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Cautious start for Europe, Heineken unable to refresh as beer volumes fall

Heineken

The rally in US markets underwent a bit of a pause for breath yesterday, while markets in Asia had another positive session. Here in Europe once again a positive start has given way to a little bit of profit taking, with the DAX once again finding the air a little thin near to its recent peaks, above the 14,100 level.

Confidence over a new US stimulus programme, and better than expected company results may be pointing to rising optimism about the outlook for the rest of the year, and helping to boost commodity prices, however in terms of European equities investors continue to be a little more cautious due to uncertainty over when the various economies in Europe might finally reopen.

The optimism over an economic rebound has been reflected in the rise that we’ve seen in copper and crude oil prices over the past few weeks, with the price of copper hitting its highest level in eight years. Platinum prices have also hit six-year highs on a similarly optimistic outlook about future global demand, as well as expectations over a transition to a greener global energy platform in the longer term.

These firmer commodity prices are helping underpin the FTSE 100 with the likes of Glencore, Antofagasta and Rio Tinto all higher in early trade. Also doing well in early trade is Smurfit Kappa, the paper and packaging company who have reported its latest full-year numbers. All things being equal it would be surprising if they hadn’t given the increase in on-line shopping that we’ve seen in the last 12 months. Nonetheless revenues saw a decline to €8.53bn, though this was more to lower prices, than any decrease in sales. Pre-tax profits rose to €748m from €677m while the company raised the dividend to 87.4c a share.

In terms of the outlook for 2021, the company said that the year has started well with the growth in online shopping expected to be sustained over the rest of the year. The pandemic has also impacted beer consumption and demand with the closure of pubs and restaurants, and Dutch beer maker Heineken has seen the impact of that with full-year beer volume declining 8.1%. Full-year revenues fell back 11.9% to €19.7bn, missing expectations, while operating profits fell back slightly from last year to €2.42bn, sending the shares slightly lower in early trade. In response to the fall in demand, Heineken has said that it plans to cut 8,000 jobs, as management looks to save €2bn over the course of the next two years. For 2021 the outlook was also slightly pessimistic with revenue and operating profits expected to come in below the levels of 2019.    

French bank Société Générale this morning reported its first annual loss in over 30 years, despite reporting a better-than-expected Q4 set of numbers. Nonetheless, relative to its US peers the performance still wasn’t great with equities and fixed income trading both showing declines. Revenues came in at €5.84bn, while the bank set aside €689m in respect of loan loss provision, which was below expectations, bringing the total set aside this year to €3.31bn. The bank said it would pay a dividend of €0.55c a share.

Housebuilder Persimmon shares are slightly lower after the company announced that it was setting aside £75m in its 2020 results to address any outstanding cladding issues, and complete any safety work that needs to be done on 26 buildings that it has built over the past few years.

Dunelm has managed to ride out the Covid-19 pandemic fairly well, despite the various store closures it has had to contend with. In its last full-year numbers where the company saw its Q4 numbers hit hard by the first lockdown, as total sales fell by 28.6%. The performance of its on-line sales helped to compensate to some extent, with a rise of 105.6% on the year. This in turn helped stem the decline in full-year sales to a mere 3.9%, which given the store closures was a fairly decent result. Today’s H1 numbers have built on last year as well as a strong Q1 performance with a 23% rise in total sales to £719.4m driven by a 111% rise in digital sales, despite stores being closed for most of Q2. Profits before tax have seen an increase of 34.4% to £112.4m with management taking the decision to pay an interim dividend of 12p per share. This figure includes the repayment of the furlough money, reinforcing the success the business has had in being able to adapt to the challenges that have come its way, with the shares pushing higher in early trade.

The US dollar has continued to drift lower in the wake of last Friday’s disappointing US non-farm payrolls report hitting its lowest level this month, as increased confidence fuels a move out of the greenback into riskier areas of the market. The pound has continued its move towards the $1.4000 level after breaking the 1.3750 resistance area that had been capping gains for most of January, bringing it closer to its highest levels in over three years. Bank of England governor Andrew Bailey is due to speak later today in the annual Mansion House speech, however he isn’t likely to say anything different to what was outlined last week when the Bank of England outlined its outlook for the UK economy over the rest of this year.

The recent rise in bond yields has undergone a pause over the past couple of days with the latest China inflation data showing a surprise decline of -0.3% in January, while factory gate prices edged into positive territory for the first time in over a year.

US markets look set for a positive open on the back of today’s fairly positive European session, with investor attention likely to be on Fed chairman Jerome Powell’s comments to the economic club of New York, and more earnings reports from the likes of Uber and Coca Cola.

Last night we heard from Twitter and Lyft. Twitter managed to surprise on the upside in terms of advertising in Q4, with a 28% rise in revenues to $1.29bn, however it warned about slowing user growth in 2021, saying that the type of growth it saw last year as a result of the pandemic shutdowns was unlikely to be replicated in the next 12 months. Following on from last night’s numbers from Lyft, whose shares rose sharply in afterhours trading on better-than-expected revenues in Q4, Uber is also set to announce its latest Q4 numbers later today. Even without the pandemic Uber had already been haemorrhaging cash, before the economic lockdowns hit its cash flow even further. The ride hailing part of the business makes up the lion’s share of overall revenue, while its delivery or “eats” business is the small relation. In Q2 the company posted a net loss of $1.8bn as taxi bookings declined 73%, while delivery bookings saw a 113% rise. In Q3 these losses shrank but were still over $1bn, while revenues also came in short at $3.13bn. The company reiterated its guidance that it expects to be profitable on an EBITDA basis by the end of 2021, however given recent events it may well have to rethink that.

Its delivery business continues to go from strength to strength with a 190% rise in revenues year on year, and the acquisition of Postmates for $2.65bn likely to see a further uplift. Last week the company also paid $1.1bn for alcohol delivery company Drizly, as it looks to widen its delivery mix across the US. Despite Uber’s problems the shares have recovered well from their lows last year near $14 to be trading back above $50, and their IPO price. This seems rather counterintuitive when you consider the company appears no nearer to turning a profit than when it came out of the blocks in May 2019, however given that the company raised over $500m dollars in equity last year, for its freight operation suggesting that some investors in certain parts of Uber’s business have deeper pockets than others. Losses are expected to come in at $0.54c a share.

In Q3, Coca-Cola managed to beat expectations for its latest set of numbers, however it is clear that the pandemic is acting as a drag on its business. Q3 net sales fell 9%, to $8.65bn though demand for Coke Zero sugar and Coca-Cola managed to hold up quite well. Coffee and tea were hardest hit which isn’t surprising given the various closures forced onto its newly acquired Costa Coffee brand with traffic levels there unlikely to improve much before April of this year, assuming lockdown restrictions start to get eased. The company is in the process of slimming down its drink’s portfolio by about 50% with the focus on its more mainstream brands like Dasani, Coca Cola as well as fruit juice and tea and coffee. Profits are expected to come in at $0.42 a share.


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