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Market Outlook

The Week Ahead: UK Q3 GDP; Aviva, M&S, AstraZeneca results

Read our pick of the main stories to look out for in the week commencing 8 November, and view our key company earnings schedule.

This week, Michael looks ahead to the release of UK Q3 GDP, US CPI and China trade numbers, as well as previewing quarterly reports from the likes of Aviva, M&S and AstraZeneca

OUR TOP 3 EVENTS:

UK Q3 GDP (Thu)

Monthly numbers indicate that UK GDP grew just 0.1% in July versus June, followed by a 0.4% uptick in August, pointing to a quarterly slowdown in Q3 from Q2. Estimates suggest that the UK economy grew 1.5% in Q3, slowing from the 5.5% posted in Q2, when growth was boosted by the normalisation of economic activity and so-called staycations. The trend for domestic holidays continued into Q3, which covers the school summer break, and should be reflected in the index of services numbers. However, manufacturing – particularly of cars – slowed because of chip shortages and North Sea oil rig maintenance shutdowns, and is likely to continue to weigh on GDP growth. The better-than-expected Q2 numbers mean that the UK economy was stronger than we thought heading into Q3. Therefore, the slowdown in the growth rate that we are experiencing started from a relatively high base and may be easier to absorb. 

Aviva Q3 results (Thu)

Aviva posted positive first-half results – inflows to its UK and Ireland savings and retirement business increased 24% year-on-year to £5.2bn, as the company added 100,000 members to its workplace pension scheme. Operating profits from continuing operations rose 17% to £725m. The results buoyed Aviva’s share price, which now sits above 400p, up 23% year-to-date. Reporting those half-year numbers in August, the company announced that, having refocused on core markets, it intends to return up to £4bn to shareholders by next June. CEO Amanda Blanc had previously come under pressure from new activist investor Cevian Capital to improve shareholder returns. The £4bn is expected to be funded by the £7.5bn Aviva earned from selling eight non-core assets, with those disposals set to be completed by the end of the year.

Marks & Spencer half-year results (Wed)

M&S has had several false dawns over the past decade, as well-intended turnaround plans ultimately failed to deliver. With the pandemic forcing management to make some very difficult decisions on the future of certain stores, there now appears to be light at the end of the tunnel. The company reported a strong start to its trading year, announcing a surprise profit upgrade as food sales fuelled growth. Revenue from the food division grew 10.8% year-on-year in the 19 weeks to 14 August, and was up 9.6% on the equivalent period in 2019. The partnership with Ocado appears to be paying off. On the downside, clothing continued to lag, but even here there are grounds for optimism. Revenue from the clothing and home division was 92.2% higher than a year ago, and down only 2.6% on pre-pandemic sales levels of 2019. Online sales for the clothing and home range were up 61.8% on pre-pandemic levels of two years ago, reflecting the shift towards digital shopping that lockdowns helped accelerate. Addressing the company’s outlook, management offered some good news to investors, saying that they expected annual pre-tax profits to beat the upper end of guidance of £300m-£350m. On the back of this positive assessment, the M&S share price jumped 11% to a 19-month high of 194p in September – a level to which it returned in early November after a slight dip in October.  

OTHER EVENTS OF NOTE:

MONDAY 8 NOVEMBER

AMC Entertainment Q3 results

Having started the year as a meme stock, AMC Entertainment’s share price has settled down since that period of volatility. Cinema chains have suffered during the pandemic and, while AMC owes its survival to its Reddit fans, the company remains some way short of turning a profit, even as its share price sits well above the levels we saw in 2016 when its finances were in much better shape. The rise in the share price this year has allowed the business to raise $1.8bn in cash and $2bn in liquidity. Meanwhile, the improvement in US vaccination rates helped boost moviegoer numbers, with 22.1m people going to the cinema in Q2, up from just 100,000 a year ago. Revenue in Q2 came in at $444.7m, while losses narrowed to $344m – a marked improvement on Q1, when losses totalled $567m on revenue of $148.3m. Q3 results are expected to deliver further improvement, with the James Bond film No Time to Die likely to have prompted a rush back to the box office. AMC said that it still expects to be cash flow negative for at least the next two quarters, and while management will be hoping for an improvement in the second half of the year, its biggest problem will be persuading film fans to reignite the cinema-going habit. Losses are expected to come in at $0.54 a share.

