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Market Outlook

The Week Ahead: UK GDP; US inflation; BP, Unilever results

Read our pick of the top stories to look out for in the week commencing 7 February 2022, and view our key company earnings schedule.

OUR TOP THREE EVENTS FOR 7-11 FEBRUARY 2022:

BP full-year results – Tuesday

The BP share price is up more than 15% so far this year, while rival Shell’s share price has risen more than 20% over the same period, as the two energy giants benefit from soaring oil and gas prices. That said, both companies’ stock prices remain below pre-pandemic levels. That may partly be because, despite reporting bumper profits as oil demand rebounded in 2021, both BP and Shell have arguably underperformed as they attempt to strike a balance between green-proofing their businesses, boosting their ESG credentials, and keeping shareholders happy. Renewable energy is a lower margin business than fossil fuels, and while calls for a faster transition to renewables grew louder in 2021, the volume has decreased in recent weeks as the reality of reduced investment in fossil fuels has started to hit household budgets. Though it may be easy to criticise oil companies, they remain key parts of the global economy, as oil and petrochemicals are used not only for fuel but also in all manner of everyday products, from clothing and plastics to tyres and car parts. 

In 2021, BP made strides in reducing its debt levels as underlying profits grew. At the end of Q3, net debt was $31.97bn, down from $40.4bn a year earlier, while cash flow increased to $5.9bn in Q3, up from $5.4bn in Q2. Although underlying profits improved to $3.3bn, the business reported a headline loss of $2.54bn as a result of the value of accounting effects. Rises in forward gas prices saw the company take a $6.1bn hit in Q3, though hedges on forward gas prices are expected to partially unwind, as prices fall back and gas cargoes are delivered. Perhaps BP’s biggest challenge is that all of its profits come from its oil and gas operations and production businesses, which is great when prices are high. However, the concern is that BP’s investment in renewables remains relatively low, putting it at risk of missing its target to increase renewable energy capacity to 50GW by 2030.

In Q4, the restart of operations in the Gulf of Mexico in the wake of hurricane Ida is likely to have boosted production. This should be good news for shareholders, possibly signalling further share buybacks. In November management said that with oil prices at $60 a barrel there was scope to deliver buybacks of $1bn a quarter, with capacity to increase the dividend by 4%. Crude and Brent oil prices have recently risen to close to $90 a barrel.

US CPI (January) – Thursday

The US consumer price index (CPI), a key gauge of inflation, rose 7% in December from a year earlier, the fastest pace since 1982. But the reading was a weaker-than-expected increase on November’s 6.8%, possibly indicating that inflationary pressures might be easing in the US. In a further sign that inflation may have peaked, the producer price index (PPI) increased 9.7% in the year to December, slowing from 9.8% in November. On a month-on-month basis the slowdown was even starker, with PPI up just 0.2% in December, compared to a 1% rise in November. Given that PPI has acted as a bellwether of the inflationary surge over the last 12 months, there is every reason to expect CPI to reflect the slowdown in price growth. But, as we await January’s CPI reading, have we seen peak US CPI? The consensus view suggests not, with economists’ estimates pointing to a 7.3% increase in CPI for the year to January, with core CPI (which excludes food and energy prices) up 5.9% year-on-year, compared to 5.5% in December. That said, given the slowdown in PPI in December, a surprise to the downside cannot be entirely ruled out. 

UK Q4 GDP – Friday 

The last three months of 2021 were shaping up to be a decent quarter for the UK economy until Omicron struck in December. The drop in economic activity as a result of restrictions aimed at curbing the spread of the new variant may have caused economic stagnation. The monthly GDP numbers show that the UK economy expanded by 0.2% in October, before a strong performance in November delivered a rise of 0.9%, driven by rebounds in consumer spending, industrial production and construction. The big question now is how much of the November rebound in manufacturing and construction carried over into December, and whether it was enough to offset the collapse in retail sales which fell by 3.6% in December, more than wiping out the collective 2.7% gain in October and November. As such, expectations are for UK economic growth in Q4 to have slowed sharply versus Q3’s 1.1% gain.

MORE KEY EVENTS (7-11 FEBRUARY):

Monday 7 February

No major announcements 

Tuesday 8 February

BP full-year results (see top three events, above)

Ocado full-year results

After a stellar 2020, the Ocado share price fell by more than 25% in 2021, as investors reset their expectations. In December the company reported Q4 revenue of £547.8m, down 3.9% from a year earlier. When added to the £1.8bn generated over the preceding nine months, full-year revenue for 2021 comes to £2.36bn, a modest increase of about 2.6% on the previous year’s £2.3bn. That may go down as a somewhat disappointing performance. Even though comparatives were tough, as the lockdowns of 2020 saw a sharp jump in online grocery orders, the business ramped up its delivery capacity in 2021, suggesting that revenue would come in much higher for the year just ended. Average orders per week were higher, though average basket size declined 12% to £118. It seems that labour shortages may have held back sales growth. Ocado also said that higher costs would add another £ 5m to its cost base. Ahead of the release of its full-year numbers, Ocado is expected to announce sales growth at the upper end of its 10-15% guidance range.        

