The week ahead: US CPI, UK GDP – Balfour Beatty and Deliveroo results

US CPI (Feb) – 12/03 – US inflation edged up to 3% in January hitting its highest level since June last year having fallen to as low as 2.4% in the autumn. This rebound in prices appears to be worrying enough for the Federal Reserve to call a temporary halt to its rate cutting cycle when it met at the end of January. Having cut rates by 100bps since September this is understandable, given the uncertainties at play in the global economy since the election of Donald Trump as US President back in November. All of the early optimism that he would be business friendly has quickly disappeared in a blizzard of policy announcements and executive orders since the 20th January, even though yields in the US are lower than they were at the start of the year. With tariffs expected to make the cost of everything much more expensive the lack of reaction in US yields is somewhat surprising, however this may have more to do with concerns about the US economy, than it does inflation expectations, with concern rising that the US economy could be heading for recession, or stagflation. Expectations are for February CPI to slip back to 2.9%, with core prices slipping back to 3.2%.  

UK GDP (Jan) – 13/03 – While the UK economy performed better than expected in Q4, eking out a gain of 0.1%, this came about mainly due to a strong performance in December which saw output increase by 0.4%. This was somewhat surprising given the weak nature of the PMIs as well as the disappointing retail sales numbers from many retailers, although hospitality did do well with accommodation and food services rising 0.4%. Another boost came from an increase in state spending, notably in the services of health and social work, however this is also concerning in that it needs strong private sector inputs to continue in this vein, something the recent budget has done little to encourage. Construction was also positive, although whether that can be sustained remains to be seen, with recent trading updates from housebuilders painting a more mixed picture. All in all, the December GBP numbers did show some silver linings when it comes to the UK economy, however they still point to an economy that is very weak, and on a GDP per capita basis is already contracting. Expectations are for the economy to slow significantly after the strong performance in December.    

Bank of Canada rate decision - 12/03 – Having seen the Bank of Canada cut rates by 25bps to 3% at its last meeting, the central bank is now having to contend with a US President who appears to have embarked on an economic war with its closest neighbour and trading partner. Never mind the fact that supply chains on both sides of the border are closely intertwined, the implementation of 25% tariffs by the US and possible retaliation by Canada serves to put upward pressure on prices on both sides of the border and create significant trade friction going forward. It’s hard to imagine rates going much lower from here at this point especially since inflation appears to be showing signs of picking up pace again, however the consensus for this week is for another 25bps rate cut, despite there being little evidence that one is needed at the moment. The job market still looks resilient as does the economy so it wouldn’t surprise on balance if the central bank decided on a hold given current tensions around trade.

Balfour Beatty FY24 – 13/03 – The announcement that CEO Leo Quinn would be stepping down later this year after over 10 years at the helm sent the shares of this UK success story down sharply. The market reaction is understandable given the pivotal role Quinn has played in turning the business around at a time when the construction sector was in crisis, and the aftermath of the collapse of Carillion in 2017 and 2018. When Quinn took the helm, the shares were languishing at record lows of around 155p, and had average net debt of £370m and now sit quite comfortably above 400p, with a healthy surplus cash position, along with the return of a dividend. That’s quite a return for shareholders. Quinn’s refusal to bid for low margin work and focus solely on high margin in the UK and US slowly reaped dividends. This focus on this one key tenet saw the shares surge up to record highs at the end of last year. At the end of H1 the company pre-tax profits rose to £112m, with revenues also seeing an improvement to £4.7bn, compared to the same period a year ago, with the order book remaining steady at £16.5bn. In August Balfour Beatty announced two further contract wins, a £363m contract with National Grid to replace the electricity high voltage network between Bramstead in Suffolk and Twinstead Tee in Essex. In December the company was also awarded a $746m contract to rebuild parts of I-35 through Austin in Texas. The company also appears to be well positioned when it comes to its involvement in new energy infrastructure projects in the UK, working with National Grid and SSEN with the potential for involvement in up to £2bn worth of extra work in Scotland. This week’s full year numbers are expected to show full year revenue of £9.8bn led by support services and Gammon, with the order book expected to have grown by 5% in 2024 to over £17.5bn. Profit before tax is expected to come in at £210m or above. Of most importance for shareholders will be a seamless transition with new CEO Philip Hoare set to pick up the reins in September, with the expectation that he will carry on the good work and strong foundations led by Quinn.      

Persimmon FY 24 – 11/03 – This week’s full year numbers from Persimmon aren’t expected to see much in the way of surprises, coming as they do 2 months after the trading statement back in January which saw the UK housebuilder announce a 7% increase in home completions to 10,224 with an average selling price of £268,500, an increase of 5%. Full year underlying profits are expected to come in at the upper end of £349m and £390m, which while an improvement on 2023’s £351.8m is still well below the levels we saw in 2022, when the company was able to generate £730.7m. Forward sales also looked solid at £1.15bn, a rise of 8%, however concerns remain about the outlook, given the stamp duty changes that are expected to kick in at the start of April which has created significant levels of anxiety about the outlook for 2025.

Deliveroo FY 24 – 12/03 – It seems such a long time ago now and yet the performance of Deliveroo since its IPO is perhaps emblematic of why London struggles with new issues. Launched to much fanfare back in 2021 at 390p the shares sank as low as 73p back in 2022 and it’s been a slow road back ever since, and even now the highest they’ve been is 166p in September last year. Now sitting just above the 120p area management are having to contend with a competitive market place with much larger competitors like Just Eat Takeaway, who were gobbled up by South Africa’s Prosus last month for €4.1bn, and Uber. When the delivery company reported in January Q4 GTV and adjusted EBITDA expected to be at the upper end of current guidance. GTV growth of 6% and adjusted EBITDA of between £110-130m.  Full year GTV expected to be £7.4bn on orders of 296m, up from 290.2m in 2023. Full year revenues expected to increase by 2% to £2.07bn. CEO Will Shu said that he would provide guidance for 2025 this week.              

Williams-Sonoma Q4 24 – 13/03 – When Williams-Sonoma management took the decision to do a 2:1 stock split in the middle of last year, their intention was to make the shares more affordable to its employees as well as smaller investors. Judging by the performance in the share price it appears to have worked with the shares trading at record highs last month. The owner of the well-known brands Pottery Barn and West Elm may well have had an ambitious goal of reaching an annual $10bn in revenue back in 2023, which it has failed to even get close to, but it has managed to maintain and improve its margins.  In October the retailer reported revenues of $1.8bn, a decline of 2.86% year on year, but its net income was higher at $248.95m, an increase of 4.9%, while net profit margins rose by 8%. They also raised their full year guidance for revenue to a decline of 1.5% to 3%, in anticipation of a bumper Q4, and operating margins to rise to between 18.4% to 18.8%. Q4 profits are expected to come in at $2.92 a share.      

Dollar Tree Q4 24 – 13/03 – While the bigger US retailers appear to be performing well, Dollar Tree has been struggling the shares languishing close to 10-year lows, as it struggles to integrate the Family Dollar stores, as well as trying to take on the likes of Walmart and Target, who have much greater buying power, when it comes to offering discounts. With low-income households looking for the best deals possible as well as convenience, Dollar Tree has struggled to match the online offerings of its biggest competitors as well as offering a better shopping experience to its clients. In Q3 Dollar Tree reported a brighter picture for its full year outlook which helped to keep a floor under the recent share price weakness. Q3 net sales rose 3.5% to $7.56bn, while net income rose to $1.08 a share or $233m, up from $212m the previous year. Q4 profits are expected to come in at $2.12 in what tends to be the strongest quarter of the year for retailers.