The week ahead: US payrolls, ECB and RBA rate meeting and services PMIs

US employment report – 05/06 – last month’s April payrolls report confirmed what most of us already knew, that we would see a record number of American’s lose their job. When the final number was released, we came in slightly below expectations at 20.5m, but nonetheless when the ADP number is also added, it spelt out a sorry tale of economic misery for a huge number of people. Since then the weekly jobless numbers have continued their climb pushing the number up to 40m people. Friday’s May payrolls report is also expected to be a multimillion number and while it won’t be anywhere near the April number, each job loss will be felt equally as painfully, with another 8m jobs expected to be lost, while the ADP payrolls is expected to shed another 9.5m jobs on top of the 20m number we saw in April.  This would take the total number of jobs lost over the last two months to over 50m and push the unemployment rate up from 14.7% close to an eye wateringly high 20%.

ECB rate meeting – 04/06 – much has been made of the recent German constitutional court decision to compel the European Central Bank to justify its rationale around its 2015 asset purchase program. Senior ECB officials have shrugged off the judgement, saying that the ECB remains insistent that it will do what is required to support the European economy, however the judgement does raise serious questions around the legitimacy of its new PEPP program, and its ability to do much more than it is already doing now. The announcement of the €500bn European recovery fund by German Chancellor Angela Merkel and French President Emmanuel Macron has generated a lot of headlines, but it still remains very much a work in progress with no prospect of delivery before March next year, assuming it gets signed off by all EU members. The ECB has a mountain to climb if it wants to convince markets it can do much more than it already has without further loud noises from the more hawkish EU members. That is unlikely to stop them signalling that they will extend their current PEPP program beyond October, when they meet this week, however any extension will only ramp up the prospect of more loud noises about the legality of what they are doing from some parts of the more hawkish members of the EU. 

Global Services PMIs (May) - 04/06 – after the horror show of the recent record lows seen in April services PMI numbers, there is a widespread expectation that May will see a rebound in economic activity. This appears to be already being borne out by the recent flash PMI numbers out of German, France and the UK a few days ago. In essence they would have struggled to be much worse than what we saw in April, however there are some green shoots albeit the numbers are still pretty awful, and well below 50. The biggest worry remains around Spain and Italy who rely so much on tourism in their services sector, and whose recovery is likely to be slow and painful, as tourists stay away. The recent flash numbers from France, Germany and the UK saw improvements from a record lows in April to 29.4, 31.4 and 27.8 respectively. Spain and Italy are also expected to improve from the record lows of 7.1, and 10.8, however the numbers will still point to an awful contraction in Q2.   

RBA rate decision – 02/06 – with economic lockdowns being slowly lifted its unlikely that the RBA will do anything other than sit on its hands for this meeting, at a time when the Australian government has announced a new three to five-year jobs program, called “JobMaker”. This appears to be a reaction to the latest unemployment numbers which jumped to 6.2%, a five year high after the loss of 600k jobs in April. With a number of central banks debating the prospect of negative rates and Australian interest rates at a record low of 0.25%, there has been some discussion about the possibility of that happening in Australia. RBA governor Philip Lowe appeared to rule that out in a recent speech, however that doesn’t mean the RBA won’t do more QE.

Halfords FY20 – 02/06 – 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 has 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. 

Ted Baker FY20 – 01/06 – TBC - as if Ted Bakers problems weren’t bad enough, given the problems in Hong Kong last year, the company has issued several profit warnings over the last 12 months. The company also had to write down the value of its stock by over £20m at the end of last year, and just when you thought things couldn’t get any worse the coronavirus has hit retail sales demand across the world. The share price is already down over 90% from its peaks as it is, and with little hope of a pickup in consumer demand in the near future its near term prospects could well be bleak. It has managed to raise £78.75m by selling Big Lobster, which owns the Groups registered head office in London, with the £72m cash proceeds being used to pay down debts, when the sale and leaseback is completed in June. The one upside is that its store footprint is narrower than some of its peers, and the business rates holiday will also help on the margins, however that won’t help much if consumers stop spending. Guidance for full year pre-tax profits is expected to come in between £5m and £10m.

