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Week ahead: Berkeley, Barratt, WH Smith, Halfords, Melrose, GameStop, three central banks and a new PM

Published 05/09/2022, 05:00
Updated 05/09/2022, 05:10
© Reuters.  Week ahead: Berkeley, Barratt, WH Smith, Halfords, Melrose, GameStop, three central banks and a new PM
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Company news kicks into a higher gear in the coming week, with updates from three FTSE 100 housebuilders, retailers of recently contrasting fortunes WH Smith (LON:SMWH) and Halfords, aerospace-linked Melrose Industries, meme stock GameStop and many others.

But perhaps they will all be put in the share at the start of the week by the announcement of the UK's new prime minister and their plans to help businesses and households with sky-high energy costs, among many other issues.

On Monday the Conservative Party will unveil their new leader, with Liz Truss the overwhelming favourite, but it will not be until Tuesday when they officially take office after being appointed as PM by the Queen to succeed Boris Johnson.

“Their roadmap to the UK's current economic headwinds will be key,” said Deutsche Bank (ETR:DBKGn).

Extra support for businesses and households will be of utmost importance, analysts and economists said, with Brexit also expected to return to the fore if Truss wins.

On the wider macro view, it could be a drama-strewn week of central bank action.

“All eyes will be on the ECB meeting next Thursday, as well as Fed Chair Powell's speech the same day,” said Deutsche Bank, predicting the Bank of China will hike rates a day earlier.

“It will be a quieter week for economic data in the US and Europe.”

MONDAY 5 SEPTEMBER

Ahead of the Tory party’s leadership announcement, there will be some financial news releases.

Among them Dechra Pharmaceuticals PLC (LON:DPH) is expected to report preliminary full-year results, with solid sales having already been reported.

In July, the veterinary pharmaceuticals company said that in its latest fiscal year, its revenue grew 12% on a reported basis and 14% at a constant exchange rate.

Revenues were at record levels for the company, in line with expectations, though group revenue growth slowed to what chief executive Ian Page said were “more normal levels as expected in the second half as the impact of the pandemic on our markets unwinds".

Investors will be looking for more meat on the bone in terms of commentary on current trading and the outlook for the rest of 2022 if more unwinding is expected.

UK services sector PMI data will be of interest, mid-morning, but may be drowned out by the headlines from Westminster.

“First, extra government support for households and businesses amid soaring energy costs seems inevitable – the question is what form it will take,” said economists at ING.

“Truss has said during her campaign that her preference is for tax cuts, though the sheer scale of the energy bill increase anticipated by early next year suggests this is unlikely to be sufficient… Markets are increasingly assuming this will translate into extra Bank of England rate hikes. We agree with that assessment, even if markets are heavily overestimating the scale of tightening that’s likely to be required.”

Second, Truss is pushing for the Northern Ireland Protocol Bill to be passed, enabling ministers to unilaterally override parts of the deal agreed with the EU in 2019.

“This story is not likely to be a fast-moving one, but ultimately a unilateral move by the UK to overwrite parts of the deal could see Brussels suspend the UK-EU trade deal, which it can do with 9-12 months' notice.”

With inflation remaining the big global issue, driving central bank hikes, oil prices will also be in focus on Monday as the Saudi Arabia and Russia-led OPEC+ meeting takes place.

Investors will get a gauge on whether the oil producers’ cartel believes supply adjustments are needed to support crude prices, which fell over the past week due to lowered demand forecasts, said Deutsche Bank.

US traders will be taking a break for the Labor Day holiday, which will affect trading volumes in Europe too.

Significant announcements expected on Monday

Finals: Dechra Pharmaceuticals PLC (LON:DPH)

Interims: Belvoir (LON:BLVB)

AGMs: LXi REIT PLC (LON:LXIL), Totally PLC (LON:TLY)

Economic announcement: PMI Composite (UK), PMI Services (UK)

TUESDAY 6 SEPTEMBER

While the day’s headlines may be centred on the European Central Bank (see below), US-focused plant hire group Ashtead is usually a decent bellwether for the health of American economy and what it says about first quarter trading will be keenly watched.

Worries over recession both here and in North America have taken a toll on its share price, which is down 25% this year even with record annual numbers last time.

But as for all companies, the stock market is looking ahead for Ashtead, where boss Brendan Horgan predicted revenues would grow 12-14% this year.

In a week of news from the housebuilding sector, London and South East-focused Berkeley Group Holdings PLC (LSE:BKG) is first to report.

Sentiment is turning against the sector, with analysts at HSBC (LON:HSBA) predicting UK housing demand will fall by up to 20% over the next year and house prices by over 7%.

