Monday 8 February 2021 6:45 am

The Week Ahead: Look out for GDP data, Ocado, AstraZ, Twitter and Ted Baker

Start your week informed: here are the announcements and results to look out for this week.

UK GDP: A double dip recession is looming

After a fairly decent third quarter, and an expansion of 16 per cent, the UK economy has had a much more troubled fourth quarter, with the likelihood that we may well see a double dip recession when figures are published on Wednesday, having seen two successive negative quarters in the first half of 2020, and the beginning of 2021 unlikely to see restrictions lifted much before Q2. 

“The economy started to slow again in October, as Covid-19 cases started to rise again, and a new variant burnt its way across the country. With new lockdowns starting at the beginning of November and various tightening of restrictions throughout December its probable that Q4 might see a modest contraction, even though some estimates suggest a 0.5 per cent expansion,” Michael Hewson, chief market analyst at CMC Markets UK in London, told City A.M. this morning.

This could be as a result of a big jump in imports as retailers and businesses stockpile goods ahead of the Christmas period as well as the end of the Brexit transition period, which might also give the numbers a bit of a boost, he continued.

“What we can be certain of is that the first quarter of this year is likely to be much worse, with the Bank of England expecting a 4 per cent contraction,” Hewson noted, adding that private consumption and government spending “was just about the only thing” keeping the economy going in Q3, and it is likely to be the same in Q4.

Read more: Negative interest rates remain a distant and unlikely prospect

UK manufacturing PMI: A standout candidate

If recent PMI’s are any guide then the manufacturing sector could well be the standout candidate in terms of Q4 performance, Hewson said this morning.

“Since the end of the first lockdown the manufacturing sector has expanded every single month, for the most part by a fairly decent amount, with a 0.7 per cent gain seen in November. December is likely to be similarly positive given that economic activity at increased quite markedly ahead of the end of the Brexit transition period,” he added.

Read more: UK PMIs: Services activity plunges to lowest level since May

Ocado: Bigger than Sainsbury’s and Morrison combined

The first major stop this week will be Ocado, this Tuesday, when the company publishes its full year-results. According to Hewson, Ocado continues to confound its critics.

“The Ocado share price has made more gains this past 12 months, with the jury still out as whether it can be viewed as a retailer, or a technology provider,” he told City A.M. this morning.

The company’s £750m deal with Marks & Spencer to deliver an initial range of 4,400 food products, along with 700 from the M&S lifestyle range, started to pay dividends from the beginning of September last year.

Hewson said he saw the benefit of this deal in its most recent Q3 numbers. Retail revenue grew 52 per cent in the quarter, rising to £587.3m, with the average spend coming in at £141 and average orders per week rising to 345,000 from 315,000, from the same period a year ago.

Q4 saw a rise of 35 per cent in retail revenue, while management said they expected full-year EBITDA to come in well above its previous guidance of £40m, at £60m, with the company also completing on its deal to acquire Kindred Systems and Haddington Dynamics in December, both companies that specialise in robotics manufacture. These two deals cost a combined $287m.

Read more: Retailers ‘desperate’ for roadmap out of lockdown as sales continue to fall

“Ocado looks to streamline the picking functions in its automated fulfilment centres in order to improve efficiencies across the business. With a market cap now up at an eye-wateringly high £20bn, Ocado is bigger than Sainsbury’s and Morrison combined, and only just behind Tesco in terms of size,” Hewson said.

“It therefore needs to continue to grow if only to justify a valuation that bears little relation to the underlying fundamentals, with revenues expected to come in at £2.3bn on an annualised basis. In comparison Tesco turned over £64.7bn in its most recent set of full year accounts,” he added.

AstraZeneca: At the forefront of the vaccine race

The pharmaceutical giant is presenting its full year results this Thursday morning and investors will be keen to see what the pandemic boost has been, so far. Big pharma has had a much higher profile this year than would normally have been the case, without the fact we are in the midst of a global pandemic.