Workspace Group FY20 – 03/06 – real estate investment trusts have had a rough time of it recently, however Workspace Group had been one of those companies that did things slightly differently, over the last ten years, in terms of how it sold its office space. Focussing solely on small business the company enjoyed significant share price gains 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. 

Dicks Sporting Good’s Q1 21 – 02/06 – the decision just over a year ago by Dicks to ban the sale of guns, in response to a spate of mass shootings, helped the business to post one of its best annual performances in recent times. In Q4 the company ended the year with net income of $69.8m and profits of $1.32c a share. The company also said it would be taking a $48.8m restructuring charge for the removal of the hunt category from another 440 of its stores in 2020. Despite the threat of boycotts from angry gun owners the company said it was still keeping the category in rural areas where it was needed. The e-commerce side of the business once again outperformed with an increase in sales of 15% driven largely by clothing and footwear sales, which in turn saw the company raise the dividend up nearly 14%. As we look to 2021 its unlikely that Dicks will be able to repeat the feat of last year, given the shutdown of the US economy for much of the last quarter, and which saw Dicks close its stores across the US on March 19th. Unlike a lot of its peers Dicks is underleveraged with fairly decent access to liquidity of $69m in cash, and $1.36bn in credit. The shutdown is expected to see the company post a Q1 loss of $0.785, with the company’s stores slowly reopening throughout the month of May.              

Tiffany Q1 21 – 04/06 - LVMH’s acquisition of Tiffany last year was touted as a fairly shrewd deal at the time before the coronavirus pandemic ripped up the playbook. Since the outbreak the slide in the Tiffany and LVMH share price has cost the LVMH boss a fair few billion. The rationale that the deal would open up the US market remains a sound one, however it is far from clear that the $16bn price tag will be worth it now. There is no doubt that brand has seen its ups and downs with last year’s events in Hong Kong dragging on the business, and with the various lockdowns hitting all levels of the global economy, the company resisted the temptation to cut its dividend, keeping it at $0.58c a share. Profits for the current quarter are expected to disappear with a loss of $0.108c a share.

Slack Technologies – Q1 21 – 04/06 - one of last year’s many IPO’s this is one tech stock that has managed to do well in the last few weeks despite recent weakness in stock markets.  Trading at well above its $26 a share IPO price its last quarter was not well received by investors. The shares fell 20% despite a fairly decent growth update, as revenues rose to $181.9m, a rise of 49% from the same period a year before. The disappointment came from its targets for 2021, given that the company still has a way to go before turning a profit even though it is going in the right direction, on the revenues front. Investors felt that the company’s ambitions were too modest with expected revenues for Q1 of $188.37m and a loss of $0.07c a share. Since that Q4 update and the subsequent move towards working remotely the shares have undergone a renaissance, and like Zoom has seen expectations around this quarter elevated to much greater levels, on much greater usage expectations. Expectations are still for a Q1 loss of $0.06c a share, however the future for Slack looks much more promising now than it did three months ago.

Zoom Video Communications – Q1 21 – 02/06 - Zoom has done pretty well since its IPO just over a year ago, the company priced at $36 a share with a valuation of $9bn. The biggest concern at the time was the technology is easily replicable but unlike its IPO peers the company is profitable, and has become much more popular in the face of the challenges facing businesses and people in terms of conducting meetings in a post Covid-19 world. In its S1 filing the company showed a profit of $7.5m at the end of January 2019, on revenues of $330.5m in the face of some pretty mediocre competition in the form of Webex and Skype. Last year revenues rose to $622.7m pushing the market cap up to an eye wateringly high $44.3bn, as the share price rose above $180. This year revenues are expected to rise even further to $917m, however the company is now facing concerns over privacy and security which could hit its numbers. Zoom’s success has also prompted its competitors to up their game so the fledgling company could find life a little more difficult as time goes by, and putting the current valuation under slightly more scrutiny, amongst questions as to whether its sustainable.