Share Talk Expected Market Updates For The Week Ahead – 11th October 2021

As we look ahead to next week, we expect it to be busy for the mining industry. Investors will be watching Greatland Gold’s Havieron pre-feasibility study, as well as an update from Rio Tinto.

Scheduled are ASOS, Dunelm and Domino’s Pizza, Marston’s Pizza, Marston’s Pizza, Barratt Developments, National Express, and National Express As well as ASOS and Dunelm, retailers are still in fashion.

In the next week, macroeconomic data will be abundant. UK figures include the NIESR GDP estimate Monday and BRC retail sales Tuesday. This is ahead of a labour market update with the official GDP print on Wednesday and associated industrial and trade statistics on Wednesday.

The US and China inflation numbers are likely to dominate the discussion, as concerns continue over how the global economy will deal with the ongoing pandemic and disruptions in supply chains and tightening of the central bank.

On Wednesday, US price data will be available. August’s CPI was 5.2% higher than last year. However, the Federal Reserve prefers the Personal Consumption Expenditures Index, which has been rising at the fastest rate in 30 years.

These measures are far ahead of the US central bank 2% inflation target. Fed chair Jerome Powell acknowledged that inflation is running hotter than expected, but that it is “largely reflecting transitory elements”.

Many economists point out that rising energy prices could increase inflation’s persistence. This presents central banks with a dilemma: either abandon their inflation targets to help countries cope with the pandemic recovery or curb inflation to ensure the recovery is not halted.

According to Marshall Gittler, market analyst at BDSwiss Marshall Gittler, the first assumption that markets make about higher inflation will be higher interest rates. However, when supply bottlenecks are causing higher inflation, a rise in interest rates “won’t suddenly create more container ships or gas wells” and “won’t suddenly create more semiconductors or gas wells”.

We will have to watch how the central banks react to this unusual round, driven by supply problems. They could stick to their “transitory” view even though the Bank of England is beginning to question it… If they keep to their “transitory” thesis, real rates could fall and currencies could weaken, most notably the US Dollar.

Tuesday will see one of the most awaited events in junior gold mining for many years.

Newcrest, the Australian giant, will publish its prefeasibility report for Havieron in Paterson 

Greatland Gold PLC (AIM:GGP), originally discovered the project. However, Newcrest is responsible for the heavy exploration work in return for a stake that could rise to 70% after the program’s completion.

There has been speculation for some time about Newcrest buying Greatland if the numbers are strong.

The PFS will include key financial projections and should provide a good indication of whether it is possible.

Greatland shares have risen by more than 30% in the past two days following the publication of the 12 Oct PFS date.

Havieron currently has 52mln tonnes of gold-equivalent resources, but brokers anticipate this will be significantly increased on Tuesday.

Ladbrokes and Sportingbet owner of Entain PLC (LSE:ENT) has released its third-quarter trading update as the board continues to consider a £15bn offer from DraftKings in the US.

Directors are likely to take so long to consider the bid because the FTSE 100’s US business is tied up with MGM Resorts. MGM has stated that Entain and its affiliates must consent to any transaction in which Entain would own a competitor business in the US.

Entain will likely still have significant growth ambitions in the US, and around the globe. Some investors and commentators are calling for Entain, which has proven its expertise in online gaming over many years, to look at Draftking’s gift horse in its mouth and continue its own path, or to see if MGM can offer a better deal.

Analyst Nick Hyett from Hargreaves Lansdown says that the third-quarter results could be “a bit of an event” if no progress is made on the deal.

MGM Joint Venture reported net gaming revenues in the first six months, which was US$357mln. The second half should be even better.

Hyett stated that investors would welcome signs of progress and “may convince management to decline the offer due to the fact that it undervalues” the business.

It has been around half a century. Barratt Developments PLC, (LSE:BDEV) will not declare an end of the good times for housebuilders at Wednesday’s annual general meeting.

The government’s gift of cash to an industry that is making a lot of money, i.e. Although the stamp duty reduction was only effective at the beginning, house buyers were able to see it coming. Barratt may have meaningful data about how the housing market performed in the second half of 2021.

David Thomas, chief executive officer, might have comments to make regarding raw material prices or supply chain constraints.

