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The Week Ahead: US jobs report; Aviva, Darktrace results

In a dark week for Europe, the moment we all feared arrived on Thursday morning as Russia invaded Ukraine. Global equities dropped and oil prices surged as markets struggled to process what might happen next. We may be entering an uncertain period, but as the economic wheels keep turning we’ll be keeping tabs on Friday’s US jobs report and the latest non-farm payrolls number. And as earnings season continues, Aviva and Darktrace are among the companies to watch. 

OUR TOP THREE EVENTS FOR 28 FEBRUARY - 4 MARCH 2022:

Aviva full-year results – Wednesday

Aviva’s share price has made some decent gains since closing at a six-month low of 370.90p on 26 November – it came within a whisker of 450p in February, before slipping below 420p as Russia’s invasion of Ukraine sent equity markets tumbling.  

Having come under pressure from activist investor Cevian Capital to improve payouts, Aviva CEO Amanda Blanc has pledged to return at least £4bn to shareholders by June. Investors may be further cheered by the insurer’s recent performance, with results for the first half of 2021 showing that the business is doing well. As Aviva reported in August, inflows to its UK and Ireland savings and retirement business increased to £5.2bn in the first six months of the year, up 24% versus the first half of 2020, as its workplace pensions scheme – the UK’s largest, with assets of £89bn – added more than 100 000 new members. Operating profits from continuing operations rose 17% to £725m. 

The company’s strong performance continued into Q3. In November, the company reported that net flows into its savings and retirement business for the first nine months of the year had risen to £7.3bn, up 21% compared to the same period in 2020. Shareholders will be hoping that Q4 delivered more of the same, as they await an update on the pledged shareholder returns. 

Darktrace half-year results – Thursday 

What a turbulent year it’s been for Darktrace. The cyber-defence company, which listed in London on 30 April last year with an IPO issue price of 250p, saw its shares peak at 1,003p in September. The stock has now dropped back to just above 340p, a tad above where they closed on the day of their stock market debut. It’s safe to say that the post-IPO shine has well and truly disappeared. 

Last September, the company upgraded its forecast for annualised recurring revenue (ARR) from 32-34% to 34-36%, as it set about adding new clients. The share price declines started with a bearish broker note from Peel Hunt in October, bringing to an end Darktrace’s brief flirtation with the FTSE 100. 

In January the company again upgraded its full-year guidance for revenues and margins, saying it expected half-year revenue to come in around $190m on annual revenue growth of between 42% and 45%, up from a previously guided range of between 37% and 39%, as it had signed up over 6,500 customers by the end of 2021. This should have been enough to help put a floor under the share price. However, the company appears to have attracted the attention of short seller Shadowfall. The hedge fund, which is headed by Matthew Earl, sent out a highly critical research note, claiming that Darktrace’s business model is watery-thin and won’t stand the test of time. The fund also suggested that Darktrace’s addressable market is nowhere near as big as the company thinks it is. 

Darktrace also faces a possible fallout from the extradition to the US of its second-largest shareholder, Mike Lynch, who is charged with alleged conspiracy and fraud over the sale of his former company Autonomy to Hewlett-Packard. Lynch denies the charges. Prosecutors in the US have applied for subpoenas to force Darktrace to hand over emails and documents in relation to Lynch. The threat of legal action may compel Lynch to sell his stake in Darktrace, creating an element of near-term uncertainty for the company. 

In more positive news, Darktrace announced in February that it had signed a $1m deal with an unnamed multinational electronics corporation that has more than 250,000 employees across more than 70 countries. 

US jobs report (February) – Friday

The January jobs report showed that 467,000 jobs were added to the US economy in December, well above the expectations of the US Federal Reserve, government officials and Wall Street, which put the consensus estimate at 150,000. The January figure was all the more surprising because it followed a report from payroll processing firm ADP, published just two days prior, which had indicated a decline of 301,000 jobs.  

As if the January non-farm payrolls figure were not a big enough surprise, the number of jobs added in December was revised upwards from 199,000 to 510,000, while the November total went up from 249,000 to 647,000. 

Despite all the concerns about Covid variants impacting leisure and hospitality, this sector actually enjoyed the biggest gains in January, with 151,000 hires – of which 108,000 came from bars and restaurants. Meanwhile, retailers hired an extra 61,000 staff. That said, these figures don’t quite tally with the big jumps we’ve been seeing in weekly jobless claims in recent weeks. 

