts muscled its way to the forefront of the US response to the Coronavirus pandemic, with its shares up over 500% since last March.

The company which specialises in messenger RNA technology managed to come up with a vaccine which prompts the immune systems to recognise the virus, by way of its spike proteins. This has never been done before, as most vaccines are usually created by using weakened or inactive versions of the existing virus. Unlike the Pfizer (NYSE:PFE) vaccine the Moderna vaccine can be stored at a much higher temperature of -20C, the same as a normal freezer, which makes it much easier to transport, while also having an efficacy rate of 94.5%.

Unlike AstraZeneca PLC (LON:AZN) (NASDAQ:AZN), the Moderna vaccine isn’t being provided at cost, which means the company is likely to make billions of US dollars from its product. The company has signed various contracts with a number of governments, with the US government signing up for 100m doses at $15 each, and the UK government signing up for 17m doses, which are set to be delivered in April. In January Moderna raised its lower end estimate for global production to 600m doses in 2021, with the hope it can deliver up to 1bn doses. Moderna’s biggest problem will be economies of scale. Can it build up its production capability to not only deliver on its COVID-19 vaccine, but will it also be able to deliver new vaccine candidates for seasonal flu, HIV and the Nipah virus using the same biotechnology? The company is expected to post a loss of $0.37c a share for Q4, as it looks to invest in large scale manufacturing capacity.

On the renewables front we have the latest Q4 numbers from First Solar Inc (NASDAQ:FSLR). Renewables has been one of the stand out sectors of 2020, and have been at the forefront of the rebound in stock markets over the last 12 months, with the majority of the gains seen in the second half of the year as it quickly became apparent that the Democrats would win the White House, and thus set the energy agenda for the next four years.

First Solar has seen its share price surge over the last 12 months, by over 150% from the March lows. Last October the company turned a Q3 profit of $0.29c a share on revenues of $546.8m. The company makes solar panels that are primarily used in solar farms, with the US market making up to 85% of its sales.

One of the biggest solar power companies with a market cap of over $9bn its revenue growth has been patchy in recent years, but it did say it is on track to post annual revenues of between $2.6bn and $2.9bn in this current year, below last year's $3bn. The reason for the slowdown in revenues is because management took the decision to exit the Operating & Maintenance business, thus shrinking its focus. This in turn should improve its margins. Profits for Q4 are expected to come in at $1.26c a share.

Dow Jones is expected to open 40 points higher at 32,001

S&P 500 is expected to open 4 points lower at 3,921

"DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. "

Original Post

Strong Start For Europe On M&A And Corporate Earnings Tsunami

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Strong Start For Europe On M&A And Corporate Earnings Tsunami

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