• Sun. Aug 14th, 2022

What Corporate Britain Can Reveal About the State of the Economy

ByBloomberg News

Jul 24, 2022
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Almost two thirds of UK blue-chip companies will update the market over the next three weeks, as earnings season reaches fever pitch. While Square Mile professionals pore over second-quarter details, the reports are also likely to shed light on broader subjects affecting the whole country, from the energy crunch to the cost-of-living crisis, rising interest rates and the threat of an economic slump.

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(Bloomberg) — Almost two thirds of UK blue-chip companies will update the market over the next three weeks, as earnings season reaches fever pitch. While Square Mile professionals pore over second-quarter details, the reports are also likely to shed light on broader subjects affecting the whole country, from the energy crunch to the cost-of-living crisis, rising interest rates and the threat of an economic slump.

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Here are five things to watch.

Airlines and Travel Chaos

For some airlines, the summer’s travel chaos may also be a boon as travel rebounds after two years of lackluster results. Low supply amid a shortage of staff — together with a surge in demand as Covid restrictions end — has driven ticket prices sky high.

Ryanair Holdings Plc, which reports earnings on Monday, is among those to have avoided mass cancellations. The Irish budget carrier has beaten estimates in six of its last 10 fiscal periods. EasyJet Plc is scheduled to report a day later, with British Airways-owner International Consolidated Airlines Group and Air France-KLM disclosing their performance at the end of the week.

But there could be some turbulence. Travel-industry data platform OAG recently estimated that caps on passenger numbers at London Heathrow could result in as much as $550 million in lost revenues.

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Energy Companies and the Crisis

Soaring oil and gas prices following Russia’s invasion of Ukraine have given energy majors an historic boost. Shell Plc is expected to post its largest profits since 2008 on July 28, with BP Plc also predicted to reveal bumper earnings on Aug. 2.

Centrica Plc, the owner of British Gas, reports on the same day as BP. Profits there may spark political grumbling, but with a windfall tax already imposed by the UK government, ministers’ options are limited.

London-listed miner Glencore Plc is expected to report a boost from coal sales on July 29, with the global energy crunch increasing demand for the highly-polluting fuel.

Retail and Inflation

The most intense cost of living crisis in decades has forced people in the UK to tighten their purse strings. The clearest sign of the effect on retailers will come from Next Plc, when it reports earnings Aug. 4. According to Deutsche Bank analyst Adam Cochrane, the sector faces precarious times: “Like in a cartoon, we believe that 2023 earnings forecasts are hanging over a cliff edge.” 

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Meanwhile, Mars Inc. and Kraft Heinz Co. have clashed with supermarkets over price hikes, as grocers also look to undercut suppliers with their cheaper own-brand products. Consumer-goods rivals Unilever Plc and Reckitt Benckiser Group Plc update in the last week of July. 

Tineke Frikkee, head of UK equity research at Waverton Investment, is looking for any indication that shoppers have started “trading down” to lower-priced food. Kantar data shows that sales of branded goods fell 2.4% in the 12 weeks to July 10, while own-brand sales rose 4.1%.

The FTSE’s new £30 billion consumer goods giant, Haleon Plc, will issue its first update on July 27 after being hived off from pharmaceutical behemoth GSK Plc. BT Group Plc and Vodafone Group Plc will report on July 28 and July 25 respectively, shedding light on whether hard-stretched families are trying to cut their telecom bills.  

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Banks, Insurers and Interest Rates

Rising interest rates could spell good news for banks. Lloyds Banking Group Plc kicks off bank reporting on July 27, with NatWest Group Plc unveiling its half-year results two days later (July 29). 

But with the Bank of England pondering a 50 basis-point hike in August, consumer-facing lenders are vulnerable to the economic slowdown. Mortgage spreads for UK banks have narrowed and consumer credit markets may also slow with the economy, Shore Capital analyst Gary Greenwood said in a note. 

Banks with relatively large trading operations, such as Barclays Plc, will hope to have enjoyed a similar boom in revenues to Wall Street’s financial giants, which have benefited from volatility on the markets. Barclays reports on July 28.

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Insurers are facing inflationary pressures of their own through claims. Direct Line Insurance Group Plc and Admiral Group Plc have both signaled profits will come in lower when they report on Aug. 2 and Aug. 10, respectively. 

“Supply chain issues, and wider economic inflation will likely make it difficult to reduce claims inflation levels in the near term,” JP Morgan analyst Kamran Hossain wrote in a note. The costs are already being passed on, according to the Federation of Small Businesses, which said 60% of small firms have seen insurance premiums rising.

Cars and Supply Chains

The global supply chain crunch, triggered by Covid lockdowns and exacerbated by the war in Ukraine, has taken a severe toll on the automobile sector. Amid a persistent shortage of semiconductors, carmakers will be closely-watched for signs that supply chains are opening up. Mercedes-Benz Group AG and Ford Motor Co report on July 27, while Stellantis NV and Volkswagen AG update markets a day later. Even though they aren’t listed in the UK, their reports could give crucial updates on both supply issues and demand in the face of the cost-of-living crisis.

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Image and article originally from financialpost.com. Read the original article here.