Pfizer Q4 results

If you were to pick a winner from the pandemic, Pfizer would be right up there near the top of the pile. Not only was the US pharma giant at the forefront of the vaccine programme, using its scale to roll out BioNTech’s MRNA vaccine, but it also developed a new Covid-19 pill. In Q3, revenue and profits beat expectations, leading the company to raise its 2021 outlook. Q3 revenue rose to $24.09bn, of which $12.98bn came from the vaccine. The company said it expects full-year revenue from its Covid-19 vaccine to total $36bn, up from its previous forecast of $33.5bn. Pfizer also raised its full-year profit guidance to between $4.13 and $4.18 a share. It’s hard to overstate how much of a game-changer the vaccine has been for Pfizer’s revenues over the past two years. In 2020 the company reported annual revenue of $41.9bn. This year, revenue is expected to have doubled to $82.8bn, with most of the increase coming from the vaccine.

Peloton Q2 results

Over the past year or so, the implosion of the Peloton share price has been a sight to behold. Peloton’s stock declined more than 75% in 2021, and is currently down about 30% year-to-date. At the end of its last fiscal year, the company cut its revenue forecast for Q1 to between $800m and $810m, and slashed $400 off the price of its original bike, as the company expected to incur a Q1 loss of $285m. In fact, losses came in even higher, at $376m. The company went on to reduce its full-year revenue guidance from $5.4bn to between $4.4bn and $4.8bn. Peloton’s shares have fallen by 70% since the announcement, as the reopening of gyms and the economy in general has seen demand for Peloton equipment and subscriptions level off. On top of this, supply chain issues and product problems haven’t helped. Partly because of increased marketing spend, costs have risen sharply, hammering margins. This trend seems likely to continue. With the Peloton share price down more than 85% from its record high of $157.83 in January 2021, shareholders have started to agitate for change at the top. Activist investor group Blackwells are calling for CEO John Foley to step down, and for the company to be put up for sale. This comes after Peloton announced that it was suspending production of its bikes and treadmills due to waning consumer demand. Expectations for Q2 are understandably low, with the company set to slide to another loss that could prompt renewed calls for a change of leadership.

Wednesday 9 February

GlaxoSmithKline full-year results

Glaxo CEO Emma Walmsley has been under pressure for several months from activist shareholders over her suitability to turn the underperforming company around. At the most recent trading update, bosses said they were laying out a timeline for the sale or spin-off of the consumer business – of which GSK owns two-thirds, with Pfizer owning the other third – so that the company could focus on pharmaceuticals. In November, Walmsley said progress had continued towards unlocking the value of the business, with plans for a demerger sometime in the middle of this year. The rejection of Unilever’s bids for the consumer unit point to a determination not to let it go on the cheap, though time will tell whether Glaxo and partner Pfizer are able to obtain the price that they think the business is worth. Having turned down £50bn, how much are they hoping for? 

After falling to a 10-year low in February last year, the GlaxoSmithKline share price has risen more than 35%, approaching its highest levels since April 2020. In Q3 sales rose 5% to £9.1bn, prompting the pharmaceutical giant to improve its full-year guidance to an adjusted EPS decline of between 2% and 4%, while reconfirming its outlook for 2022. The consumer healthcare division, saw sales of £2.5bn, a rise of 3%. The company declared a dividend of 19p a share. This week’s full-year numbers could offer additional insight into a timeline for the demerger of the consumer business. Annual revenue is expected to come in at £33.9bn.

Disney Q1 results

Has the streaming train started to run out of steam? Netflix’s recent results which showed slowing subscriber growth, sent shares sliding across the sector, with Disney’s share price dropping to its lowest level since November 2020. Netflix remains the market leader, but user growth is clearly becoming an issue, and this could well be further emphasised by Disney’s Q1 numbers on Wednesday. The trend was already becoming apparent in Q4, as Disney reported that growth in new subscribers to Disney+ had slowed to 2.1m, lifting total subscribers to 118.1m, below expectations of 119.6m. This was a disappointing result, as was news that the service ran at a loss of $630m in Q4, with management warning that it would take some time for subscriber numbers to start accelerating again. Profits also missed expectations, coming in at $0.37 a share, well below the $0.48 that was expected. Q4 sales came in at $18.5bn, versus expectations of $18.8bn. Theme Park revenue also came up short, as the division’s profits came in at $640m, missing expectations by more than $200m. The addition of Star Wars helped expand Disney’s content library, but with the streaming market becoming ever more saturated, margins are likely to get squeezed further. Disney already runs its India operation at a loss and, with Netflix also entering that market with its own low-cost offering, margins are likely to undergo extra pressure. Profits in Q1 are expected to come in at $0.59 a share.