TUESDAY 9 NOVEMBER

China trade balance (October) 

China trade numbers have proven resilient in recent months, despite disruptions at Chinese ports and lockdown restrictions that affected various parts of the country in Q3. Given weak retail sales numbers, it’s clear that domestic demand in the Chinese economy has been slowing in recent months. However, trade numbers have held up, largely because disruptions to global supply chains have prompted retailers around the world to bring orders forward to ensure delivery in time for Thanksgiving, Black Friday and Christmas. In September, Chinese exports grew 28.1%, a three-month high and well above expectations of 21.5%. Imports, on the other hand, slowed sharply to 17.6%, almost half the September level of 33.1%. This fall was mainly due to power cuts and production shutdowns of China’s heavy industries during that month – the result of sharp rises in energy markets, which made carrying on trading economically unviable. The situation likely improved in October, with imports expected to have grown 26.9% and export growth forecast to remain steady at 21.5%.   

Associated British Foods full-year results

Associated British Foods’ share price has struggled this year, falling almost 15% in 2021, making the Primark owner one of the worst performers on the FTSE 100. These declines have come despite a stronger-than-expected recovery for Primark, whose stores were closed over winter. The fashion retailer’s revenue rebounded in Q3, more than doubling to £1.6bn. Management said that it expects full-year profits to be broadly in line with 2019/20 levels. Primark sales in the second half of the year are expected to come in at £3.4bn, with operating margins expected to top 10%. Like-for-like sales in Q4 were 17% lower than in 2019, as the pent-up demand seen in the strong Q3 rebound slipped back, while ongoing advice on social distancing also likely contributed to the slowdown. Once again, the lack of an online operation continues to hamper the business when footfall dips and consumer confidence reduces. Despite the more positive profit guidance and the improvements seen in its other business areas, notably food and sugar, one has to wonder whether the company’s full-year results will move the stock in the right direction, given how badly the shares have performed this year. 

Persimmon Q3 results

Despite their strong performance in the UK housing market, housebuilders have been a bit of a laggard in terms of their share prices. Persimmon in particular has seen its share price decline steadily from its June peaks, before rebounding from its lowest levels since December last year at the beginning of October. Persimmon hasn’t been alone in underperforming either –  the whole sector has struggled for gains this year, with the exception of the smaller players, Bovis and Redrow. With Taylor Wimpey also reporting this week, and seeing similar issues, it’s difficult to see what else management can do to arrest the recent weakness in the respective share prices. There is a school of thought that perhaps the recent share price weakness is being driven by increasing rate rise expectations, which is prompting the withdrawal of some cheaper mortgage products. While that may be true, that isn’t currently being reflected in forward booking numbers. Persimmon reported half-year revenue of £1.84bn, meeting expectations and marking a decent increase from last year’s £1.19bn. However, the comparative was affected by some end-of-year disruption because of the first lockdown. Half-year profits after tax rose to £391.2m, putting the business well on course to surpass last year’s profit number. Average private sales were 30% higher than in 2020, and 20% ahead of 2019. Completions came in as expected at 7,406, while average selling prices rose by 4.9% to £236,200, which helped to mitigate upward pressure on the cost base. Even with the paring back of the stamp duty tax breaks, management were optimistic about the long-term strength of the housing market, with the company expecting to commence work on 85 new sales outlets over the second half of this year, and a similar amount in the first half of 2022. The pipeline appears solid, subject to demand, while dividends are also back on track – the company has reinstated the pre-pandemic practice of two payments per year, with the first payment of 125p being made in early July 2022. 