Nevertheless, the US jobs market appears much stronger than initially thought. Wage growth – which surged to 5.7% in the 12 months to the end of January, up from 4.7% in December – also came in better than expected, pushing US government bond yields higher. Another positive development in January saw the labour market participation rate rise to 62.2%, up from 61.9% in December, and its highest level since March 2020.

With economic data since January coming in better than expected, the prospect of an aggressive interest rate rise in March has become more likely. While several Fed members have pushed back on this narrative, another strong jobs report for February could put further pressure on Fed officials to opt for a 50 basis-point hike when they meet next month. 

Current estimates suggest that the US economy added 400,000 jobs in February, while the unemployment rate is expected to fall to 3.9%. Wage growth is forecast to come in at 5.9%. 

MORE KEY EVENTS (28 FEB – 4 MAR):

Monday 28 February

Associated British Foods Q2 results

The owner of fashion retailer Primark as well as household brands such as Twinings tea and Kingsmill bread saw its share price hit a six-month high in January, but the stock has since slipped back and is down roughly 5% year-to-date. That’s despite the company confirming a decent set of full-year numbers in January. Concerns may relate to the European side of the business, a weak spot due to store closures in Austria and the Netherlands, where the company recorded a £30m sales loss. The US business, on the other hand, showed the biggest improvement with overall sales up 37% from pre-pandemic levels. 

Total Primark sales were 5% lower than pre-Covid, but all other businesses improved on year-ago revenues, with the exception of the grocery division which booked revenue of £1.2bn, down from £1.22bn a year earlier. Revenue was up 12% for the company’s sugar unit, up 7% for agriculture, and up 6% for ingredients. Although costs have been rising, some of this growth has been offset by the company increasing prices. 

Bosses expect Primark sales in Q2 to come in well above year-ago levels, with the outlook for full-year revenue and profits unchanged. The UK government’s scrapping of “plan B” Covid rules at the end of January may help deliver an upside surprise, after management admitted that the implementation of the restrictions in December prompted a sharp drop in sales.  

Zoom Video Q4 results

Zoom’s Q3 numbers, released in November, showed that the business is still growing, but at a slower pace than before. That partly explains why Zoom’s shares have continued to fall over the last few months. The growth slowdown was to be expected, given that many of us have returned to a more normal way of working in recent months. 

Revenue beat expectations in Q3, rising 35% year-on-year to $1.05bn, with profits of $1.11 a share. The company also raised its guidance, saying that it expects Q4 revenue to come in at $1.1bn and full-year revenue to be around $4.08bn, a rise of 54% year-on-year. Management also forecast that profits would increase to $4.84 a share. 

With Zoom’s shares now back at levels last seen in May 2020, the bubble appears to have burst for the video conferencing provider. Several other tech unicorns find themselves in a similar position. 

This isn’t to say Zoom’s shares won’t fall further. Even with the shares down more than 75% from their 2020 peaks, giving Zoom a market cap of $37bn, the valuation still seems a little on the high side. With increasing competition from the likes of Microsoft Teams and Skype, Zoom has a fight on its hands. Profits for Q4 are expected to come in at $1.07 a share.

Vroom Q4 results

Prices for used cars have gone through the roof in recent months, with the latest US CPI numbers showing that prices went up by as much as 40%. Despite the increase, online car retailer Vroom has seen its share price decrease. As recently as last July, Vroom shares were still above $40, but they’re now worth about $6. Higher-than-projected losses of $0.70 a share in Q3 accelerated the stock’s downfall. On the plus side, total revenue grew 177.6% to $896.8m. 

The outlook for Q4 was subdued, however, with losses expected to be close to Q3 levels, with revenue also expected to remain steady at between $865m and $900m. The company appears to be selling more cars on a quarter-by-quarter basis. However, its operating costs are rising equally as fast. That’s Vroom’s main problem, and it’s an issue it needs to get to grips with. Losses for Q4 are expected to come in at $0.76 a share. 

