UK economic statement, RBA, Halfords, Rolls Royce, Whitbread, JD Sports, Persimmon updates

RBA rate meeting – 07/07 – with Australian interest rates already at record lows of 0.25% there has been speculation that we could see more QE from the RBA, in the event the economic picture deteriorates further. The unemployment rate has already increased from 6.4% to 7.1% since the last meeting, its highest level since October 2001. While the Australian economy has started to reopen it seems unlikely that the economic picture will improve to a significant extent in the short term, even with the recent announcement by the Australian government of a new three to five-year jobs program, called “Jobmaker”. Despite this rise in unemployment there has been little indication that the RBA appears inclined to do more than it already has done in terms of supporting the economy, while the recent re-lockdown of Melbourne points to a slow recovery from the crisis, as infection rates ebb and flow.  

Weekly Jobless claims – 09/07 – the recent weekly declines in jobless claims appears to be slowing down, after a weaker than expected fall in the claimant count, for the previous week. More worryingly the continuing claims number edged back up, as concerns over rising infection rates raises the prospect that the return of furloughed workers to the workforce in June may well come to a halt in the face of rising infection rates in various US states. We’ve already seen Apple re-close 77 more of its stores, while bars and restaurants have delayed their re-opening plans in the face of a surge in coronavirus cases. It is important to remember that the full economic impact of the crisis hasn’t quite reached the pockets of the average American, as stimulus payments continue to hit the doormats of the American worker.

UK economic statement – Chancellor of the Exchequer 08/07 – this week Chancellor of the Exchequer Rishi Sunak will outline further details of his plans to steer the UK economy through the coronavirus crisis. Last week Prime Minister Boris Johnson made a speech that promised to bring in significant infrastructure investment, as well as plans to cut red tape in order to embark on a plan to build new homes and other key bits of infrastructure like schools, broadband and roads. There has been speculation that the Chancellor might look at some tax cuts like VAT, however while this has done before there is zero evidence that these would be passed on to the consumer. Businesses have a tendency to pocket the difference, leaving prices unchanged. The Chancellor could like at plans to encourage companies to take on apprentices by way of wage subsidies or tax breaks in order to plug skills gaps, which are particularly acute in the construction industry, and other sectors. The Chancellor could also come under pressure to be more flexible about the furlough scheme as various sectors continue to struggle with lower footfall and revenues, as concerns rise that a tsunami of job losses could hit the economy as we head towards the autumn. 

Canada Employment report (June) – 10/07 – having seen a total of 3m jobs lost in March and April, we saw some of that damage reversed in May when the Canadian economy surprisingly saw 289.6k jobs added back, as workers returned to work from furlough. While the rebound wasn’t anywhere near as robust as the one seen in the US, the hope is that the worst is over for the Canadian economy, with the recent rebound in the oil price also helping in terms of the recovery. Despite the rebound in the jobs market the unemployment rate still rose to a high of 13.7% in May, however this is expected to fall to 12.5%.    

Halfords FY20 – 07/07 – its fortunate that Halfords doesn’t just rely on its automotive and auto parts and servicing business for its revenue, in the wake of the government lockdown across the UK. Classed as an essential business it remained open and has even seen an uptick as people either look to purchase a bicycle, to avoid public transport, or get their bicycles out of storage and make use of the good weather to move around in a healthy way as part of their daily exercise during the lockdown. At the beginning of May Halfords said that full year results would be boosted by increased sales during the lockdown which would push profits up to £50m to £55m, however despite this the company still pulled the dividend, saving £24m, and suspended its guidance for 2021. Halfords should also benefit from the business rates suspension, but with the government looking to push cycling as part of a new green agenda, Halfords seems well positioned to benefit, particularly with bicycle demand at already high levels, and the share price still well below the levels we saw at the beginning of 2019.

Whitbread Q1 20 – 07/07 – it’s been an interesting few weeks for Premier Inn owner Whitbread, having reported some decent full year numbers in May, the coronavirus shutdown blew a huge hole in its expectations for this year, with all but 39 of its hotels in the UK remaining closed, with the assumption that they will have fairly low occupancy until September. This looks set to change in the coming weeks as the UK gets set for a big reopen, and with staycations likely to be the only option for most people Premier Inn should be in a good place to benefit from that. In Germany, there was also positive news with the hotels there re-opening on 11th May. Nonetheless management have taken steps to batten down the hatches, suspending the dividend, furloughing 27,000 staff on full pay with the help of the government scheme, and announcing, as well as completing a 1 for 2 £1bn rights issue at 1,500p. Like most companies there hasn’t been any guidance issued but a snapshot was offered at the end of May for the 11-week period to the 14th May which showed accommodation revenues were down 75%, and down 99% in the previous seven weeks. This week’s Q1 update is likely to offer little insight into the UK business, however we could get an insight into future demand for the next quarter in terms of bookings for the summer season, and how Premier intends to take advantage of that.     