With shares across the sector already subsiding markedly this year, Citigroup (NYSE:C) said they saw “further downside risk to current valuations in the bear case impacted by weak demand and lower house prices,” though the question for the US bank is whether all of the expected bad news is priced in already.

Key for Berkeley in this week’s interims will be whether its forecast of earnings of £545m in the current financial year to April is intact, said UBS.

Elsewhere, the drought conditions and energy crisis in Europe are likely to have some consequence for FTSE-100 listed packaging companies, of which DS Smith PLC (LSE:SMDS) is due to reveal its fiscal first quarter results on Tuesday.

Broker Jefferies said the weather “may be a modest negative” for box demand, while there is also investor concern about how the macro uncertainty might affect industrial and consumer box demand.

Rising costs are another issue, as rival Mondi (LON:MNDI) pointed out in a recent update, with wood and therefore paper costs rising as more wood is burned in fireplaces as Europeans look for new fuel sources amid a dearth of Russian gas.

Latest monthly sales figures from Taiwanese semiconductor manufacturer UMC on Tuesday, and rival TSMC on Thursday, should “be interesting, especially as macroeconomic data from electronics-heavy Taiwan points to a softening in activity”, according to analysts at AJ Bell.

The technological importance of Taiwan’s leading foundries TSMC and UMC “cannot be underestimated, especially at a time when global supply chains are stressed and many manufacturers continue to bemoan semiconductor shortages”.

Adding to the reported 242 interest rate increases from central banks this year, according to the cbrates.com website (more than seen in 2018 to 2021 combined) the Reserve Bank of Australia is expected to move its rate higher on Tuesday and Canada on Thursday.

Four rate hikes have taken the cash rate to 1.85%, the highest figure since spring 2016. A further quarter-point rise is expected by the market at this meeting to take the headline rate to 2.1%.

Significant announcements expected on Tuesday

Trading updates: Ashtead Group PLC (LON:AHT), Berkeley Group Holdings PLC, DS Smith PLC

Interims: Capricorn Energy PLC (LON:CNE), Gamma Communications PLC (LON:GAMA) (AIM:GAMA), Headlam Group (LON:HEAD) PLC, Inspired PLC (LON:INSEI) (AIM:INSE), IQE PLC (LON:IQE), Lords Group Trading PLC (LON:LORD), Luceco PLC (LON:LUCEL), Michelmersh Brick Holdings Plc (LON:MBH), The Pebble Group PLC (LON:PEBB), Quixant PLC (LON:QXT)

Finals: Accrol Group Holdings PLC (LON:ACRL) (AIM: ACRL), Alumasc Group PLC (LON:ALUG) (AIM: ALU), NCC Group (LON:NCCG) (LON: NCC), PCI-PAL PLC (LON:PCIPP) (AIM: PCIP)

AGMs: ABRDN New Dawn Investment Trust PLC, Ashtead Group PLC, Berkeley Group Holdings PLC, Brickability Group PLC (AIM:BRCK), Castelnau Group Ltd, Monks Investment Trust PLC (LSE:LON:MNKS), Renold PLC (AIM:RNO), DS Smith PLC

Economic announcement: PMI Construction (UK), PMI Services (US), ISM Prices Paid (US), ISM Services (US)

WEDNESDAY 7 SEPTEMBER

Midweek we are due to see retailers WH Smith PLC (LON:SMWH) (LSE:SMWH) and Halfords PLC respectively post final results and a trading update, with shares in the former down 8% so far this year and the latter skidding over 63% lower.

Bike retailer and car mechanic Halfords is set to provide a 20-week trading update on the period since its profit warning in June.

It cut pre-tax profit guidance for the year a region of £65mln to £75mln, down from previous expectations of £80mln to £90mln due to an “uncertain outlook.”

Broker Liberum downgraded its view stock and slashed its target price by more than half, stating that the main concern was the more than 50% increase in inventory year over year, which analysts said, “needs more questioning, especially given the tougher outlook.”

Elsewhere, Barratt Developments (LON:BDEV) will be the second of three housebuilders reporting this week amid continued investor caution around the sector due to rising interest rates and slowing house prices.

While the Newcastle-based group, Britain’s largest builder, in July reported volumes of new homes returning to pre-pandemic volumes, sales faster than expected and house prices remaining in line with expectations, its shares continued to fall.

While it failed to meet guidance for full-year home completions, the company said profit before tax is set to come in slightly ahead of market estimates at the time, at between £1.05bn and £1.06bn.

Looking ahead, Barratt said it expected to grow total home completions in line with its medium-term growth target of 3%-5%, based on current market conditions and assuming no material disruption to its supply chain.

