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The Week Ahead: UK Q4 GDP; BP, Disney, AstraZeneca results

Is the UK in a recession? We’ll get confirmation on Friday with the first estimate of fourth-quarter gross domestic product (GDP). After the British economy contracted by 0.3% in the third quarter of 2022, a second successive quarter of falling economic output would put the country in a technical recession. Meanwhile, another busy week of earnings announcements sees Disney, AstraZeneca and oil major BP drill down into their recent performance.

KEY ECONOMIC AND COMPANY EVENTS (6-10 FEBRUARY):

Monday 6 February

Activision Blizzard Q4 results

Just over a year ago Microsoft bid $68.7bn, or $95 a share, for video game company Activision, raising concerns in the gaming community that Microsoft could restrict future releases to its own Xbox platform. That could have made new instalments of titles such as Call of Duty unavailable to owners of rival consoles like Sony’s PlayStation. Some gamers argued that this would be against Microsoft’s interests, as it would cut off a valuable revenue stream. However, Microsoft has form in this area, having previously got into trouble for bundling hardware and software. The proposed acquisition was referred to competition authorities in the US, the UK and the EU, and the deal remains stuck. 

When news of the deal broke last year Activision shares jumped by a quarter. Since those January 2022 peaks, the shares have slipped around 5% as investors react to a slowdown in gaming revenue amid the squeeze on consumer incomes. In Q3 Activision posted net revenue of $1.78bn, down 13 9% versus the year-ago quarter. Net income fell almost 32% to $435m. 

Sales of the latest version of Call of Duty – Modern Warfare II – are expected to have picked up in Q4, but higher prices may have deterred some customers. Prices for these sorts of marquee titles are now nearer to the £60 level, up from around £45 two years ago. Profits for Q4 are expected to come in at $1.52 a share.

Tuesday 7 February

Reserve Bank of Australia interest rate decision

Economists expect the RBA to raise its official cash rate by 25 basis points to 3.35% on Tuesday. Last time out, in December, Australia’s central bank raised interest rates by 25 basis points to a 10-year high of 3.1%. It was the bank’s eighth rate hike in as many months, and governor Philip Lowe warned that further rate increases were likely in the months ahead. 

While the RBA’s caution is understandable given the country’s fragile housing market, small rate rises run the risk of allowing inflation to become stickier. Indeed, the latest data show that consumer prices jumped 8.4% in the year to December, up from November’s 7.3% increase. The RBA might have to adopt a bolder and more hawkish tightening policy in order to tame rising prices.  

BP full-year results

After Shell announced on Thursday that its annual profit in 2022 more than doubled to a record $40bn, attention now shifts to its rival BP. 

In November, BP reported that underlying replacement cost profits – a measure BP uses as a proxy for net profit – surged to $8.2bn in the quarter to September, up from $3.3bn a year earlier. The London-listed company pledged to return a further $2.5bn to shareholders through a share buyback scheme – a controversial move in the eyes of environmental campaigners as the sum dwarfs investment in renewables. Capital expenditure on low-carbon energy during Q3 came in at just $86m. 

The oil and gas giant also told shareholders that it would pay $2.5bn in taxes on its North Sea operations in 2022, including $800m of tax related to the UK government’s energy profits levy, also known as the windfall tax. 

While the headline profit in Q3 came close to matching Q2’s $8.5bn, profit attributable to shareholders was in fact zero due to an accounting adjustment which pushed the company into a quarterly loss of $2.2bn. BP has in fact recorded a loss of $13.3bn for the first nine months of 2022, primarily due to its decision to abandon its stake in Russian oil giant Rosneft earlier in the year, but also because of accounting adjustments as a result of volatility and repricing in forward gas markets. BP also continues to pay over $1.2bn a year for its role in the Gulf of Mexico oil spill in 2010. 

Nevertheless, BP continues to face understandable criticism over the amount it invests in renewables. While the company remains committed to using 60% of its surplus cash flow for share buybacks and the remaining 40% to strengthen the balance sheet, it could do with spending more on green energy. In the first nine months of 2022, capex spending on low-carbon energy came in at $447m, which represents just 17% of BP’s total capex spend of $2.64bn over that period. That, quite frankly, is pitiful. Hydrogen and bio-gas are areas with scope for extra investment. 