Tuesday 1 March 

EU CPI (February)

The pressure has intensified on the European Central Bank in recent weeks after January’s eurozone consumer price index (CPI) rose to a new record high of 5.1%, despite higher base effects. With headline inflation already well above 10% in a number of countries, the ECB’s refrain that we would not see a rate hike this year has quietly been ditched. ECB president Christine Lagarde refused to rule out raising interest rates this year at her last press conference.

With energy prices already high and possibly set to climb higher after Russia’s invasion of Ukraine, inflation is likely to remain at an elevated level in the near term. Producer price inflation remains stubbornly high at above 20% across the bloc. A number of ECB governing council members have broken rank to call for the end of asset purchases and a rate hike this year. Another strong CPI number for February could amplify those calls. 

France, Germany PMIs (February)

After last week’s flash purchasing managers' index (PMI) updates, France and Germany release their revised readings of manufacturing PMI on Tuesday, followed by services PMI on Thursday. The flash figures showed an improvement in service sector activity in both France and Germany in February, as the gradual easing of restrictions continued. On the manufacturing side activity was more mixed, with France seeing an improvement to 57.6, up from 55.5 in January, while in Germany the reading slipped to 58.5, down from 59.8 in January. Soaring power prices in Europe are not helping manufacturers, with Russia’s invasion of Ukraine likely to push prices even higher. 

Elsewhere in the eurozone, service sector sentiment was subdued. Spain’s flash services PMI dropped to 46.6, down from 55.8 in January, while Italy’s services PMI slid to 48.5. With inflation surging in both countries, services activity is likely to remain under pressure in the near term. Manufacturing activity has been more robust in the two countries, with Spain’s preliminary manufacturing PMI reading at 56.2 in February, and Italy’s at 58.3.     

UK PMIs (February)

As in the eurozone, the UK releases its latest manufacturing PMI reading on Tuesday, followed by services PMI on Thursday. The relaxation of restrictions at the end of January appears to have unleashed a wave of pent-up demand for services, as the latest flash PMI readings showed a big rebound in services activity in February. UK services PMI increased to 60.8 in February, up from 54.1 in January, while manufacturing PMI was flat at 57.3. 

The services PMI reading was the highest in eight months, despite soaring inflation. Inflation appears to be rising faster in the services sector than it is in manufacturing. In the services sector, new order growth was the highest in eight months, as spending increased on travel, leisure and entertainment. 

Target Q4 results

The US’ leading big-box retailers have managed to address the challenges of the pandemic better than their smaller rivals. Walmart is the market leader in this regard, though Target has also done well. When Target reported its Q3 results in November, the retailer beat expectations on revenue and profits. Revenue rose by 13.3% to $25.65bn, while profits came in at $3.03 a share. Same-store sales also grew by a very healthy 12.7%, a decent increase on Q2’s 8.7%.

Looking ahead to Q4, Target raised its guidance slightly on same-store sales, though management warned that costs were starting to rise. This warning has seen the shares fall from record highs over the last few months. When Walmart reported at the end of last month it cited higher supply chain costs as a challenge. And while US consumer spending has seen a rebound in Q4, there is a concern that these costs could rise further in the coming months. Target’s Q4 profits are expected to come in at $2.88 a share.

Wednesday 2 March

Bank of Canada rate decision

After all the speculation about the US Federal Reserve raising interest rates, there is a possibility that the Bank of Canada might steal a march on them this week. Canada is facing similar issues to the US, with its own CPI measure of inflation at a 30-year high and a recovering labour market. In January, Canada’s central bank warned that inflation was likely to be higher than forecast through most of this year, and for a good part of next. With the Bank of Canada having already ended its bond-buying program, there is no obstacle to a 25 basis-point rate hike this week. As their counterparts at the Fed are almost guaranteed to raise US interest rates in two weeks’ time, it would make sense for the Bank of Canada to raise rates this week.

Aviva full-year results

See top three events, above.

Thursday 3 March

Darktrace half-year results

See top three events, above.

Taylor Wimpey full-year results

When Taylor Wimpey reported in November, the housebuilder said it expected full-year results to be in line with expectations. Management said that house-price inflation was still offsetting build-cost inflation, meaning that margins were being maintained. Since then, a number of headwinds have started to blow, including the government’s ruling that housebuilders must contribute to the cost of replacing unsafe cladding in the wake of the Grenfell fire. We’ve also seen the Bank of England raise interest rates twice, with the potential for up to two more rate hikes in the coming months. This could take the heat out of the housing market, and perhaps act as a cap on asking prices.

