Michael Hewson MSTA CFTe
CMC Markets
- RBA rate decision – 07/02 – back in November the RBA hiked rates by a less than expected 25bps, amidst concern about the effects recent rate hikes were having on the Australian economy and ergo the housing market. At the time Governor Philip Lowe said that the RBA wanted to slow the pace in order to better judge the lag effects of previous hikes which could take time to trickle down. In December they followed this with another 25bps hike pushing the headline rate to 3.1%, while forward guidance was left unchanged, with the bank warning that rates were likely to increase in the coming months. While the RBA’s caution is understandable given the fragile nature of its housing market there is a risk that they run the risk of allowing inflation to get much more of a toehold in the wider economy. These fears took on a greater life in January when the latest December CPI numbers showed a bigger than expected jump to 8.4%, from 7.3% in November. For Q4 this pushed the average rate to 7.8% from 7.3%, raising concerns that the RBA might have to be more hawkish in terms of what to do later this week, when it comes to looking to tighten policy further. Expectations are for a rise of 25bps however we could see a 50bps move given those recent inflation numbers.
- UK Q4 GDP – 10/02 – having seen the UK economy contract in Q3 to the tune of -0.3% there had been a widespread expectation that Q4 would see a similar contraction, officially putting the UK economy into recession. A lot of the reason for that Q3 contraction was a collapse in economic activity in September due to the funeral of Queen Elizabeth II. This slowdown saw a big rebound in October which saw a monthly expansion of 0.5%, and was then followed by a 0.1% expansion in November which confounded expectations of -0.1% decline. The better-than-expected performance was helped by a resilient services sector, because of the Qatar World Cup, which saw decent performances from pubs and bars, as people went out and supported England. Tour operators and reservation services were also positive contributors with gains of 3.7% as people booked holidays for next year. Working on the rather unscientific basis that the World Cup ended on 18th December, and England went out on the 10th there is the prospect that we might have avoided a Q4 contraction and thus avoided the “R” word, even when taking into account the disruptive nature of recent strike action. Recent retail updates have offered encouragement that consumers are still spending, albeit more cautiously. According to the OBR the UK economy is already in recession, however as is often the case, could the OBR be wrong? Whatever the outcome of this week’s GDP numbers it’s likely to be a close-run thing, but with the September decline of -0.8% set to drop out of the rolling 3-month numbers the UK might avoid a technical recession. Whatever the outcome of this week’s numbers the nuance is likely to be lost on a lot of people given how finances are coming under strain. What we do know is that any growth is likely to be pretty anaemic, and 2023 is still likely to be very challenging.
- BP FY 22 – 07/02 – having seen the record profits Shell made last year, the focus this week now shifts to BP, and the amount of tax the company pays on its profits made here in the UK. Back in August BP set aside an extra $800m in respect of the increase in windfall taxes for this year. In November the oil company recorded $8.15bn of underlying replacement cost profit, along with a pledge to buy back another $2.5bn of shares. While the headline number was impressive in terms of how close it came to matching Q2’s strong performance, the actual profits attributable to shareholders was zero due to an accounting adjustment which pushed the company into a quarterly loss of $2.16bn. This adjustment came from its gas and low carbon energy unit which once again outperformed with profits of $6.24bn, however due to the volatility in forward gas markets and a repricing of forward gas prices, this has turned into a loss of $2.96bn. Its oil production and operations division returned $5.21bn in profits. On top of the Rosneft adjustment earlier at the start of the year that means BP has actually recorded a -$13.29bn loss so far year to date. BP has already set aside an $800m adjustment in this quarter’s numbers in respect of the latest UK windfall tax, pushing the tax take from the North Sea to $2.5bn for this year. BP is also continuing to pay over $1.2bn a year in respect of the Gulf of Mexico oil spill. One of the other main criticisms levelled at oil companies has been the amount of money spent on renewables, relative to share buybacks which have become highly controversial. On the outlook BP remains committed to using 60% of its surplus cash flow for share buybacks, and the remaining 40% to strengthen the balance sheet. Spending on renewables is something that BP does need to do more of which means last week’s announcement that they will dial back their push towards clean energy is unlikely to be well received in political circles. Whatever politicians say you can’t change the political reality that the energy backdrop has changed with the recent surge in energy prices. With energy security and high prices now front of mind for ordinary people, the only way to reduce prices is to add extra capacity, which means new LNG resources will be needed. Returns from renewables are well below those of gas, and also aren’t reliable enough. Politicians would do well to recognise that a slower transition is needed. In Q3, capex spending on low carbon energy came in at $86m, out of a total of $958m, in its gas and low carbon energy division, down from $142m in Q2, taking the total spend on low carbon this year to $447m, out of a total of $2.64bn. That quite frankly is pitiful so there is scope for that to improve with hydrogen and bio-gas likely to be one area which could see extra investment.
- Unilever FY 22 – 09/02 – just over year ago Unilever shares tanked after it was reported that they had made a £50bn bid for GlaxoSmithKline’s consumer healthcare business, of which it owned a 68% stake along with Pfizer. The failure of that bid proved to be the last straw for a lot of shareholders, not so much that the bid was made, but that it was even being considered given the other problems Unilever has had to deal with. Fast forward 12 months and CEO Jope is on his way out to be replaced by Hein Schumacher who will take over the reins on 1st July 2023. As we look towards this year’s full year numbers it’s fortunate for Unilever that GSK didn’t rip their arm off, as the shares have performed well since finding a bottom on March last year once it became apparent that Unilever wasn’t prepared to make a new offer. When the company reported in Q3 the consumer goods giant reported a 10.6% rise in sales to €15.8bn, with the company raising its sales guidance for the full year. What was particularly encouraging was that the growth in sales came across all of its divisions, although nutrition was by far the weakest, rising by 4.8%, with all the others into the low 20%. The ability of the company to raise prices, which rose 12.5% % did prompt a paring back in volumes to the tune of a 1.6% decline. The company said it now expects full year underlying sales growth to be above 8%.