Wednesday 8 February

Walt Disney Co Q1 results

At the end of last year Disney shares slipped to their lowest level since March 2020 after the company’s Q4 revenue came in at a lower-than-expected $20.15bn. Earnings per share also missed, coming in at $0.30, versus expectations of $0.53. 

The parks business generated revenue of $7.43bn in Q4, up 36% on last year but below estimates of $7.59bn. The shortfall was partly because of Hurricane Ian, which cost Disney $65m, according to the company. Disney added 14.6 million subscribers to its streaming service Disney+, five million more than analysts had estimated. That pushed the total subscriber base to 164.2 million – still behind Netflix’s roughly 231 million subscribers. That said, when subscribers to ESPN and Hulu – both majority-owned by Disney – are added to the mix, Disney’s total user base exceeds that of Netflix. 

However, Disney’s streaming business lost $1 5bn during Q4, with management saying the platform should become profitable by 2024. At some point, the cash burn will need to subside. Returning CEO Bob Iger is thought to be keen to reorganise how the film and TV studio divisions operate in the wake of the Fox acquisition. Disney has come under shareholder pressure, particularly from activist investor Nelson Peltz, to get a handle on costs. Earnings for Q1 are expected to come in at $0.69 a share.

Robinhood Markets Q4 results

Although shares of Robinhood Markets have declined more than 20% to around $11 over the past year, they appear to have stabilised somewhat since hitting a record low of $6.81 last June. In November the online trading company posted Q3 revenue of $361m, up 14% quarter-on-quarter,  while losses came in at $175m, or $0.20 a share. That marked an improvement on the Q2 loss of $295m.

The shift towards cryptocurrency trading is still not quite delivering, with revenue from this segment down 12% quarter-on-quarter at $51m. The outlook for the company remains challenging given the uncertainty around crypto and the recent collapse of trading platform FTX. Robinhood’s $38 IPO list price suddenly seems to belong to a different era. Losses for Q4 are expected to come in at $0.10 a share. 

Uber Q4 results

Uber shares popped higher in November after the company reported Q3 revenue of $8.3bn, up 72% year-on-year. However, losses came in higher than expected at $1.2bn, mainly due to revaluations of some of Uber’s equity investments. EBITDA came in at $516m, well above estimates, while gross bookings grew 26% to $29.1bn. 

Breaking the business down by segment, revenue from rides came in at $3.8bn, revenue from food deliveries came to $2.8bn, and the remaining $1.7bn came from ‘freight’, or courier services. 

For Q4 Uber said it expects gross bookings to grow between 23% and 27% year-on-year, with adjusted EBITDA at $600m to $630m. Losses for Q4 are expected to come in at $0.12 a share.

Thursday 9 February

AstraZeneca full-year results

In November AstraZeneca raised its full-year profit guidance after it returned to profitability in Q3. The pharmaceutical company’s Q3 revenue rose 11% to $10.98bn, lifting year-to-date revenue to $33.14bn. Growth was driven by the acquisition of rare-disease specialist Alexion. Profit for the quarter came in at $1.67 a share. 

Since then AstraZeneca has received EU approval for its Enhertu, Imfinzi and Lynparza cancer drugs. Meanwhile, to enhance its offering in the area of pulmonary disease, the company has secured a $402m deal with C4X Discovery to develop treatments. AstraZeneca also signed a separate, $320m deal to acquire Neogene Therapeutics, a biotech company that focuses on the discovery, development and manufacture of T-cell receptor therapies which target cancer cells specifically. 

On 10 January AstraZeneca shares hit a record high of 11,886p (or £118.86), but have since slipped on the back of profit taking. Nevertheless, the stock is up more than 20% over the past year. 

Unilever full-year results

Just over a year ago Unilever shares tanked as it bid £50bn 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. Fast forward 12 months and the company has just announced that CEO Alan Jope will be replaced by Hein Schumacher from 1 July. 

