Michael Hewson MSTA CFTe
CMC Markets
- ECB rate decision – 10/03 – if the ECB’s position wasn’t difficult enough already, recent events in eastern Europe will mean that inflation, far from being transitory is now likely to remain high but is also set to go even higher over the course of the next few months. CPI is already well over 10% in the Baltic states, and is likely to go even higher, in the coming months. This, with European headline rates already deeply negative, there’s no real scope to cut them further, at a time when inflation is likely to surge even higher and GDP growth to slow further. ECB President Christine Lagarde had already stepped back from repeating her claim back in December that a rate hike was unlikely this year at the last meeting. Since then, events have moved on geopolitically but not in a good way. PPI prices which tend to be leading indicators for CPI are already at record highs across the bloc. In Germany, PPI is already at 25%, and is much higher in Spain and Italy. With the PEPP program ending this month it seems more than likely that they will need to look at extending and increasing its APP program to compensate. This is currently running at €20bn a month. In a sign that some of the hawks are shifting their positions on the prospect of a rate rise this year given recent events we had Austrian ECB Governing Council member Robert Holzmann rowing back slightly on his earlier call for a rate hike towards the end of the summer due to events in Ukraine. With oil prices ripping through $100 a barrel and escalating tensions between the West and Russia over sanctions it seems things are likely to get an awful lot worse in the short term. Even without events in eastern Europe, a rate hike would have presented enormous challenges for the ECB. Current events make that prospect look even less likely now.
- UK monthly GDP (Jan) – 11/03 – when the December monthly GDP numbers we released a few weeks ago, we saw that the UK economy slowed by -0.2%, because of the implementation of the Plan B restrictions just before Christmas. For Q4 the economy expanded by 1%, a better-than-expected number given the challenges facing the consumer as well as the wider economy. Even without the various plan B restrictions in place there was always the prospect that economic activity would have slowed before Christmas as people became more cautious in order to ensure they didn’t catch Covid and have to spend Christmas isolating. As a consequence of that we could see a January rebound, a trend that does appear to be reflected in some of the recent economic data. Expectations are for a monthly expansion of 0.2%, driven by growth across all sectors of the economy.
- UK Industrial/Manufacturing Production (Jan) – 11/03 – the UK manufacturing sector and construction sector saw a strong rebound at the end of last year, despite higher costs, and labour shortages. Order books have continued to look healthy, as has recent PMI data, and while there is little correlation between the two there is also little sign that we’ve seen any indication that economic activity in these sectors is slowing. Expectations are for a rise of 0.4% on both measures.
- US CPI (Feb) – 10/03 – US CPI jumped to a 40 year high of 7.5% in January, a few weeks ago, up from 7% in December with core prices tipping the scales at 6%, as markets started to assign a much higher probability that the Federal Reserve might raise rates by 50bps when they were due to meet in March. Events have moved on quite a bit since then and not in a good way, with geopolitics impinging on events, and making the Federal Reserve’s job even harder. Aside from used car and petrol prices, which have already risen 40% year to date, double digit price rises are being seen in domestic gas, as well as meat, dairy, fish, and fruit. With PPI also showing little sign of slowing down in January this week’s February CPI is expected to see a further increase to 7.8%, or possibly higher, and go some way to setting the seal on a 25bps rate hike next week. The wider question will be around how many more will follow, and that remains the key question as asset purchases come to an end this month. There has been little sign that expectations of the number of rate rises this year has been pared back, but it seems highly unlikely that we’ll need to see anywhere near the number of rate hikes expected right now given the strength of the US dollar.