Vroom Q3 results

When used car e-retailer Vroom reported better-than-expected Q2 results, the share price reaction was disappointing. Although Vroom reported a loss of $66m, or $0.48 a share, that was better than expected, and the company also sold more cars than ever before. Revenue rose to $762m, up from $253m a year earlier, on sales of 18,268 vehicles in the quarter. The problem for investors was its lacklustre guidance. The company projected higher losses of $0.75 a share, despite forecasting increased revenue of between $858m and $891m. The company also said it expected to sell over 20,000 cars in Q3, below market expectations of 22,000.

Coinbase Global Q3 results

If Robinhood Markets’ recent numbers are any guide, then the latest numbers from Coinbase could fall short of expectations. A collapse in crypto trading revenue in the most recent quarter saw Robinhood shares plunge, a fate that appears to have been avoided by Coinbase shares thus far, with bitcoin trading at record highs over the past three months. When Coinbase reported back in Q2 management were somewhat circumspect about Q3 guidance despite a strong performance in Q2, largely driven by Ethereum trading. Q2 trading volumes came in at $462bn, well above expectations of $381.6bn, while revenue soared to $2.03bn. Profits which were expected to come in at $2.41 a share rose to $6.42 a share, or $1.6bn, although this was flattered by what Coinbase called a one-off “tax benefit” of $737.5m. Verified users rose to 68m. Q3 profits are expected to come in at $1.75 a share, and – with the shares up more than 10% since August – there is a risk of a pullback if the numbers disappoint. 

WEDNESDAY 10 NOVEMBER

US CPI (October)

Despite the continued resilience in US PPI numbers, and rising prices paid numbers, the last few months’ US CPI numbers have shown signs of stabilisation, and may well have peaked, assuming you believe what the numbers are showing. Core CPI may well have peaked at 4.5% in June but, given that it doesn’t include food and energy, is a largely meaningless measure for the average consumer, and is still high at 4%.  Nonetheless it does give an indication that the underlying trend is slowing. The wider headline numbers have remained fairly static at 5.4% for the last four months, which, while encouraging, still suggests that prices are likely to remain fairly sticky for some time to come, particularly since PPI increased from 7.3% in June to 8.6% in September, and generally tends to be a lagging indicator. The hope is that the October PPI numbers, which are due out on Tuesday, start to show signs of slowing, as the Federal Reserve starts reducing the amount of emergency stimulus it is putting into the US economy. US CPI for October is expected to rise sharply above the levels seen back in 2008, when it hit 5.6%, with expectations that we could see a rise to 5.8%, which would be the highest level since 1990, while core prices are expected to come in at 4.3%, also a multi-year high.

ITV Q3 results

ITV’s half-year results were a little underwhelming, foregoing an interim dividend with a pledge to pay a dividend of 3.3p per share at the full-year results. The worst appears to be behind ITV, with growth in both ITV studios and advertising revenue over the period. ITV Studios saw a 26% rise in revenue, while advertising posted an increase of 29%, helped largely by the majority of programmes being back in production. The improvement in advertising was largely driven by Euro 2020, which helped push total revenue up 27% from last year to £1.5bn. Since that update in July the shares have drifted lower, largely due to concerns that the recovery in the advertising market is likely to be limited due to the ongoing problems in global supply chains. Recent numbers from social media companies have pointed to this very problem. Companies are cutting back their advertising budgets on the basis that there is little point in promoting products if there are delays in getting them to market. CEO Carolyn McCall acknowledged this point at the end of October, although she was bullish about Britbox subscriptions for the current quarter. As we move through Q4, ITV may well have to lean more heavily on its ITV studios operation to compensate for any fall in advertising revenue, particularly during the normally lucrative lead-up to Christmas and the New Year.  

