The coming week will usher in the festive month of December with an offering of economic data and corporate results that is likely to include a mix of welcome gifts and some Scrooge-like numbers.
Berkeley Group Holdings PLC’s (LON:BKG) has been the gift that keeps on giving for investors, with the housebuilder having attracted with investors a share price that has soared by a third this year and almost doubled in the past three.
However, with UK mortgage approvals falling to the lowest level since March, house price growth remaining below the wider level of inflation and consumer confidence levels also low, there are plenty of macroeconomic factors in play for a sector that has thrived and shelled out some bumper cash returns in recent years.
Progress at the FTSE 100 group and its peers has in large part been down to the supportive backdrop enjoyed by industry of historically low interest rates, the government’s Help to Buy scheme and a general housing shortage.
Berkeley is one of the sector’s best performers thanks to its solid sales grow, a record for beating earnings targets and the reassurance of its flexible shareholder returns policy.
This Friday will see half-year results following a recent four-month update that showed house prices stable at £748,000 but that forward bookings were down to £1.8bn from £2.2bn a year earlier.
Management said market conditions in London and the South East remained “robust” but cautioned that the wider market had been “constrained by high transaction costs and the uncertainty in the macro-political and economic environment”.
This is unlikely to have dissipated as next month’s general election nears.
While targeting £3.3bn of pre-tax profit for the six years to April 2025, with profit in each year ranging from £500mln to £700mln, this year however Berkeley has guided to profits dropping by a third from last year’s £775mln.
The consensus forecast for pre-tax profit for the whole year is £536mln in pre-tax income for the whole year, with UBS predicting £287mln for the half year, including joint venture income and interest.
Cash returns will be under scrutiny too, with £280mln or 400p a share pledged for the coming two years, and also now been extended to 2025.
“Any comments on the mix between dividends and share buybacks will be interesting. Last year this was 20% dividends and 80% buybacks,” said analysts at AJ Bell.
UBS analysts added: “Considering the timing of results ahead of the UK elections, we don’t think long-term guidance will likely be unchanged by we think short-term FY20 guidance will be raised from the current level of £500mln.”
Liberum analysts recently noted that history as a guide would point to the housing market slowing in the run-up to the election, “but if the opinion polls and bookmakers are correct, the housebuilders shares could outperform if a Conservative victory is the outcome”, while at Shore Capital warned that any more uncertainty will be “a killer for the housing market”.
ABF looking for a Primark pickup
Back then the clothing-to-sugar maker said the weakness of the pound would mean margins would decline in the first half of the current trading year, despite reductions in the cost of goods and overheads.
Sugar, however, is expected to be a sweet spot, benefitting from recovering sugar prices in the EU, while the grocery arm is expected to see another year of strong profit and margin growth.
Management are confident Brexit, if it happens, will not lead to much disruption for the conglomerate, with contingency plans in place.
The sterling weakness, sugar price uncertainty and vicissitudes of the retail sector have led to a rollercoaster couple of years for ABF shares, currently around a quarter off the high of late 2015 but on the front foot in recent weeks.
Many analysts and investors remain fans of the diverse multinational, with Berenberg recently suggesting that the decline in like-for-like sales at Primark, which brings around two-thirds of group profits, might have led investors to believe it was sinking like many other UK peers when actually its international opportunity was “underappreciated” and its sales densities offer “exceptional value”.
The analysts noted that the market seemed to be valuing Primark at 44% less than Next, although it used to be valued 19% more.
A Primark pick-up could therefore see further recovery in the stock.
Ferguson plumbing US markets
Plumbers’ merchant Ferguson PLC (LON:FERG) will face scrutiny on Tuesday when it updates shareholders on tricky times in its separately-run UK and US businesses, with a possible demerger on the cards.
Former US boss, Kevin Murphy took over from long-time chief executive officer John Martin in November, as the company shifts gears to focus on its largest market, the US, while spinning out the low-margin UK segment, known as Wolseley.
But market watcher Richard Hunter at Interactive Investor has raised concerns that planned demerger could “add further distractions and cost in what could be a challenging economic time in the company’s core US market over the next year”.
So, all eyes will be on progress in the US, which looks large enough to retain a FTSE 100 listing by itself but is on unstable footing lately because of trading slowdowns, as well as mixed economic data coming out of the world’s largest economy lately.
Shares have eased a little after reaching a year-high over 7,000p in the past week.
Has Frozen come to rescue Cineworld?
The company said earlier this summer it was looking to boost revenues with popular titles such as the Frozen and Lion King sequels to reach the year-end target.
Shares are now trading at near five-year lows, while the stock is also the most shorted in the City according to the Shorttracker website, meaning a number of investors out there are betting on a further plunge.
The market is still not sure whether last year’s £2.7bn acquisition of American cinema chain Regal was a sensible move, considering the sector has been struggling to drag consumers out of the comfort of their home where they can enjoy cheap and convenient streaming services.
In fact, Regal’s box office intake dropped 18% in the first half, doubling the overall US sector loss of 9%.
The strong offering will keep the momentum up, with the recent release of ‘Frozen II’ and the imminent launch of ‘Star Wars IX: The Rise of Skywalker’ just before Christmas, but investors are unlikely to forget about the US$3bn debt pile plus the US$3.6bn in lease commitments.
