1) French and German flash PMIs (Sep) – 23/09 – there has been increasing evidence in the last few weeks that the rebound being seen in France and Germany is running out of steam. In the most recent August PMIs, the numbers painted a mixed picture for the German economy, with services in particular showing a slowdown to 52.5, after a strong July performance. In France it was a similar picture with services slowing to 51.5 from 57.3, as rising infection rates prompted localised lockdowns and restrictions being imposed across the country. As we come to the end of Q3 it is clear that the recovery seen in the wake of the contractions in Q2 has been a robust one, however a further deterioration in the September PMIs could well raise serious questions about the likelihood of a sustainable economic rebound.
2) EU Summit – 24/09 - Special European Council on 24/09 and 25/09 was called by EU President Charles Michel in August. EU leaders will meet in Brussels to discuss the single market, industrial policy and digital transformation, as well as external relations, in particular relations with Turkey and with China. The summit will also be an opportunity to take stock of the situation of the COVID-19 pandemic. Brexit talks are also likely to be on the agenda as well despite EU leaders’ protestations to the contrary. Given current state of play how can it not be?
3) German IFO Business climate (Sep) – 24/09 – while we saw slowdowns in PMI data in August German businesses appeared to have a slightly more optimistic view of events as the latest business climate survey continued its improvement from the 74.3 lows of April, with an August reading of 92.6. It is quite likely that a lot of German businesses are concerned over the prospect of a second wave, which might mean it could struggle to get back to the levels we were seeing at the end of last year, and the beginning of this year of the mid to high 90’s. While the German government has pledged to continue its fiscal plans to support the German labour market until the end of 2021, German businesses may well hold back from large scale investment in their longer-term plans if long term indications about a continued recovery start to falter.
4) UK flash PMIs, manufacturing and services (Sep) – 23/09 – no deal Brexit concerns notwithstanding the UK economy has continued to perform well in its post lockdown period, and after the outperformance seen in August expectations are high that September will continue to see economic activity remain close to the levels seen in August, where “eat out to help out” helped boost the services numbers significantly. In August services activity hit a five year high of 58.8, also helped by stronger demand in the housing market, as well as increased domestic spending as consumers holidayed at home. Manufacturing also held up well coming in at 55.2.
5) US Weekly Jobless claims – 24/09 – the continued decline in weekly jobless claims to 850k, would appear to suggest that the US economy is continuing to hold up reasonably well despite the concern that the ending of the $600 a week benefit stimulus might prompt a spike in claims. These declines in the weekly jobless numbers while welcome is still far too high for an economy that is supposed to be bouncing back from one of the worst economic shocks in our lifetimes. It is clear from last week’s retail sales numbers that consumption is starting to wane as disposable income starts to fall. At the current rate of decline weekly claims may well start to find a bottom before edging higher again, as business delay hiring ahead of the upcoming US election.
6) Cineworld H1 20 - 24/09 – the decision by Cineworld management to back out of the $2.1bn Cineplex deal has prompted some controversy, and put the cinema chain at threat of legal action. The logic of the deal was already questionable even before the outbreak of the Covid-19 pandemic, given the already high debt levels of the business, due to the Regal acquisition a few years before, against a backdrop of already weakening footfall. With UK cinemas only now starting to reopen, and a lot of the major studios delaying the release of their summer blockbusters cinema chains are facing a struggle to get people through the door even without the rules that require that customers wear a mask. Disney pushed Mulan on line and then delayed the release of its latest Star Wars and Avatar films, while the latest James Bond film isn’t due to be released until November. The US market in particular has struggled with the on-off nature of local lockdowns. The shares did get a lift on the back of the recent ruling by a US judge that overturned the rules that dictated the release of how films are released in the US. Since the 1950’s Hollywood had a monopoly on how films could be produced, exhibited and distributed, a practice that has now had time called on it. This story took on an added twist with a story in August that prompted speculation of that Cineworld, or other cinema chains could be the subject of a takeover bid from a big Hollywood studio, with the shares currently near record lows. It is true that Cineworld shares have taken a battering over the past 12 months, however the main reason for the weakness, coronavirus concerns notwithstanding, is the level of the company’s debt, which along with its modernisation program has placed an enormous strain on its balance sheet. With footfall at record low levels, and likely to remain subdued, there are significant obstacles to a potential takeover, not least how to accurately predict future cash flow in a post Covid world.