Barratt’s revenue was slightly higher than pre-pandemic levels for the entire year due to increased property prices and a greater number of completed transactions. Operating profits were still 10% lower than they were before the crisis. This was due to legacy property costs and coronavirus loans repayments. These problems should not last, however, we could see if these unhelpful tendencies have begun to unravel in the next trading statement,” stated Laura Hoy, an equity analyst from Hargreaves Lansdown.

“We will be looking for comments on inflation. Management has previously called it a headwind but it was more than offset with rising house prices. House prices may plateau now that the post-pandemic panic has subsided. We would like to hear from management about the impact of inflation on this year’s results. Forward sales is another figure worth keeping an eye on. Comparing the two figures is becoming more difficult due to unprecedented demand in the last year. With this in mind, even a small margin of growth would be impressive,” she said.

UBS pointed out that Barratt has not updated the market in a while so it is unlikely that Barratt will make any changes to its guidance. However, the Swiss bank will seek assurances that the housebuilder can meet the guidance of 17,000-17,250 completions by 2021.

Marston’s PLC will update investors on Wednesday. The market could raise a glass for summer trading when the lifting COVID-19 restrictions led to a rebound within the hospitality sector.

Publican sales dropped 8% in the 10 weeks leading up to July 24, so we will see if the latest performance can compensate for the disappointing results of earlier this year.

Peel Hunt analysts believe they will improve their forecasts. However, this may only be in the short-term as next year’s results could be affected by fuel and river shortages.

We believe that our assumption that net debt will fall by PS20m in 2021’s second half is too conservative, given the cash flow benefits from the VAT reduction and the absence of a dividend. They noted that any additional debt reduction should flow through to create equity value.

ASOS PLC (AIM-ASC) is a fast-fashion company. Shareholders will hope they can trigger a share price recovery for the company that has fallen to second place in AIM’s market value, has seen its shares drop roughly half over the past year.

Current consensus estimates predict a 21% increase in year-on-year sales to be around PS3.9bn. The pre-tax profit is expected to increase 35% to PS192mln.

AJ Bell, an investment platform operator, believes analysts will be seeking more information on active customers, site visits, and sell-through conversion.

According to the third-quarter update, ASOS had 23.4mln customers a year ago. That number had increased to 26.1mln at the end of June according to the third-quarter update. For a 3.0% conversion rate, 2.7 billion site visits were converted into 80.2mln orders in the year up to August 2020.

The retail gross margin dropped to 45.9% last yr, which is a decrease of 1.5 percentage points. It then fell again to 45% for the first half. The third-quarter statement highlighted cost pressures. However, an increase in sales for occasion wear may have provided some margin support as people began to go out more as new bars, clubs, and restaurants opened.

“Finally they [analysts] are going to look at the balance sheets. ASOS had PS92mln in net cash at the end its first half. This is a significant drop from the year’s end, due primarily to the PS265mln purchase of TopShop, TopMan, and Miss Selfridge brands of the former Arcadia Group. The firm’s capital investment for the year will be PS160mln as it continues to invest in warehouse capacity and its platform,” AJ Bell stated.

Domino’s Pizza Group plc will likely deliver solid quarterly numbers Thursday as the UK’s hunger for take-out food has not been satisfied yet.

The relaunch of televised sport has helped to boost trading. This includes a recovery in sales, improved customer relations management, and better technology infrastructure.

Peel Hunt analysts expect that the group will have opened five new stores during the third quarter. Franchisees should also have generated record profits due to the VAT reduction.

Consensus will place £550mln full year sales, an increase from PS505mln last year, and adjusted profit before taxes rising to £113mln (£101mln).

Dunelm plc will also make a trading statement Thursday. This company has been thriving in the UK homewares sector and has outperformed the rest of the UK over the past year.

Peel Hunt, a house broker, forecasts a 8% increase in sales for the first quarter and 11.5% growth for the entire financial year.

Analysts stated that “despite the comparisons, Dunelm continues to deliver growth across both channels [in-store and digital], with no sign any slowdown or trend,”

“Our belief is that the media discussions on supply chain issues will drive customers to buy ahead of Christmas. Dunelm isn’t immune to current supply chain disruptions, but has good stock availability, with increased freight cost built into our forecasts.”

