The week ahead: UK Q4 GDP, AstraZeneca, Ocado, Dunelm, Twitter, Disney and Uber earnings

1. UK Q4 GDP – 10/02

After a fairly decent Q3, and an expansion of 16%, the UK economy has had a much more troubled Q4, with the likelihood that we may well see a double dip recession, having seen two successive negative quarters in the first half of 2020, and the beginning of 2021 unlikely to see restrictions lifted much before Q2. The economy started to slow again in October, as Covid-19 cases started to rise again, and a new variant burnt its way across the country. With new lockdowns starting at the beginning of November and various tightening of restrictions throughout December its probable that Q4 might see a modest contraction, even though some estimates suggest a 0.5% expansion. This could be as a result of a big jump in imports as retailers and businesses stockpile goods ahead of the Christmas period as well as the end of the Brexit transition period, which might also give the numbers a bit of a boost. What we can be certain of is that the first quarter of this year is likely to be much worse, with the Bank of England expecting a 4% contraction. Private consumption and government spending was just about the only thing keeping the economy going in Q3, and it is likely to the same thing in Q4.

2. UK Industrial/Manufacturing Prod (Dec)– 10/02

If recent PMI’s are any guide then the manufacturing sector could well be the stand out candidate in terms of Q4 performance. Since the end of the first lockdown the manufacturing sector has expanded every single month, for the most part by a fairly decent amount, with a 0.7% gain seen in November. December is likely to be similarly positive given that economic activity at increased quite markedly ahead of the end of the Brexit transition period.   

3. Dunelm H1 – 10/02

Dunelm has managed to ride out the covid-19 pandemic fairly well, despite the various store closures it has had to contend with. In its last full year numbers where the company saw its Q4 numbers hit hard by the first lockdown, total sales fell by 28.6%. On-line sales helped to compensate to some extent, with a rise of 105.6% on the year. This in turn helped stem the decline in full year sales to a mere 3.9%, which given the store closures was a fairly decent result. The first quarter of this year got off to a flyer as well with Q1 sales rising 36.7% to £359.1m, driven by a strong digital sales performance, however given the uncertainties around the pandemic, management withheld offering guidance, perhaps wise given the various lockdowns since November. This meant that stores were only able to offer click and collect services, and online delivery services, and while the stores have remained closed, total sales in Q2 still saw a rise of 11.8%. The company’s’ resilience has meant that management took the decision to repay the £14.5m job retention scheme monies claimed in the previous financial year. This week’s H1 update is expected to see total sales surge by 23% to £719.4m while profits before tax are expected to rise at £112m, well above the same period last year, which was £83.6m. This figure includes the repayment of the furlough money, reinforcing the success the business has had in being able to adapt to the challenges that have come its way.

4. Ocado FY20 – 09/02

Continuing to confound its critics, the Ocado share price has made more gains this past 12 months, with the jury still out as whether it can be viewed as a retailer, or a technology provider. The company’s £750m deal with Marks & Spencer to deliver an initial range of 4,400 food products, along with 700 from the M&S lifestyle range started to pay dividends from the beginning of September last year. We saw the benefit of this deal in its most recent Q3 numbers. Retail revenue grew 52% in the quarter, rising to £587.3m, with the average spend coming in at £141 and average orders per week rising to 345,000 from 315,000, from the same period a year ago. Q4 saw a rise of 35% in retail revenue, while management said they expected full-year EBITDA to come in well above its previous guidance of £40m, at £60m, with the company also completing on its deal to acquire Kindred Systems and Haddington Dynamics in December, both companies that specialise in robotics manufacture. These two deals cost a combined $287m, as Ocado looks to streamline the picking functions in its automated fulfilment centres in order to improve efficiencies across the business. With a market cap now up at an eye-wateringly high £20bn, Ocado is bigger than Sainsbury’s and Morrison combined, and only just behind Tesco in terms of size. It therefore needs to continue to grow if only to justify a valuation that bears little relation to the underlying fundamentals, with revenues expected to come in at £2.3bn on an annualised basis. In comparison Tesco turned over £64.7bn in its most recent set of full year accounts.

5. AstraZeneca FY20 – 11/02

Big pharma has had a much higher profile this year than would normally have been the case, without the fact we are in the midst of a global pandemic. Over the past few years this sector has undergone a significant amount of rationalisation as the sector faces the challenges of a lack of innovation, expiring drug patents, and increasing regulation. AstraZeneca has been at the forefront of this, acquiring Alexion at the end of last year for $39bn, as it looks to build up its presence in the field of immunology. AstraZeneca has also been at the forefront of the battle to develop a vaccine against Covid-19, as well as any variants thereof. The joint venture with Oxford University has a slightly lower efficacy rate than its peers, and isn’t a messenger RNA vaccine unlike the Pfizer and Moderna jabs, however it has caused quite a storm in Europe, after the company said it needed to streamline its European operations, thus delaying the rollout, citing the slower ratification process by the EU in approving the dose. The vaccine is being produced at cost which means there is not much in the way of upside for AstraZeneca, apart from goodwill, and even that is in short supply due to EU politicians trying to shift the blame for their own failures onto the company. In Q3 year to date total revenues were up 8% to $19.2bn, with product sales up by 9%, driven by strong performance across three therapy areas, with oncology leading the way R&D expenses rose 8% year on year to $4.2bn. Full year revenues are expected to come in at $26.4bn an 8.4% rise on last year.