7) Kingfisher H1 21 – 22/09 – Kingfisher has had its fair share of problems in the past few years, not least the drag its French operations have placed on the business, while even the UK B&Q business struggled, with the company in the midst of a 5 year turnaround plan that involved a radical overhaul of its IT and buying systems, this time a year ago, when the company announced a fall of 12.5% in H1 profits. With new CEO Thierry Garnier less than a year into the job the share price has undergone a sharp transformation helped in no small part by the coronavirus crisis, despite a 66% fall in its full year profits, when the company reported its final numbers in the summer. With DIY chains allowed to stay open in April and May the company has seen on-line sales surge, helped in no small part by its Screwfix brand. In July the company announced that Q2 like for like sales until July 18th rose by 21.6%, with CEO Garnier expressing optimism about the outlook, after announcing that the company would be employing an extra 4,000 staff to deal with the extra workload from the boom in the online business.
8) Smith’s Group FY 20 – 24/09 – When coronavirus was starting to spread across Europe in March and April, Smiths Group was at the forefront of the coronavirus outbreak, being a specialist in the production of medical ventilators, as the NHS scrambled to boost the number of breathing aids it needed to help save lives. The company makes ventilators at its Luton site, and has ramped up production as well as providing intellectual property advice to other companies to help boost production. Management said its ambition is to supply an extra 30,000 ventilators over the next three months. In March, Smiths Group said it was delaying the separation of its medical devices unit until the pandemic had passed, which means it will probably never happen. Its operations did experience some disruption in China, while in June the company warned about an increase in costs, as well as saying that for the 10 months to 31 May, underlying revenue rose by 2%, with year-to-date revenue up 6%. Earlier this month, its detection division won a contract with US Customs for rail cargo inspection worth up to $379m.
9) NIKE – Q1 21 – 22/09 – when Nike reported its Q3 numbers in March it was notable that while on-line sales were resilient its China operations were a significant drag due to the February shutdown of the Chinese economy. Even though the Greater China stores managed to reopen in March, the company was then faced with the shutdowns in the US and Europe which are likely to hit its numbers in Q4. This disruption saw the company post a loss of $790m or $0.51c a share in Q4 on revenues of $6.31bn, a decline of 38% from a year before. Despite this setback Nike shares have continued to do well, posting new record highs earlier this month. These gains appear to be being driven by sharp rises in digital sales which saw a rise of 75%, however we do need to be aware that higher costs could well continue to weigh on its margins, now that most of its retail stores have now reopened. In Q4 these margins fell to 37.3% from 45.5%, and while Nike management have pledged to drive new business through their digital channels, there is some concern that investors are under-pricing the risk that margins could get hit even harder. After the losses of Q4, the company is set to return to profit in Q1 of $0.41c a share.
10) Darden Restaurants Q1 21 –24/09 – has managed to ride out the pandemic shutdowns better than most, the owner of the Olive Garden, was able to offset the effect of a lot of the shutdown period by offering a takeaway service to its clients. Sales still saw a 43% drop in the previous quarter and the likelihood is that with social distancing rules likely to remain in place for some time to come, that lower revenues are likely to be a natural consequence of that. In the last quarter on-line ordering at the Olive Garden saw a 300% increase from the year before, while its Longhorn Steak House chain saw a 400% increase. To cut costs the company has embarked on a $35m restructuring program as a result of the lower footfall that is expected to be the norm going forward, while it also needs to take steps to reduce its debt load. With more of its restaurants now reopen management will be hoping for some form of a return to normality with the hope that the company will be able to return to profit in Q1, albeit a small one of $0.04c a share.
11) Superdry – FY20 – 21/09 – last year Julian Dunkerton, the founder of the company managed to regain his place on the board, prompting the existing board to resign en-masse. Since then the shares have struggled as investors weigh up whether he can deliver a plan to turn the business around, with the current Covid crisis complicating matters enormously. In August the company agreed a new £70m debt facility out to January 2023, which replaced the one that was due to expire in January 2022.This week’s full year numbers are expected to show that total group revenue has declined 24.1% year on year. In terms of store reopening’s 95% of stores had reopened in August, with store revenue down 58.1% in Q1. E-commerce showed a 93.2% rise in the same quarter; however, these numbers aren’t likely to give much clue as to what the final full year numbers will look like when they are released. It’s more likely that investors will be more interested in how management see the rest of the year playing out, than with the full year numbers.
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