The week ahead - UK public finances, retail sales and flash PMIs, vodafone, unilever

The week ahead - UK public finances, retail sales and flash PMIs, Vodafone, Unilever. Tesla, Twitter and Microsoft earnings

1) UK Public Sector Borrowing (Jun) – 21/07 – the last two months have seen the UK government has borrowed over £100bn, an exceptional post war intervention to support an economic shock that will reverberate for years to come. In April we saw £47.8bn followed by another £54.5bn in May as the UK treasury paid the wages of over 8m private sector employees. Since then we've since discovered that the UK government shelled out over £15bn in respect of PPE to deal with the crisis, more money than it spends on the Home Office and Foreign Office combined, while the number of jobs getting government support has risen to over 10m. At some point the UK government will have to look at how they intend to pay for all of this, but for now with 2- and 5-year yields in negative territory and 10 year yields below 0.2% it isn't something they need to be too concerned about right now. We're expecting to see another big number in June, as the costs of the furlough scheme continue to rack up, UK borrowing moves above 100% of GDP for the first time since World War Two.

2) UK, France/Germany flash PMIs (Jul) – 24/07 – optimism over an improvement in economic activity gained traction in May took a bit of a knock in the latest UK GDP numbers which showed a 1.8% economic rebound, after a 20.4% decline in April. This week's latest UK flash PMIs need to see a sustained improvement on the June numbers, given that a much bigger proportion of the UK reopened on 15th June. Services activity in particular was very weak so we really need to see a big improvement on the June services PMI of 47.1. Manufacturing was slightly better at 50.1, but nonetheless for all the optimism about a V-shaped recovery the PMI numbers need to reflect that and so far, they haven't. In Germany and France where they are ahead of the UK in reopening their economies, economic activity has also improved, but not to the extent where optimism about a "V" is warranted. This week's flash PMI numbers are also expected to improve, with France currently out in front in the recent June numbers which were both in expansion territory of 52.3 in manufacturing and 50.7 in services. The comparative numbers for Germany in May were 45.2 and 47.3 respectively.

3) Canada Retail Sales (May) – 21/07 – retail sales in Canada saw a huge 26.4% decline in April with most of the economy in lockdown. As we have seen from the US, the reopening of the economy there saw a big rebound in consumer activity there as lockdown measures were eased. The latest Canadian jobs numbers have followed a similar pattern as the US which suggests that retail sales are likely to see a similar rebound. Whether we'll see the type of V-shaped rebound we saw in the US is another matter given the Canadian economy's heavier reliance on the oil and gas sector, which has taken an absolute pummelling in recent months.

4) UK Retail sales (Jun) – 24/07 – the latest British retail consortium sales numbers showed the best numbers in over 2 years with a like for like gain of 10.9%, largely driven by a rise in supermarket sales as well as a big increase in online spending. This shouldn't have been too much of a surprise as the fading effects of the total lockdown continue to diminish. A number of shops also reopened in mid-June, and this is likely to have prompted a rebound as well. After an 18.1% decline in April we saw a solid 12% rebound in May. In June we need to see more of the same to help reverse more of the -23.2% two month decline from March and April.

5) Unilever H1 20 – 23/07 – as Unilever gets set to update investors as to how it has performed in the first half of this year, it is worth reminding ourselves of how the company did at the end of Q1, when the company reported in April. If anything, it was a rather mixed affair, coming off the back of challenging conditions in its Asia markets last year, we saw a strong performance from sales in its personal care and home division outperforming, as sales of Domestos and Cif flew off the shelves, with sales rising 2.4%. Food and refreshment acted as a drag, declining 1.7%, with ice cream seeing the largest volume decline, not altogether surprising given that we're coming out of winter, so this is likely to be a temporary phenomenon. Across all of its regions the Asia region saw the biggest declines, led by China, while the Americas saw sales growth of 4.6%. This is unlikely to be repeated in Q2 with the lockdown likely to have a similar affect to the one that hit Asia sales in Q1. In welcome news for shareholder's the company said it would be paying the dividend of 36p a share. In June the company announced further cost savings in making its main HQ in London, while keeping its various listings in London, Amsterdam and New York, so we could see some further details on this.

6) Centrica H1 20 – 24/07 – as bad as 2019 was for the Centrica share price, 2020 has seen further losses, as the shares hit a record low in April, with CEO Iain Conn finally departing after a disastrous tenure as head of the business. In April management finally succumbed to the inevitable, cutting the dividend. The company also announced that they would be cutting capex by £400m as well as cutting bonuses for board members, due to the uncertainty around the financial impacts of the virus, with the company also blaming the energy price caps for its poor performance. The company has also paused the Spirit Energy divestment process. In June the company announced plans for a simpler and more focussed business model as it looks to embark on yet another restructuring program. Three management layers will be removed to create a flatter less bureaucratic business along with the loss of 5,000 roles across the group. This is expected to take place over the rest of this year so we could well get a progress update this week.