6. Ted Baker Q4 21 – 11/02

When Ted Baker announced last June it was looking to raise over £100m at a discounted price of 75p the share price tumbled, as the new management looked to rescue a business that has seen its fortunes implode spectacularly in recent years. In March 2018 the shares were up at over £30 each, however a raft of profit warnings, the departure of founder Ray Kelvin in controversial circumstances, and various stock accounting errors, has seen the shares fall sharply. During last year the company sold and leased back its head office in London for the sum of £78.75m, with £72m of that cash used to pay down its debts. The company has an uphill struggle in the current retail environment, a fact that was borne out in its most recent Q3 numbers, which saw revenues slide almost 46% to £169.5m, while losses came in at £86.4m. Total retail sales including ecommerce slid 42.2%, which looks grim until you realise that on their own, eCommerce channels rose 41.8%.  On the plus side, its store footprint is much narrower than a lot of its peers, and the business rates holiday will also help on the margins, while its collaboration with Next has expanded beyond childrenswear, to include lingerie and nightwear from May 2021. Despite the losses Ted Baker CEO Rachel Osborne has insisted that free cash flow will be positive this year in spite of all the restructuring efforts and covid0-19 headwinds. This week we’ll find out if that optimism is justified.  

7. Twitter Q4 20– 09/02

Twitter has always been the poor relation when it comes to the likes of Facebook, when it comes to monetising its user base. In Q3 it did appear it was making progress on this front, when revealed revenues of $936m, an increase of 14% on the same period a year before, with 187m daily users, a 29% increase year on year. Compared to Q2 however it was only marginally higher, and Q4 could well see this number slip back in light of recent events. In the aftermath of events on Capitol Hill in January, and President Trump’s subsequent ban Twitter embarked on a purge of thousands of accounts, while others may well have decided to leave of their own accord. Companies also decided to pull their advertising spend in the aftermath of the violence which in turn could well impact Twitters Q4 numbers. the next few months are likely to be crucial ones in the life cycle for social media companies and Facebook and Twitter in particular. Profits are expected to come in at $0.30c a share, which seems optimistic given that they came in lower than that in Q3 at $0.19c a share. 

8. Disney Q1 21 – 11/02

When Disney was gearing up for the launch of Disney+ at the end of 2019, they must have had high hopes in respect of eating into the market share of the likes of Netflix and Amazon Prime in the online streaming market. Undercutting on price may seem like a no-brainer, and while we’ve seen a big uptake on the subscriptions front with over 86.8m in the first year when the company reported in December it still has some way to go to compete with Netflix in terms of content depth. The service is also operating at a loss, which means it’s had to bite the bullet and will be increasing prices, with a basic UK subscription rising to £7.99 a month in March. That still means it’s cheaper than the likes of Netflix which has also increased its prices; however, its content while still good remains well short of the diversity in Netflix’s library. Additional content is also extra as well, with the decision to charge up to $30 to view its Mulan film a little presumptuous, and falling flat. This is where Amazon Prime also falls down a little, however at least with Prime you get other perks to compensate for your monthly fee. Asking for a monthly fee and then adding additional costs on top of that smacks of taking liberties in what is becoming an increasingly competitive market place. Of course, Disney also has the added drag in terms of losses at its film studios, theme parks and resorts, as a result of the pandemic. The company has already shed up to 32k jobs in this area alone, while also reinstating the temporary executive pay freezes in a move that in terms of optics looks awful and lacks empathy. In its last set of numbers, the “Mouse House” lost $710m, while revenues slumped to $14.7bn. Losses for this quarter are expected to come in higher for Q1, at $0.30c a share  

9. Uber Q4 20– 10/02

Even without the pandemic Uber had already been haemorrhaging cash, before the economic lockdowns hit its cashflow even more. The ride hailing part of the business makes up the lion’s share of overall revenue, while its delivery or “eats” business is the small relation. In Q2 the company posted a net loss of $1.8bn as taxi bookings declined 73%, while delivery bookings saw a 113% rise. In Q3 these losses shrank but were still over $1bn, while revenues also came in short at $3.13bn. The company reiterated its guidance that expects to be profitable on an EBITDA basis by the end of 2021, however given recent events it may well have to rethink that guidance. Its delivery business continues to go from strength to strength with a 190% rise in revenues year on year, and the acquisition of Postmates for $2.65bn likely to see a further uplift. Last week the company also paid $1.1bn for alcohol delivery company Drizly, as it looks to widen its delivery mix across the US. Despite Uber’s problems the shares have recovered well from their lows last year near $14 to be trading back above $50, and their IPO price. This seems rather counterintuitive when you consider the company appears no nearer to turning a profit than when it came out of the blocks in May 2019, however given that the company raised over $500m dollars in equity last year, for its freight operation suggesting that some investors in certain parts of Uber’s business have deeper pockets than others. Losses are expected to come in at $0.54c a share.

10. Coca Cola Q4 20 – 10/02

In Q3 Coca Cola managed to beat expectations for its latest set of numbers, however it is clear that the pandemic is acting as a drag on its business. Q3 net sales fell 9%, to $8.65bn though demand for Coke Zero sugar and Coca Cola managed to hold up quite well. Coffee and tea were hardest hit which isn’t surprising given the various closures forced onto its newly acquired Costa Coffee brand with traffic levels there unlikely to improve much before April of this year, assuming lockdown restrictions start to get eased. The company is in the process of slimming down its drink’s portfolio by about 50% with the focus on its more mainstream brands like Dasani, Coca Cola as well as fruit juice and tea and coffee. Profits are expected to come in at $0.42c a share.