- AstraZeneca FY 22 – 09/02 –. back in November AstraZeneca raised its profit guidance for the year, as well as returning to profitability in Q3. Revenues for the quarter rose by 11% to $10.98bn, driving year to date revenues up to $33.14bn, with the addition of the Alexion business also helping to drive the improvement. Q3 profits came in at $1.67c a share with growth across all of its business areas helping to drive the improvements. Since then, AstraZeneca has managed to get EU approval for its Enhertu, Imfinzi and Lynparza combo drugs. Over the last three months the company has secured two separate deals to enhance its offering in the COPD space by securing a $402m deal with C4X Discovery to develop a treatment for COPD and other respiratory illnesses. AstraZeneca also signed a separate deal to acquire Neogene Therapeutics for $320m. Unlike C4X Discovery, Neogene is a biotech company which focuses on the discovery, development and manufacture of T-cell receptor therapies which target cancer cells specifically. In early January AstraZeneca shares hit record highs, but have since slipped back quite sharply on the back of some profit taking
- Disney Q1 23 – 08/02 – Disney shares slipped to their lowest levels since March 2020 at the end of last year in the wake of their Q4 numbers back in November. Revenues came in short of expectations at $20.15bn, while profits came in at $0.30c a share, short of the $0.53c expected. The revenues number was well below Q3’s $21.5bn which perhaps shouldn’t be too surprising given that Q4 tends to see a drop-off anyway. The parks business in Q4 generated $7.43bn, a 36% increase on last year but below estimates of $7.59bn, with some of that shortfall probably due to the impact of Hurricane Ian which saw the parks take a $65m hit. On subscribers the picture was slightly better, adding 14.6m, 5m above forecasts with Disney+ the main driver, with 12.1m new adds, pushing the total to 164.2m subscribers. That still puts it behind Netflix, although when ESPN and Hulu are added to the numbers, they exceed Netflix. The streaming business is still very much a loss leader, losing $1.5bn during the quarter, with Disney saying it expects to be profitable by 2024. At some point this cash burn will need to subside with returning CEO Bob Iger set to draw a line under the Chapek era, with ongoing chatter that Iger will look at reorganising how the film and TV studios divisions will work in the wake of the Fox acquisition. Management is facing shareholder pressure, namely under the guise of Nelson Peltz to get a handle on costs.
- Robinhood Markets Q4 22 – 08/02 – it’s been a difficult few months for Robinhood Markets although there does appear to be some stabilisation in the share price, having hit record lows last summer. They are still below the peaks seen in November in the lead-up to their Q3 numbers which saw revenues modestly beat forecasts, coming in at $361m, while losses came in at $0.20c a share, or $175m. The move towards crypto is still not showing the returns management would have liked, with $51m in revenue from that part of the business. The shares have seen a modest rebound since the end of last year pushing above $10 a share, however the outlook is set to remain challenging, given the uncertainty around the crypto space and the recent collapse of FTX, and other failures. That $38 IPO price seems a world away right now. Losses are expected to come in at $0.10c a share.
- Uber Q4 22 – 08/02 – when Uber reported back in November the shares briefly popped higher after the company reported a decent increase in Q3 revenues to $8.34bn, however the gains proved short lived. Losses came in higher than expected at $1.2bn principally due to revaluations of some of Uber’s equity investments. EBITDA came in at $516m well above estimates with gross bookings in the quarter rising to $29.1bn a rise of 26%. In respect of their respective businesses’ bookings were evenly split at $13.7bn each for mobility. On revenues this saw a split of $3.8bn for mobility and $2.8bn in delivery. For Q4 Uber said it expects to see gross bookings improve to between 23% and 27% year over year with an adjusted EBITDA of $600 million to $630 million. Q4 losses are expected to come in at $0.12c a share.
- Activision Blizzard Q4 22 – 06/02 –.it was just over a year ago that Microsoft put in its $68.7bn, $95 a share bid for the Activision business in a move that had many expressing concerns about Microsoft restricting new content to its own Xbox platform, and not allow games on its nearest competition, which is Sony’s PlayStation, and the PS5. While some have argued that this would be against its own interests and curtail its revenue stream, this wouldn’t be unusual given that Microsoft has got itself into trouble by bundling hardware and software previously. Since those peaks Activision shares have slipped back on a combination of a slowdown in gaming revenues as demand for Xbox and online games starts to slow due to shrinking consumer incomes. This perhaps isn’t as surprising at first glance as it appears given that game prices have increased quite sharply in recent months. There is also the fact that EU, US and UK regulators are looking into the deal and could block or add conditions to the deal getting approval. In Q3 Activision saw net revenues decline by 13.9% to $1.78bn with game sales accounting for 13% of that total, a decline of 45%. Net income fell almost 32% to $435m. The latest version of Call of Duty – Modern Warfare II is expected to see a pickup in Q4, however given that Vanguard disappointed this is by no means certain. Increased price points may also have a part to play in the recent slowdown in sales. It’s been notable that prices for these sorts of marque games are now nearer to the £60 level than they were two years ago when £45 was more the sector average. Profits are expected to come in at $1.52c a share.
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