It was much more bullish than fellow FTSE 100 builder Persimmon (LON:PSN), which analysts put down to Barratt’s steady-as-she-goes approach during the pandemic. https://www.proactiveinvestors.co.uk/companies/news/990364/different-performances-for-persimmon-and-barratt-but-why-990364.html

For investors in US tech, an Apple (NASDAQ:AAPL) launch event is likely to garner some attention, while meme stock bro’s will be laser-focused on earnings for GameStop Corp (NYSE:GME), where the shares have benefitted from a recent resurgence from the diamond-handed WallStreetBets crowd.

Last quarterly numbers from GameStop in June showed losses widened to US$157.9m, despite an improvement in revenues to US$1.38bn even though sales of hardware including games consoles saw a fall from a year earlier as continued to return to pre-pandemic ‘normal’ and the sales of games slowed.

The company said it planned to launch a non-fungible token (NFT) marketplace by the end of the current quarter, though the market has imploded somewhat in the last few months.

Losses for the past quarter are expected to come in at US$0.35c a share.

Apple’s share price has held up reasonably well, helped by solid earnings.

The decision to offer discounts in its highest spec iPhone 13 in China raised a few eyebrows, said analyst Michael Hewson at CMC Markets.

“This makes more sense if you consider that perhaps the company might want to run down inventory ahead of a new product launch, which is where this week’s Apple event comes in.

“Every year Apple rolls out a series of new updates as it looks towards what tends to be its most positive quarter heading into the Thanksgiving and Christmas period.”

This year’s pre-Christmas trading period is expected to be one of its most challenging yet given the current economic backdrop.

This year’s event is expected to see the unveiling of its new iPhone 14, a new Apple Watch and new iPad models, all powered by a new upgraded chipset, longer lasting batteries and more powerful cameras, as well as expectations of new iPad models.

Significant announcements expected on Wednesday

Trading updates: Halfords PLC (LON:HFD)

Interims: Equals Group PLC (LON:EQLS) (AIM:EQLS), Tissue Regenix Group Plc (LON:TRX) (AIM:TRX, OTC:TSSNF)

Finals: Barratt Developments PLC (LON:BDEV), WH Smith Group PLC

AGMs: Bluerock Diamonds PLC (AIM:BRD), Grand Vision Media Holdings PLC (LSE:GVMH), Halfords PLC, Okyo Pharma Ltd, Redcentric PLC (AIM:RCN), Seed Innovations Limited, Solid State PLC (AIM:SOLI), Taylor Maritime Inc, Trifast (LSE:TRI) PLC, Yellow Cake PLC (AIM:YCA)

Economic announcement: Halifax House Price Index (UK), MBA Mortgage Applications (US), Balance of Trade (US), Crude Oil Inventories (US)

US earnings on Wednesday: NIO, Asana, GameStop Corp(NYSE:GME)

THURSDAY 8 SEPTEMBER

The return of international travel will be the backdrop when Melrose Industries PLC (LSE: MRO, OTC: MLSPF) reports half-year results.

Sophie Lund-Yates, Equity Analyst, Hargreaves Lansdown (LON:HRGV)

“Melrose’s success has been built on turning around engineering businesses. We heard earlier in the year that Automotive, its biggest business, remained sluggish due to supply constraints while Aerospace, its second largest business, continued to grow. While next week will reveal what impact this has had, analysts are expecting operating profit to fall 25% from the previous year to £166m.

Melrose also updated the market on GNK Aerospace, their largest acquisition of $4bn in 2018. The upgrade in medium-term operating margin target is positive, but it will be good to hear a further update on how the restructuring of the GNK Aerospace business is coming along.

Investors will be paying attention to any potential shareholder returns. Their £500m share buyback should be ending by the 31 October, so a close eye will be kept on any announcement for what’s next.”

Wagamama owner Restaurant Group PLC (LSE:RTN) is expected to have been hit by heatwaves and higher-than-expected inflation and may cut its guidance.

Between July last year and May 2022, its like-for-like sales growth was up 6% compared to pre-pandemic 2019, better than management expected, while since then industry data suggests LFL sales were stable.

“But we expect recent trading will not have been helped by the heatwaves and rail strikes, and prospects are likely to be challenging in 4Q due to both the consumer backdrop and the FIFA World Cup,” said broker Peel Hunt, expecting “some downgrade risk” for full-year numbers, while energy costs could lead to downgraded guidance for 2023.

“In our view, the share price is overlooking three potential positives: possible Government support emerging this autumn; less competition; and, eventually, an improvement in the inflationary supply side.”

Vistry Group (LON:VTYV) PLC (LSE:VTY) will follow its housebuilder peers who reported earlier in the week, amid darkening sentiment on the sector.

However, the group formerly known as Bovis, was the only company kept at a ‘buy’ rating by HSBC as the bank’s analysts downgraded the sector in a recent note.