7) Vodafone Q1 21 – 24/07 - it's not been a particularly good last two years for Vodafone shareholders, with the shares losing half their value since the beginning of 2018, on a combination of concerns over rising debt levels, and underperformance across all of its divisions. Last year the company cut its dividend due to concern over its rising debt levels. In November the company also took a £1.9bn loss due to problems in India, as a result of a court decision that ruled in favour of a government demand to pay $4bn, though management also raised guidance for the year after improvements in performance from South Africa, Italy and Spain. When the company reported in May its full year numbers the company announced that group revenues rose by 3% to just shy of €45bn, which was slightly below expectations. Operating profits rose to €4.1bn, however most of this was wiped out by the huge provision last year for losses at its Indian operation. The acquisition of cable assets from Liberty Global in Germany helped the full year revenue number and this should continue to act as a tailwind. The completion of the deal to create Europe's largest towers portfolio with Italy's TIM, has also yielded £2.1bn as it looks to monetise its 61,700 Europe wide towers infrastructure, with management saying that they expected this to start adding value from early next year. The company does need to take further steps to reduce debt levels as it looks to ramp up the roll out of 5G. The company will also face challenges as it strives to compete with BT and Telefonica in light of the latter's deal to buy the Liberty Global UK broadband and TV assets. In a time of big consolidations and deals in the telecoms sector Vodafone is still lagging behind its peers, despite the recent OPPO deal as well as the completion of the Vodafone Hutchison, TPG Telecom merger in Australia.

8) Tesla Q2 – 22/07 – recent moves in the Tesla share price have been mind boggling, making a high just shy of $1,800 a share earlier this month. Recently valued in terms of market capitalisation as worth more than Toyota and Volkswagen, the electric car maker's share price is up over 200% year to date, and more than that if you price it off the $350 lows seen in March. Last year the company turned over $24.6bn, posting a loss of $862m, though its last two quarters were profitable. Since then the company has had to deal with the temporary closure of its car plants in China and California due to coronavirus, as well as diversifying its production capability towards its Model Y SUV, in addition to its more popular Model 3 models. Having missed out on its 500,000-delivery target for 2019, expectations were high that the company would be able to meet its target for 2020, however this was before the various Covid-19 shutdowns. The business appeared to have avoided the worst effects of the coronavirus shutdown in Q1, delivering 88,400 cars and posting a $16m profit. At the time management said they had the capacity to produce over 100k vehicles a quarter, before they were forced to close the plant in California, on March 23rd. Steps were taken to cut costs by furloughing staff and cutting production, with operations eventually restarting in May. Original guidance for 2020 was for a production target of over 500,000 cars, however this target is likely to be difficult to achieve given the amount of time in respect of lost production. CEO Elon Musk will be hoping that Tesla is able to repeat its trick of last year, where a poor first half, was followed by a bumper second half of the year. The only problem with that is that the coronavirus pandemic may have other ideas. Expectations are for a quarterly loss of $0.57c a share, bringing to an end a run of three successive profitable quarters.

9) Snap Q2 – 21/07 – Snap was yet another IPO all the way back in 2017 that promised much and delivered little. It has spent most of the time since it sprang out of the traps below its $17 IPO price and has only recently managed to claw its way back rebounding from lows of just below $8 a share this year, back in March. Earlier this month the shares hit a record high of just over $26. In 2017 the company was haemorrhaging cash, and while losses have narrowed since then the company still hasn't made a profit. In Q1 of this year Snap saw a rise in revenue of 44% to $462m with average revenue per user rising 20%, though losses only narrowed slightly to $306m for Q1, from $310m at the end of the last fiscal year. The business is unlikely to make a profit anytime soon, however it has been able to move higher below the radar as its bigger rivals, like Facebook and Twitter receive all the political fake news blowback. It could continue to edge higher, however it still no nearer to making a profit than it was a year ago and given its governance structure remains very much a punt, rather than an investment.

10) Twitter Q2 – 23/07 – at the end of last year Twitter passed an important milestone, passing $1bn in revenue in a quarter for the first time, largely as result of better performance from advertising revenues. In Q1 this year advertising revenues came under pressure as a result of companies cutting back on ad spend as a result of Covid-19. This meant that while revenues were slightly higher than the same quarter a year ago, higher costs meant that the company swung to a quarterly loss of $7m. The company also withheld guidance at its April numbers, over uncertainty about the track of its advertising revenues, due to Covid. The company got egg on its face last week after some high-profile US political and business figures accounts were hacked by a bitcoin scam, causing Twitter to have to temporarily disable their accounts. Apart from the embarrassment, this event poses a number of questions over Twitters procedures. As we look ahead to this week's Q2 numbers there has been unrest amongst some investors, notably Elliott Management, about the governance of the company to improve profitability. While a deal was reached at the end of March that left CEO Jack Dorsey in place, while Silver Lake pumped in $1bn they will want to see some bang for buck. This week's numbers are unlikely to reassure with a loss of $0.02c a share expected, with the prospect that we may well see job losses unless things pick up over the rest of the year.

11) Microsoft Q4 20 – 22/07 – in the space of three years Microsoft has gone from turning over just under $100bn a year in revenue, to turning over $141bn a year, helped by a combination of growing its user base into a subscription based model, alongside an ability for consumers to buy off the shelf products, which in turn more or less guarantees a steady cash flow. A sharp rise in PC demand and a rise in remote working due to coronavirus as more people worked from home is also likely to have boosted its income when it reports its Q4 and full year numbers later this week. CEO Satya Nadella acknowledged this shift in the company's Q3 earnings report, saying that the digital transformation seen in the last few weeks would normally have taken two years to achieve. Microsoft Teams usage has seen a big increase with the result that cloud based revenues now takes up the biggest chunk percentage wise of the company's quarterly revenues. Xbox One sales, or Game Pass subscriptions could also see a big jump. Profits are expected to come in at $1.386c a share.