- Greggs - FY21 – 08/03 – Greggs is another retailer that has done well from the pandemic, its shares hitting record highs in December last year, although we’ve dropped off quite a bit since then, over concerns about margins, higher fuel prices and a slowdown in the UK economy. We saw a good start in H1 the company reporting a pre-tax profit of £55.5m, a significant improvement on the £65.2m loss from the same period in 2020. The numbers were also better than the numbers seen in 2019 pre-pandemic, with the company expanding the number of its stores, as well as improving its offering in terms of its digital operation. 48 new stores opened in the first half of the year, with the baker saying it expected to open another 52 stores over the rest of the year, with delivery sales now accounting for 8.5% of shop sales. Total sales in the first half were almost back at pre-pandemic levels with management saying that they expect full year profits to come in ahead of previous expectations. Despite concerns about a slowdown in H2 consumer appetite for pasties, sausage rolls as well as doughnuts was fairly resilient. In January Greggs said it expects full year sales to be £1.23bn, a rise of 5.3% on 2019 levels. Like for like sales for Q4 rose 0.8% from 2019 levels, helped by decent sales of minced pies, and the vegan festive bake. We should also be aware of higher costs, as a baker, energy costs will be a particular concern around margins, with Greggs already admitting they had seen some temporary interruptions in its supply chain. On shareholder returns, the board said they expected to be in a position to make an additional return to shareholders of £30m to £40m in 2022. Management remained upbeat about their long-term ambitions said they still expect to see full year revenue almost double by 2026, to £2.4bn, as it continues to expand its store real estate.
- Balfour Beatty - FY 21 – 10/03 – when Balfour Beatty reported its H1 numbers back in August the shares were within touching distance of the seven-year highs that we saw in April. Since then, the shares have struggled hitting 15-month lows last month. Under the guidance of CEO Leo Quinn since 2014, the company has undergone a major transformation focussing only on high margin work, and maintaining a reliable and healthy cashflow. The company reinstated its dividend, at the end of last year. The company announced H1 pre-tax profits of £55m on revenues of £4.15bn. The dividend was also increased to 3p per share. The company had to write down the value of some projects in central London because of the pandemic, however this appears to have been more than offset by the raising of margins in support services from 3-5% to 6-8%. The order book shrank slightly from £17.5bn a year ago to £16.1bn, with the company reiterating its full year guidance of profits in line with 2019 levels. The company’s construction business suffered a £23m loss in the first half with the company saying that a problem with cladding on a project could cost it as much as £50m. In December the company announced that it expected to post underlying operating profit of £172m, as well as a further reduction in the size of its order book to around £15.5bn. Full year group revenue is expected to be around £8.4bn.
- Rivian Automotive Q4 21 – 10/03 – Rivian came out of the traps in November last year to much fanfare, surging from its initial $78 IPO price to as high as $179 in the first week of trading, pushing it above the market caps of the likes of Ford and Volkswagen in the process. This was never sustainable given that in its Q3 numbers in December the company posted a Q3 loss of $1.23bn. The company did report revenues of $1bn, as it began deliveries of its R1S SUV in December, however it also said that it would fall short of its 2021 production target. The target of 1,200 vehicles is expected to fall short, although pre-orders have risen to 71k, from 55,400 in October. Rivian’s biggest problem it would appear is producing enough cars at a fast enough speed to fulfil its orders and justify its eye-wateringly high valuation. Since December the shares have fallen further down from $120 to below their $78 IPO price, to a low of $50 a share in January, where we’ve since seen a rebound. Full year revenue is expected to come in at $63.3m up from $1m last year, which is still pretty pitiful for a company that has market cap of around $60bn. Full year losses are expected to be $3.6bn.
- Docusign Q4 21 – 10/03 – another lockdown winner that has seen its fortunes change over the past 9 months. The shares hit record highs in August last year, above $300 a share, but have absolutely tanked since then. In December the shares plunged after the company downgraded its Q4 forecasts for revenue to $557m and $563m. On the actual numbers themselves, Q3 revenue and profits beat expectations, coming in at $545m and $0.58c a share respectively. Once again, we’ve seen a company with an eye watering valuation get punished for missing on guidance, with the shares sliding to a 21-month low in January, as revenue growth starts to slow. Profits are expected to come in at $0.48c a share.
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