UK demand will fall by up to 20% over the next year, the analysts suggested, with downgrades for almost all of the sector as a consequence.

Vistry, according to UBS, should post half-year underlying profits of £186mln, with consensus pointing to £417mln for the full year.

After trading in the first half beat its expectations, it issued an upbeat outlook in July, guiding to adjusted pre-tax profit for the year coming in at the top end of market expectations.

“Demand has been strong across all areas of the business and our forward sales positions further strengthened,” said chief executive Greg Fitzgerald.

“Whilst mindful of the wider economic uncertainties, we are positive on the outlook for the group and expect to see significant margin progression in the full year.”

The shares rose on the announcement but have since fallen lower, with investors clearly expecting a change of tone, perhaps in this week’s announcement.

Also following its peers on Thursday will be the ECB, which came late to the rate-hiking party in July.

With ECB officials having kept up their new hawkish chat at the Jackson Hole symposium last month, there has been talk of a 0.75% increase at the September coming meeting, though most economists predict Christine Lagarde will approve another 0.5% hike to a 1.0% headline interest rate.

“Economists and investors will also look to Madame President for further details on the plans for quantitative tightening, especially as she rather fudged the issue at July’s meeting by talking of an anti-fragmentation mechanism, to help the more indebted, southern nations should bond yield start to rise,” said analysts at AJ Bell.

“If that was designed to reassure along the lines of former President Mario Draghi’s ‘whatever it takes’ statement of summer 2012, it did not work, at least initially, if the euro is any guide.

“The single currency has continued to drop like a rock against the dollar and in late August one buck was briefly worth more than one euro for the first time since 2002, as the combination of the energy crisis, inflation and recession worries have taken hold.”

Macro watchers will have more to digest later Thursday as we will also hear from US Fed chair Jerome Powell.

Significant announcements expected on Thursday

Trading updates: Safestore Holdings (LSE:SAFE) PLC

Interims: Arecor Therapeutics PLC (AIM:AREC), Cairn Homes plc (LSE:CRN), Destiny Pharma Holdings PLC, Energean PLC (LSE:ENOG), International Public Partnerships Limited, M Winkworth Plc (AIM:WINK), Melrose Industries PLC, Mpac Group (LSE:MPAC) PLC, Oakley Capital Investments (AIM:OCI) Ltd, Shield Therapeutics PLC (AIM:STX, OTCQX:SHIEF), SourceBio International PLC (AIM:SBI), Spire Healthcare Group Plc (LSE:SPI), Vistry Group PLC

Finals: Duke Royalty Ltd (AIM:DUKE), Genus PLC (LSE:LON:GNS), Sylvania Platinum (AIM:SLP) Ltd

AGMs: Atlantis Japan Growth Fund, Chariot Ltd (AIM:CHAR, OTC:OIGLF), Currys PLC (LSE:CURY), Invesco Asia Trust PLC, LendInvest PLC (AIM:LINV), Lindsell Train Investment Trust PLC (LSE:LTI), Montanaro European Smaller Companies Trust PLC (LSE:MTE), Mulberry Group (AIM:MUL) PLC, Polar Capital Technology Trust PLC (LSE:PCT), SDV 2025 ZDP PLC, Severfield PLC, SysGroup PLC (AIM:SYS, AQSE:SYS), WH Ireland Group PLC (AIM:WHI), XPS Pensions Group PLC (LSE:XPS)

Ex-divs to reduce FTSE 100 by 0.87 points: Croda International, CRH PLC (LSE:LON:CRH)

Economic announcement: RICS Housing Market Survey (UK), Continuing Claims (US), Initial Jobless Claims (US), Consumer Credit (US)

US earnings: DocuSign, Zscaler

FRIDAY 9 SEPTEMBER

Computacenter PLC (LSE:LON:CCC) is set to release its interim on Friday after some encouraging reports from sector peers of late.

Kainos a week earlier reported “very strong” demand, though US multinational Dell has been shoring up poor personal computer sales via its IT enterprise, suggesting the market is favourable to service and IT-oriented businesses.

UBS said: “After a strong Q1, the focus will be on whether any end markets have seen any evidence of deal delays and macro weakness, and to what extent inventory build-up has weighed on cash conversion.”

Significant announcements expected on Friday

Interims: Computacenter PLC, Gresham House

AGMs: Baille Gifford UK Growth Trust PLC, Berkeley Group Holdings PLC, BH Macro (LSE:BHMG) Ltd, Gear4music Holdings PLC (AIM:G4M), ReNeuron Group PLC (AIM:RENE, OTC:RNUGF), Victoria PLC (AIM:VCP)

Economic announcement: Wholesale Inventories (US)

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