Uber Q4 results

Uber finally appears to be turning a corner, after returning an operating profit in Q3 that was driven by an improved performance from both its food delivery and ride-hailing businesses. Unfortunately, although these businesses managed to eke out a positive return, the company posted an overall loss of $2.4bn, mainly due to its investment in Chinese ride-hailing app Didi Chuxing. Booking revenue rose to $4.8bn, up 72% from a year ago, while gross bookings across the entire business rose to $23.1bn. For Q4, Uber expected this to rise to between $25bn and $26bn, with food deliveries starting to outweigh rides on a segment basis, although ride-hailing continues to provide the better margins. Losses are expected to come in at $0.31 a share.

Thursday 10 February

US CPI (January; see top three events, above)

Unilever full-year results

It’s been a choppy start to the year for the Unilever share price, dropping briefly to five-year lows last month after the announcement that it was looking to pay over £50bn for GlaxoSmithKline’s consumer health business. Investors from all sides hated the idea, not only from a price point of view, but also from a strategic point of view, with many seeing the bid as misguided. The failed bid also added to the woes of Unilever CEO Alan Jope, who is under pressure to improve margins and arrest the slide in the Unilever share price. Over the last two years, the spreads business has been offloaded, as has the tea business, but the company has also had to deal with steep rises in costs. These have hit operating margins, although some of the negative impact has been offset by the company raising prices. This was reflected in Unilever’s Q3 numbers, which saw sales rise by 2.5%, as prices were increased 4.1%. This marked a decent improvement on its half-year performance. Last month Unilever went further by announcing that it was cutting 1,500 jobs amid plans to streamline the architecture of its business model in response to increasing shareholder disquiet. The shares have partly recovered from their recent lows, though bosses may be wary as reports emerge that activist investor Nelson Peltz has built up a stake in the business. 

AstraZeneca full-year results

Since reporting its Q3 numbers on 12 November, AstraZeneca shares have taken a tumble , mainly due to disappointment over how its core business is performing. Integrating Alexion Pharmaceuticals, which AstraZeneca acquired in July, is a key part of AstraZeneca’s strategy, but it is proving to be a slightly more expensive process than originally anticipated. Total revenue in Q3 came in ahead of expectations at $9.87bn, driven by improved Covid-19 vaccine revenue, which came in at $1.05bn. More importantly, the vaccine business appears on course to generate positive returns as new vaccine contracts continue to get signed. Revenue from the core business fell significantly short of expectations at $8.8bn, as the company slipped to a quarterly loss of $2bn, mainly due to a significant increase in costs, which were bumped up by the integration of Alexion and other R&D costs. Year-to-date revenue in Q3 was still up 32% at $25.4bn, with the company saying it remains on course to meet its full-year core EPS guidance of between $5.05 and $5.40 a share, on revenue of $36.2bn. 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, and help boost annual revenue in 2022 to $43.2bn. Annual profits are expected to come in at $5.18 a share.

Friday 11 February

UK Q4 GDP (see top three events, above)

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 7 February  Results
Aberforth Smaller Companies Trust (UK) Full-year
Alpha & Omega Semiconductor (US) Q2
Chegg (US) Q4
Energizer (US) Q1
K3 Capital (UK) Half-year
Kimball Electronics (US) Q2
ON Semiconductor (US) Q4
Tuesday 8 February Results
BP (UK) Full-year
Gartner (US) Q4
Harley-Davidson (US) Q4
Lear (US) Q4
Lyft (US) Q4
Ocado (UK) Full-year
Peloton Interactive (US) Q2
Pfizer (US) Q4
Warner Music Group (US) Q1
Willis Towers Watson (US) Q4
Wednesday 9 February Results
Barratt Developments (UK) Half-year
Dunelm (UK) Half-year
Equifax (US) Q4
GlaxoSmithKline (UK) Full-year
iRobot (US) Q4
Mattel (US) Q4
MGM Resorts International (US) Q4
Motorola Solutions (US) Q4
PZ Cussons (UK) Half-year
Sonos (US) Q1
Twilio (US) Q4
Uber Technologies (US) Q4
Vimeo (US) Q4
Walt Disney (US) Q1
Zynga (US) Q4
Thursday 10 February Results
23andMe (US) Q3
Ashmore (UK) Half-year
AstraZeneca (UK) Full-year
Beazley (UK) Full-year
Coca-Cola (US) Q4
Expedia (US) Q4
First American Financial (US) Q4
GoDaddy (US) Q4
Kellogg (US) Q4
Linde (US) Q4
MJ Gleeson (UK) Half-year
Moody's (US) Q4
Peabody Energy (US) Q4
PepsiCo (US) Q4
Philip Morris International (US) Q4
Piper Sandler (US) Q4
Redrow (UK) Half-year
RELX (UK) Full-year
Shutterstock (US) Q4
Twitter (US) Q4
Unilever (UK) Full-year
Upwork (US) Q4
VeriSign (US) Q4
Western Union (US) Q4
Yelp (US) Q4
Zendesk (US) Q4
Friday 11 February Results
Apollo Global Management (US) Q4
British American Tobacco (UK) Full-year
Under Armour (US) Q4

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


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