Unilever shares have performed well since bottoming out in March last year, rising steadily after it became apparent that the company was not planning a fresh bid for GSK. Unilever’s Q3 results showed that sales grew 10.6% to €15.8bn, with the consumer goods giant raising its sales guidance for the full year. Particularly encouraging for shareholders was the news that all divisions of the company notched up sales growth of 20% or more, except for nutrition which reported growth of 4.8%. The company said it now expects full-year underlying sales growth to be above 8%.

Friday 10 February

UK Q4 GDP

After UK economic output declined by 0.3% in Q3, many economists expected a similar contraction in Q4. That would put the UK in a technical recession. However, it could be a close-run thing. 

The third-quarter contraction last year was, according to the Office for National Statistics, partly due to “the additional bank holiday in September 2022 to mark the State Funeral of Her Majesty Queen Elizabeth II [as] some businesses were either closed or operated differently on this day”. The pause in economic activity on 19 September, the day of the funeral, contributed to a month-on-month GDP contraction of 0.8% in September. 

This was followed by a rebound in October, when the British economy expanded 0.5% month-on-month. In November, the economy grew by a further 0.1% on a monthly basis, confounding expectations of a 0.1% decline, as the football World Cup in Qatar boosted the UK’s services sector, which grew 0.2% versus October. The customer-facing services sector, which includes pubs and other food and drink outlets, expanded 0.4%. 

Given positive GDP growth in October and November, plus the fact that the World Cup ran until 18 December, it is possible that the UK may have narrowly avoided a GDP contraction in Q4, thus keeping the country out of recession. However, it is likely to be touch and go. 

According to the Office for Budget Responsibility, the UK is already in recession. But could the OBR be wrong? It wouldn’t be the first time. Despite the economic disruption caused by recent strikes, recent retail sales figures suggest that consumer spending has held up reasonably well. In any case, even if the UK’s economy expanded in Q4, growth is likely to have been anaemic, and 2023 is still likely to be very challenging. The IMF said this week that it expects UK GDP to contract by 0.6% this year, making Britain the only G7 economy forecast to shrink in 2023. 

INDEX DIVIDEND SCHEDULE

Dividend payments from an index's constituent shares can affect your trading account. View this week's index dividend schedule.

SELECTED COMPANY RESULTS

MONDAY 6 FEBRUARYRESULTS
Activision Blizzard (US)Q4
Energizer Holdings (US)Q1
Leggett & Platt (US)Q4
Loews (US)Q4
Pinterest (US)Q4
TUESDAY 7 FEBRUARYRESULTS
Amcor (US)Half-year
BP (UK)Full-year
Chipotle Mexican Grill (US)Q4
Gartner (US)Q4
Hertz Global Holdings (US)Q4
Linde (US)Q4
Lumen Technologies (US)Q4
Mattioli Woods (UK)Half-year
Vertex Pharmaceuticals (US)Q4
Western Union (US)Q4
WEDNESDAY 8 FEBRUARYRESULTS
23andMe Holding (US)Q3
Ashmore (UK)Half-year
Barratt Developments (UK)Half-year
CVS Health (US)Q4
Equifax (US)Q4
Fox Corp (US)Q2
Goodyear Tire & Rubber (US)Q4
Mattel (US)Q4
New York Times (US)Q4
PZ Cussons (UK)Half-year
Robinhood Markets (US)Q4
Uber Technologies (US)Q4
Under Armour (US)Q3
Walt Disney (US)Q1
THURSDAY 9 FEBRUARYRESULTS
AbbVie (US)Q4
AstraZeneca (UK)Full-year
British American Tobacco (UK)Full-year
Duke Energy (US)Q4
Expedia (US)Q4
Genpact (US)QQ
Kellogg (US)Q4
Lyft (US)Q4
PepsiCo (US)Q4
Ralph Lauren (US)Q3
Redrow (UK)Half-year
S&P Global (US)Q4
Unilever (UK)Full-year
Warner Music Group (US)Q1
Willis Towers Watson (US)Q4
Yelp (US)Q4
FRIDAY 10 FEBRUARYRESULTS
IQVIA Holdings (US)Q4
Lancashire Holdings (UK)Full-year
Newell Brands (US)Q4

Note: While we check all dates carefully to ensure that they are correct at the time of writing, company announcements are subject to change.


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