Disney Q4 results

Market expectations were high for Disney’s Q3 numbers. Not only was the company adding new subscribers to its Disney+ streaming platform at a healthy clip, but the start of summer also marked the reopening of its theme parks and holiday resorts. Although operating with lower capacity constraints and higher costs, Disney was able to beat expectations. Q3 revenue came in at $17.02bn, while profits came in at $0.80 a share, both beating expectations. The parks division generated operating income of $356m, though the company said it was still seeing disruption in film and TV production. The extra costs involved in this are expected to reach $1bn. A range of new content helped Disney+ increase its tally of subscribers to 116m, above expectations of 113.1m. Q3 profits are expected to come in at $0.48 a share.  

Rivian IPO

Electric vehicle maker Rivian, though lacking the brand cachet that Volvo and Tesla enjoy, is hoping to raise $8.4bn in its IPO when it looks to sell 135m shares at between $57 and $62 a share. This would equate to a valuation of more than $60bn, not far behind Ford and GM, which have market caps of $78bn and $86bn, respectively. To date, Rivian hasn’t generated any revenue to speak of, although it has taken a number of $1,000 refundable deposits for pre-orders. This makes it rather difficult to establish key metrics, such as how much it costs to make a vehicle in terms of parts, labour, and other costs, in order to establish a margin, and in turn establish a baseline for profitability. In its latest Q3 numbers the company said it expected to see a loss of up to $1.28bn and said it doesn’t expect to be profitable in the near future, which makes the upcoming IPO somewhat of a leap of faith for both the wary and unwary would-be investor.

FRIDAY 12 NOVEMBER

AstraZeneca Q3 results

AstraZeneca shares have risen steadily since the company reported that total revenue in Q2 rose 25% to $8.22bn, driven by an increase in vaccine sales of $894m. The company also upgraded its guidance to reflect the closing of its deal to buy Alexion, which completed in July. The outlook for AstraZeneca has become much more upbeat in recent months, with the business able to overcome the negative PR over its Covid vaccine in the first half of the year. Consensus forecasts for this year are for the company to grow sales by over 33%, and pre-tax profits by over 130%, with the completion of the Alexion deal set to help the business move forward, while its Oxford vaccine is also set to see an improvement in revenue, once it is able to raise prices. AstraZeneca has said it will use the Alexion deal to set up a dedicated rare disease unit in Boston to promote and speed up research in this key area which it thinks will augment its wider research capabilities. Profits are expected to come in at $1.26 a share. 

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 8 November Results
AMC Entertainment (US) Q3
Cabot (US) Q4
Coty (US) Q1
Marriott Vacations Worldwide (US) Q3
Squarespace (US) Q3
TripAdvisor (US) Q3
Virgin Galactic (US) Q3
Zynga (US) Q3
Tuesday 9 November Results
Associated British Foods (UK) Full-year
Coinbase Global (US) Q3
DoorDash (US) Q3
Hilton Grand Vacations (US) Q3
Krispy Kreme (US) Q3
McAfee (US) Q3
Palantir Technologies (US) Q3
Persimmon (UK) Q3
Plug Power (US) Q3
Ring Energy (US) Q3
Shepherd Neame (UK) Full-year
Starwood Property Trust (US) Q3
Vroom (US) Q3
Workhorse (US) Q3
Wednesday 10 November  Results
Bumble (US) Q3
Halfords (UK) Half-year
ITV (UK) Q3
Marks & Spencer (UK)  Half-year
Paysafe (UK) Q3
Renewi (UK) Half-year
Renold (UK) Half-year
Walt Disney (US) Q4
Thursday 11 November Results
3i Group (UK) Half-year
Auto Trader (UK) Half-year
Aviva (UK) Q3
B&M European Value Retail (UK) Half-year
Burberry (UK) Half-year
Ted Baker (UK) Half-year
WH Smith (UK) Full-year
Young & Co's Brewery (UK) Half-year
Friday 12 November Results
AstraZeneca (UK) Q3

Company announcements are subject to change. All the events listed above were correct at the time of writing.


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