Persimmon Q2 20 – 09/07 – the closure of the housing market at the end of March and lockdown of the economy saw the construction sector briefly grind to a halt in April, though Persimmon, along with the rest of the sector was able to begin a phased re-opening of sites on 27th April. They followed this soon after with the opening of sales offices on the 15th May with strict guidelines on social distancing and hygiene guidelines. There is no doubt that the disruption has seen costs go up, however in terms of cancellations the rate has been no higher than average. Furthermore, in the eight weeks to 10 May the company managed to secure 1,351 reservations, with the prospect that this could well see further gains in the weeks ahead. The main concern going forward is that this rate could slow in the coming months, with the slide in mortgage approvals, likely to point to a slowing housing market in the weeks and months ahead.

Rolls Royce Q2 20 – 09/07 – this UK marque brand has had a torrid time of it in recent months, its share price just above multi year lows, the shares had been in decline even before the coronavirus pandemic decimated the aviation sector. Problems with its Trent 1000 engine which powered the 787 Dreamliner had seen costs rise to the point that by 2023 the sums involved could be as high as £2.4bn. With the wholesale grounding of aircraft across the world, and its customers taking steps to delay or cancel future aircraft orders, has hit its order book hard. The collapse in air travel has seen nearly half of its projected revenue disappear, as airlines ground their fleets, and the various travel bans bite. This collapse in revenues has meant that the company has had to defer bonuses for its CFO and CEO, as well as securing an additional $1.5bn revolving credit line in April, in addition to the $2.5bn it secured in March. Given the ongoing uncertainty the company also scrapped its guidance. In recent weeks the company has also announced plans to cull 9,000 jobs, out of a global 52,000 work force mainly in its civil aerospace division as the business struggles to adapt to a new trading environment. 

Workspace Group Q1 21 – 09/07 - real estate investment trusts have had a rough time of it recently, with Intu going into administration only recently. Workspace Group has been one of those companies that have done things a little differently over the last ten years, in terms of how it sold its office space, and that has helped cushion it to some extent. Unlike its larger peers Workspace main focus has been on small or micro businesses, selling flexible office space, and short-term leases with superfast connectivity. The business was driven by a desire to cater for the diversity of one person start-ups to slightly bigger communal areas for slightly bigger businesses, with slightly more sophisticated requirements. This business model took a huge blow from the lockdown and coronavirus pandemic sending the shares down from record highs on February to six-year lows in the space of five weeks, as the company was forced to offer 50% rent reductions in the wake of the lockdown. Its highly likely that in this new social distancing world that revenues for Workspace Group will be much harder to attain in the short to medium term. With technology moving swiftly to home and/or remote working, there is likely to be much less demand for the type of workspace solution offered by this innovative company.

JD Sports Fashion FY20 – 07/07 – like most retailers it has been hit hard by the various shutdowns in the US and UK economy. In March management took the decision to close all of its stores in the UK, Europe and the US, though online sales still remained open. The suspension of business rates will help cushion some of the effects of this government enforced lockdown, with management suspending future guidance until further notice. This week’s full year numbers are expected to show revenues come in at £5.96bn and gross profits of £2.8bn, numbers that will be hugely difficult to replicate in the weeks and months ahead. The company also has to take note of the recent decision by the CMA to block its acquisition of FootAsylum, despite the brand only accounting for 5% of the retail market. The CMA’s logic appeared to be based around the rationale that the loss of competition would leave consumers worse off, and that the FootAsylum should be sold to an approved buyer. This is likely to leave JD Sports nursing a huge write down on its original £90m purchase price, a huge sum of money at a time when consumers aren’t spending and retailers are closing outlets. This week’s update is likely to add further colour to that decision, and how JD Sports intend to deal with it, and whether they intend to appeal. In a sign of the challenges facing the sector JD Sports has already taken steps to restructure its Go Outdoors business, and we could also get further colour on that process     

Delta Airlines Q2 20 – 09/07 – was one of the few airlines at the end of last year, that was having a good year, largely down the fact that it didn’t have any Boeing 737 MAX’s in its fleet, with record revenues and decent profits, helped largely by sales of Premium class tickets. In the space of three months this had been turned on its head with CEO Ed Bastian having to go to the US government, along with the rest of the airlines sector, going cap in hand to the US government for a portion of a $25bn bailout of the entire sector. As airlines slowly resume operations normal business is unlikely to be the same again. Business travel, which a lot of national carriers rely on, is likely to see a big drop off in the months ahead as companies realise that lots of meetings can take place just as easily on Zoom and other remote conferencing facilities. Year on year revenue for Q2 is expected to decline by 90%, with the carrier losing 85% of its flight capacity at the height of the pandemic, while losses are expected to come in at $4.43c a share. Delta expects to add 1,000 new flights to be scheduled this month, and another 1,000 in August. 

Levi Strauss Q2 20 – 07/07 – it’s not been a great run for Levi Strauss since it IPO’d over a year ago. Since then the share price has more or less drifted lower. Maybe because it’s not a tech stock is why it has underperformed, that and the fact that it is profitable, or rather was until the pandemic hit and found most if its retail outlets closed down. In Q1 the company posted revenues of $1.51bn, above expectations, which meant the company was able to pay a dividend of $0.08c a share. This week’s Q2 result is unlikely to come anywhere close to Q1’s, however managements withdrawal of guidance in Q1, means that expectations are low. On the plus side its international reach means that they will still be able to shift product, even if some markets are closed. It also has $1.8bn in liquidity which means it should be able to ride out the current uncertainty. The company is expected to post a Q2 loss of -$0.41c a share.