Share Talk Expected Market Updates For The Week Ahead, 18 – 22 July 2022

Netflix reports, Royal Mail and Tesla, with updates on with UK wages and inflation data.

AJ Bell, Beazly, Centamin, Diploma, Premier Foods and Victoria are also expected to provide updates and results through the week.

This week will be packed on both sides of the Atlantic. London’s agenda includes updates from Ocado and Royal Mail, and other miners. There will also be unemployment and inflation numbers.

Big tech names like Netflix, Intel, Snap and IBM are rising to prominence across the pond.

Voting among MPs for the next UK Prime Minister will continue Monday with one candidate being eliminated per day until there are two remainings. The two final contenders will compete to impress Conservative members this summer. The new Tory leader is scheduled to be announced on September 5.

On Monday, company announcements include an update from Tortilla Mexico Grill PLC (AIM: MEX). This company was listed last October and reported strong sales growth in April.

It stated that the strong trading momentum continued into the new financial year with like-for-like growth of 20% in its first quarter before the £2.75mln cash purchase of Chilango (a rival Mexican food chain) was announced in May.

Tuesday, 19th July

As the cost of living continues to pinch households, wages will be the most important item in the UK jobs report.

According to the most recent unemployment and wages numbers, unemployment rose to 3.8% in April from 3.7% in March. This is the lowest level since 1974.

Despite the tightness, the average weekly earnings, excluding bonuses, are only slightly increasing, at 4.2% for the three months to April. This is still well below the headline inflation rate, 9.1%.

“On the surface, it appears that next week’s data will not offer much support for a 50bp rise in August,” stated economists at ING.

The Bank of England’s monetary policies committee meeting is less than three weeks away on August 4.

“Another notch higher unemployment rate and a slight increase in inflation will not surprise the committee. It resisted pressures to speed up rate hikes a few weeks back, instead opting for another 25bp move.

“However the Fed’s potential for another 75bp rate increase, growing concerns among Bank of England Bank hawks over GBP weakness, as well as earlier explicit warnings regarding more aggressive hikes by officials suggest that the Bank might be tempted join the increasing number of central banks who have chosen for higher rate increases.”

Later Tuesday, Netflix Inc (NASDAQ.NFLX:) will be taking the spotlight. The share price of Netflix Inc has fallen 70% since the beginning of the year due to heavy subscriber losses as well as a drop in app downloads.

Analysts question whether streaming service powerhouse Netflix can sustain positive growth in the face of ongoing cost-of-living crises and projected decreases in subscribers.

It shocked the market when it revealed that it had lost 203,000 subscribers in the first quarter. The company also expects to lose 2mln more over the next three months.

The Tuesday selection of London-listed companies includes the flooring retailer Victoria PLC (AIM: VCP). This company has made significant progress over the year with strong organic growth as well as a series of strategic acquisitions, but it has been affected by concerns about consumer spending with its shares falling 60% this year.

Peel Hunt predicts that EBITDA will rise 16% to PS156mln, and PBT 30% up to PS65mln.

“Clearly, there are concerns about consumer spending. However, floor coverings tend to be more resilient in tough environments.” According to the company, it anticipates that it will achieve sales of around £1.5bn and EBITDA in excess of £200mln this year.

Wednesday 20th July

Wednesday’s big topics include the UK inflation figures, updates from Royal Mail and a group of miners.

The consumer price index rose to 9.1% last month, but core prices (which exclude fuel and food) fell back to 5.9%.

Despite the fall in core prices, all other measures, including producer and retail price inflation, showed no sign of slowing. PPI input prices jumped above 20% and reached a new record at 22.1%.

The RPI, a long-running measure of inflation, reached a 40-year peak of 11.7%.

The headline CPI number for June is expected to rise to 9.3%, then continue rising to “slightly over 11% in October”, according to the Bank of England. Their monetary policy committee pledged to “forcefully” combat inflation at their most recent meeting.

CMC Markets market analyst Michael Hewson said that this raises the question of what level of inflation would warrant a more forceful response by the US central bank, which is expected to raise rates another 150bps in September to address a lower inflation problem.

“A lot of headline CPI increases are now beginning to manifest themselves in higher gasoline, electricity, and petrol prices. This accounted for more than 4% of the May increase and will continue in June.”

Investors expect to hear from Royal Mail PLC that its Covid bounce has ended.

The stock market decided to go ahead anyway, investors focusing their attention on the long-standing problems of the postal group due to industrial action.

Already, labour costs are rising while fuel and power prices have increased. This has led to warnings that stamp prices may have to go up again.

Elon Musk’s electric car powerhouse will release second-quarter earnings later in the evening London time. This follows hot on the heels a production and delivery update in which volumes fell for the first time since 2010, though June was the most productive month in Tesla’s history.

New factories, Musk called “gigantic money furnaces that burn billions of dollars”, are likely to put pressure on earnings.

“The outlook for the second half of this year will be closely monitored. It is crucial to bring new factories up to production levels that can support profits. It will be interesting to see if the group’s target to make 1.5 million cars this year still holds,” stated Matt Britzman. He is an equity analyst at Hargreaves Lansdown.

Thursday 21st July 

Ocado Group PLC, (LSE: OCDO) has raised £578mln in cash. This amount will meet its “medium term” needs.

Based on the existing contractual agreements, management believes it can deliver an annual underlying profit (EBITDA), above 350mln, and become cash-positive within five to six years.

The shares in the online grocery company are down about 60% since the beginning of the year but have been roughly flat since May.

Investors will also be watching for Howden Joinery’s interim results. The main focus is on the second half of the outlook.

The current guidance for pre-tax profits is £380mln. Analyst consensus is slightly higher.

UBS said that there are concerns about the target being too aggressive in the context of macro slowdown/weakness appetite for high-ticket purchases.

“Howden has produced good results so far, but investor concerns about tough comps and pull forward of demand during the pandemic seem like they are weighing on the shares.”

Friday 22nd July

Beazley will report half-year numbers at the end of this week following warnings from other insurance companies.

Although it has already reported losses of US$50m from the conflict in Ukraine, that estimate did not include aviation. Therefore, an update will be needed.

The Lloyds-based underwriter also experienced problems with its cybersecurity division in the past three years. However, it stated in its last release that they were now under control.

Peel Hunt stated that exposures have decreased materially since 2020 (ransomware frequency has fallen 25% per policy) and attrition claims now appear under control. The broker added that it expected Beazley would continue to innovate digitally and online distribution and may even increase cyber exposure slowly.

Beazley stated that the combined ratio of underwriting premiums plus costs minus claims will be approximately 90% this year. This is something the City would like to see repeated.

US earnings:

Monday: Bank of America, Goldman Sachs, IBM

Tuesday: Halliburton, Hasbro, Johnson & Johnson, Netflix

Wednesday: Abbott Labs, Alcoa, Baker Hughes, CSX, Harley-Davidson, Texas Instruments, United Airlines

Thursday: American Airlines, AT&T, Intel, Newmont, Philip Morris, Snap

Friday: American Express, Schlumberger, Verizon

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