Hewson explained that, over the past few years, this sector has undergone a significant amount of rationalisation as the sector faces the challenges of a lack of innovation, expiring drug patents, and increasing regulation.

“AstraZeneca has been at the forefront of this, acquiring Alexion at the end of last year for $39bn, as it looks to build up its presence in the field of immunology. AstraZeneca has also been at the forefront of the battle to develop a vaccine against Covid-19, as well as any variants thereof,” he analysed.

Read more: More than 12 million have had first dose of Covid vaccine

“The joint venture with Oxford University has a slightly lower efficacy rate than its peers, and isn’t a messenger RNA vaccine unlike the Pfizer and Moderna jabs, however it has caused quite a storm in Europe, after the company said it needed to streamline its European operations, thus delaying the rollout, citing the slower ratification process by the EU in approving the dose,” he added.

The vaccine is being produced at cost which means there is not much in the way of upside for AstraZeneca, apart from goodwill, and even that is in short supply due to EU politicians trying to shift the blame for their own failures onto the company, Hewson said.

In Q3 year to date total revenues were up 8 per cent to $19.2bn, with product sales up by 9 per cent, driven by strong performance across three therapy areas, with oncology leading the way R&D expenses rose 8 per cent year on year to $4.2bn. Full year revenues are expected to come in at $26.4bn an 8.4 per cent rise on last year.

Twitter: The aftermath of events on Capitol Hill

Twitter, presenting its results on Tuesday, has always been the poor relation when it comes to the likes of Facebook, when it comes to monetising its user base, said Hewson.

In Q3 it did appear it was making progress on this front, when revealed revenues of $936m, an increase of 14 per cent on the same period a year before, with 187m daily users, a 29 per cent increase year on year. Compared to Q2 however it was only marginally higher, and Hewson thinks Q4 could well see this number slip back in light of recent events.

Read more: What next for social media regulation in the post-Trump world?

“In the aftermath of events on Capitol Hill in January, and President Trump’s subsequent ban, Twitter embarked on a purge of thousands of accounts, while others may well have decided to leave of their own accord,” he noted.

Many companies also decided to pull their advertising spend in the aftermath of the violence which in turn could well impact Twitter’s Q4 numbers. Hewson pointed out that the next few months are likely to be “crucial ones in the life cycle for social media” companies and Facebook and Twitter in particular. Profits are expected to come in at $0.30c a share, which seems optimistic given that they came in lower than that in Q3 at $0.19c a share. 

Ted Baker: An uphill struggle

Fouth quarter results are to be made public on Thursday morning. When Ted Baker announced last June it was looking to raise over £100m at a discounted price of 75p the share price tumbled, as the new management looked to rescue a business that has seen its fortunes implode spectacularly in recent years, Hewson recalled.

In March 2018 the shares were up at over £30 each, however a raft of profit warnings, the departure of founder Ray Kelvin in controversial circumstances, and various stock accounting errors, has seen the shares fall sharply, he continued.

Read more: Debate: Will digital retailers continue to hoover up high street chains?

During last year the company sold and leased back its head office in London for the sum of £78.75m, with £72m of that cash used to pay down its debts.

“The company has an uphill struggle in the current retail environment, a fact that was borne out in its most recent third quarter numbers, which saw revenues slide almost 46 per cent to £169.5m, while losses came in at £86.4m,” Hewson said.

Total retail sales including ecommerce slid 42.2 per cent, which Hewson said “looks grim” until you realise that on their own, eCommerce channels rose 41.8 per cent. 

“On the plus side, its store footprint is much narrower than a lot of its peers, and the business rates holiday will also help on the margins, while its collaboration with Next has expanded beyond childrenswear, to include lingerie and nightwear from May 2021,” Hewson noted.

Despite the losses Ted Baker CEO Rachel Osborne has insisted that free cash flow will be positive this year in spite of all the restructuring efforts and covid-19 headwinds. “This week we’ll find out if that optimism is justified,” he concluded.

Read more: Exclusive: City law firm chief warns Brexit may damage Square Mile’s ecosystem

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