Hays PLC (LSE:HAS) should have a positive trading statement if you look at recent updates from other recruiters.

Hays is particularly concerned about staff shortages in managerial, IT, white-collar and financial positions.

Finding the right staff for the available jobs is likely to be a challenge, but Hays’ skillset means that trading news should be positive.

Rival Robert Walters (LSE.RWA) raised its profit forecasts last week, stating that “significant wage inflation has emerged especially for the most desired skill-sets.” The jobs market is hot.

Similar comments by Hays are not surprising, especially considering Barclays analysts who saw a 10% increase in profit due to the demand for IT and digital roles across multiple industries.

The bank believes that the strong tailwind created by increases in net fees per head and cost savings has helped to improve margins, which will eventually translate into shareholder payouts.

“We set a Hays price target at 195p (circa 20% implied upside), but see additional upside to 250p if management can reaffirm their pre-pandemic growth ambitions. This would imply earnings more than 25% ahead of our outer year forecasts.

Investors will be focused on mergers when the bus company updates them on Thursday. This follows last month’s report that Stagecoach Group PLC (LSE:SGC) reported that it was negotiating an all-share agreement with Stagecoach Group PLC. However, other issues such as availability of drivers, fuel costs and customer desire to travel will also be on the agenda.

The potential deal would have National Express plc shareholders receiving 75% of the enlarged business.

Both companies have been adversely affected by the pandemic. The UK government is now effectively running the bus and rail networks and charging fees to operators like Stagecoach and National Express to run them. National Express stated that the merger would save it about PS35mln per year due to synergies, such as using Stagecoach depots for its coach services.

The Unite union warned National Express in the wake of the news that it would have to fight for cost reductions if Stagecoach’s takeover bid is successful.

When the miner issues a trading announcement Thursday, it is very likely that commodities price inflation, energy costs, and environmental concerns will be on the agenda.

This update is a result of members of the International Council on Mining and Metals pledging to achieve net-zero emission by 2050 despite some of their coal production generating billions.

Scope 1 and 2 are currently committed, with Scope 3 plans to announce by 2023.

Institutions like JP Morgan, meanwhile, eye big-time dividends.

Analysts at the American bank stated that they expect Rio Tinto and its rival BHP Group Plc (LSE:BHP), to pay more than US$100bn each in dividends over the next three-year period.

Rio has already paid US$9.1mln in interim dividends. JPM anticipates that over the period of 2021-23, the cumulative payout will reach US$52bn. This is comparable to the total returns over the last decade.

Stock Market Announcements Expected for the week ending 15 October:

Monday 11 October:
Trading announcements: Greatland Gold plc, Vistry plc, XP Power plc

Tuesday 12 October:
Finals: DX PLC, Maestrano Group PLC (AIM:MNO), YouGov plc

Trading announcements: Entain plc

Economic data: UK retail sales, UK unemployment rate

Wednesday 13 October:
Finals: Applied Graphene Materials PLC (AIM:AGM)

Interims: Angling Direct PLC (AIM:ANG), Sanderson Design Group PLC

Trading announcements: Barratt Developments plc, PageGroup (LSE:PAGE) plc, Marstons plc

Economic data: UK manufacturing/industrial production, UK GDP, UK balance of trade, US mortgage applications, US consumer price index, US crude oil inventories, FOMC minutes

Thursday 14 October:
Finals: ASOS PLC

Trading announcements: Ashmore plc, Domino’s Pizza (NYSE:DPZ) Group PLC, Dunelm plc, Hays plc, National Express plc, Norcros PLC (LSE:NXR), Rank Group (LSE:RNK) plc, Rathbone Brothers PLC (LSE:RAT), Rio Tinto plc

FTSE 100 ex-dividends to knock 1.56 points off the index: WPP PLC (LSE:WPP), Spirax-Sarco Engineering (LSE:SPX) plc, Tesco PLC (LSE:TSCO)

Economic data: US initial jobless claims

Friday 15 October:
Interims: Mediclinic plc

Trading announcements: Hargreaves Landsown plc, Jupiter Fund Management PLC (LSE:JUP)


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