With the company on track to meet its targets, Taylor Wimpey’s shares have recovered from 15-month lows. The stock’s gains were also driven by the company saying that its total UK home completions increased by 47% to 14,087. Average selling prices were also higher at £332,000, a rise of 3%. The order book for 2022 of £2.55bn is down slightly versus last year. Its Spanish business has also started to show signs of picking up with 324 new homes on the order book, up from 126 a year ago.  

ITV full-year results

It’s been a fairly uneventful 12 months for ITV’s share price, though the company has done better on the advertising front, as life returns to normal and people start to book holidays again. 

In the first half of its financial year, ITV’s numbers were a little underwhelming, largely due to the absence of an interim dividend. The Q3 update was much more upbeat, with revenue from its ITV Studios segment up 32% year-on-year at £1.19bn, compared to a 26% uptick in the half-year results. Revenue from ITV’s media and entertainment unit also remained steady, with total advertising revenue up 30%, putting it on course to be the highest in ITV’s history – bosses expect the full-year total to be up 24% year-on-year. Profit-to-cash conversion is expected to be around 60% in 2021, up from the previous guidance of 30%. 

At an investor seminar in December, ITV said that it expected ITV Studios revenue to recover to 2019 levels in 2022, with margins expected to rise to between 13% and 15% by 2026. At the end of this year, 14% of total revenue is expected to come from streaming, rising to 25% of total revenue by 2026.

Best Buy Q4 results

As at rival Target, Best Buy has seen its shares drop sharply since its Q3 update in November – Best Buy stock is down by more than a third from November's record high of almost $142. One of the main reasons for the stock sell-off has been that Q3 gross margins fell short of expectations, triggering concerns that this trend could continue in 2022.

However, revenue in Q3 beat expectations, coming in at $11.91bn, while profits also beat forecasts, coming in at $2.08. Full-year revenue guidance was raised to between $51.8bn and $52.3bn. Electrical items have been in demand in recent months, and Best Buy is also an Apple reseller. This means there is scope for an upside surprise in the Q4 results. Profits are expected to come in at $2.78 a share.

Friday 4 March

US jobs report (February)

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 28 FEBRUARY RESULTS
Associated British Foods (UK) Q2
Bunzl (UK) Full-year
Canoo (US) Q4
GlobalData (UK) Full-year
Groupon (US) Q4
Howard Hughes (US) Q4
Jones Lang LaSalle (US) Q4
Lucid Group (US) Q4
Vroom (US) Q4
Workday (US) Q4
Zoom Video Communications (US) Q4
TUESDAY 1 MARCH RESULTS
abrdn (UK) Full-year
First Solar (US) Q4
Hormel Foods (US) Q1
Man Group (UK) Full-year
Manchester United (US) Q2
Reach (UK) Full-year
Revolution Bars (UK) Half-year
Target (US) Q4
Travis Perkins (UK) Full-year
Wendy's (US) Q4
WEDNESDAY 2 MARCH  RESULTS
Abercrombie & Fitch (US) Q4
American Eagle Outfitters (US) Q4
Aviva (UK) Full-year
Box (US) Q4
Foxtons (UK) Full-year
Hotel Chocolat (UK) Half-year
Persimmon (UK) Full-year
Snowflake (US) Q4
Splunk (US) Q4
Veeva Systems (US) Q4
THURSDAY 3 MARCH RESULTS
Admiral (UK) Full-year
Best Buy (US) Q4
Broadcom (US) Q1
Costco (US) Q2
Darktrace (UK) Half-year
Duolingo (US) Q4
Gap (US) Q4
ITV (UK) Full-year
London Stock Exchange Group (UK) Full-year
Meggitt (UK) Full-year
Melrose Industries (UK) Full-year
Mondi (UK) Full-year
Payoneer (US) Q4
Rentokil Initial (UK) Full-year
Schroders (UK) Full-year
Smith & Wesson (US) Q3
Taylor Wimpey (UK) Full-year
FRIDAY 4 MARCH RESULTS
Hibbett (US) Q4
Rapid Micro Biosystems (US) Q4

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


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