“Cineworld has tried to confound the bears’ thesis by paying back US$570mln in loans early, targeting US$150mln in synergies from the Regal acquisition and paying a special dividend at the interim stage this year,” Russ Mould, investment director at AJ Bell, said in a note.
Consensus revenue points to a 6% dip year-on-year, with the US and UK down by 5% to 6%, while adjusted underlying earnings will remain flat at US$1.1bn.
Daily Mail - read all about it
Daily Mail & General Trust PLC (LON:DMGT) hopes to keep up a storming year on the London market, with its share price up 54% this year to make it one of the strongest performers in the media sector.
It’s since levelled off a little, but shareholders will be hoping to regain ground with Thursday’s final results, after the Mail upped guidance for consumer media in July.
Stable revenues are all it expects, but this is much better than the high single digit declines previously feared, with print media on a downward trend amid falling circulation and aversion from advertisers.
In the past week, sector-mate and Daily Mirror owner Reach said it managed to slow its print declines, with consumer media also expected to get a short-term boost from government advertising around Brexit and looking ahead to the general election.
Shareholders will also be on the lookout for any announcement of a prospective bid for fellow right-leaning news outlet, The Telegraph, which pus put on the block earlier this month, which market watchers have called a “good fit” for DGMT.
Loungers keeps stretching across England and Wales
The café-bar operator floated in April at 200p and the shares had recently sunk to 188.5p, before perking up in the past week as some investors are clearly optimistic about the coming numbers.
October's trading update showed revenue and like-for-like (LFL) sales 22% and 5% respectively higher than 2018, and said plans to add 25 sites over the financial year to its 154 existing Lounges and Cosy Clubs were on track, as 10 had opened in the six months to 6 October.
Broker Peel Hunt felt trading was “strong” during the first half, but margins are expected to stay flat with minimal growth thereafter due to slowing LFL sales, expected to grow 2.7%.
“Loungers is materially outperforming the sector in relation to sales, but without resorting to discounting and delivery,” analysts said in a previous note.
“Its strong, self-financed growth is being supported by its PLC status, enabling wider share ownership in the company and an even stronger landlord covenant. In our view, these attractions are yet be reflected in the share price.”
IG bets are on revenue growth
There is potential for upside if the quarterly revenue progress continues at the current rate, reckons Peel Hunt, with the second quarter expected to deliver between £105mln and £135mln.
In the three months to 31 August, IG posted £129mln sales, broadly flat year-on-year, while the number of active clients rose 5% to 92,300, although average revenues per customer fell 5% to £1,344.
This was despite concerns over the last year that leverage limits on the firm’s retail clients, who are generally more prone to suffering large losses, would impact revenues going forward.
When leverage limits were brought in across the UK and EU last year, IG’s profits plunged by a third, however investors may have been relieved that the update showed revenues for the region covered by the regulations, which accounts for around 52% of IG’s revenue, were 6% higher than the second to fourth quarter average last year.
Election jitters in the UK, but non-farms could be calming
For the manufacturing PMIs, due on Monday, analysts are expected a slight slowdown to 48.1 from the previous reading of 48.3, while the reading for construction on Tuesday is also expected to dip to 44 from 44.2.
Services, meanwhile, is expected to be flat at 48.6 on Wednesday, which may provide a small amount of relief as the largest segment of the UK economy isn’t slowing despite the uncertainty.
If the consensus estimates prove to be accurate, the pound may see some pressure that could dent its recent strength on the back of the comfortable poll lead for the Conservatives ahead of December’s election.
Stateside, the focus is on Friday’s non-farm payrolls as in most months.
Following an upward revision of US third-quarter GDP to 2.1% from 1.9% on Thursday, the market is anticipating payroll data from the world’s largest economy for November will confirm the growth story and reduce fears of a coming slowdown.
Consensus forecasts are for US companies to have added 190,000 jobs in the period, higher than October’s figure of 128,000, and with the strike action by workers at car giant General Motors having ended last month analysts will be expecting more strength now that a key drag has subsided.
There will also be another batch of data from across the Atlantic in the form of the US manufacturing, non-manufacturing and services PMI’s, the first of which will be delivered on Monday with the other two published on Wednesday.
Analysts at UBS predict that US manufacturing will decline slightly, to 48 from the previous reading of 48.3, with non-manufacturing also expected to slip to 54 from 54.7.
Significant announcements expected for week ending December 6:
Monday December 2:
Economic data: UK Manufacturing PMI, US Manufacturing PMI
Tuesday December 3:
Interims: Collagen Solutions PLC (LON:COS), Consort Medical PLC (LON:CSRT), Falanx Group Limited (LON:FLX), Ramsdens Holdings PLC (LON:RFX), Solid State PLC (LON:SOLI), Tekmar Group PLC (LON:TGP), Uls Technology PLC (LON:ULS)
Economic data: UK Construction PMI, US Auto sales
Wednesday December 4:
Economic data: UK Services PMI, UK Composite PMI, US Services PMI, US Composite PMI, US Non-Manufacturing PMI, US ADP employment rate
Thursday December 5:
Economic data: US jobless claims, US trade balance, US factory orders,
Friday December 6:
Finals: Reneuron Group PLC (LON:RENE)
Economic data: US non-farm payrolls, US unemployment, US Michigan consumer confidence, UK house price index