Deluge of corporate earnings in the UK today... time to wade through some of the highlights. Retailers have been strong thus far and Tesco and Marks have continued the theme, although the anticipated full-year profit upgrades were rather mild and shares dipped in early trade. Investors were primed for a bit more, but should note that every little helps.
Tesco numbers don’t disappoint, overall, despite tough comparative year ago figs. Market share the best in four years, strong Clubcard membership, and Christmas sales up over 9 per cent over 2019, +2.7 per cent vs last year. Given lockdowns last year this is impressive. Booker sales +20 per cent as the restaurant trade bounced back despite the impact of Omicron and convenience stores doing well. Profit outlook improves – management say they expect full-year profit ‘slightly above’ the top-end of the previous £2.5bn to £2.6bn guidance. But UK Q3 LFL of +0.2 per cent was short of the +0.6 per cent expected. Shares dipped over 1 per cent; typical post-earnings results pattern for Tesco. How Tesco uses its scale and Clubcard to weather pricing + inflation headwinds will be key to the year ahead, though it comes into it in very strong shape. Investors should be mindful that Tesco is starting to throw off a lot of cash and dividend yields are attractive.
Marks & Spencer (MKS)
Marks & Spencer delivered more good progress over Christmas. Food sales increased 12.4 per cent as the good momentum in-store continued over Christmas. Impressively, in the update MKS says the business generated its ‘highest ever Christmas sales’, with December growth in line with the performance for the quarter. Clothing & Home sales increased 3.2 per cent, but within this full price sales grew by 45 per cent. Store sales down 10 per cent but online +50 per cent is in the right place. International sales increased 5.1 per cent, thanks to a doubling in the online component.
Having previously, at the time of the half-year results in November, raised the full year profit outlook to ‘in the region of £500m’ from the £300m-£350m range set out in May, management now say they expect full year profit before tax and adjusting items of ‘at least £500m’. Not a material upgrade as such but one that will keep investors focused on the long-term and hope that it means a return of the dividend when FY results are announced later in the year. Shares are up 85 per cent in the last year, recovering in tandem with a much stronger retail performance. Shares dropped 4 per cent this morning, perhaps on a milder-than-hoped-for profit outlook. A lot of the good news – as reflected in the rally for the shares in recent months – had been baked in after November’s major profit upgrade. Today’s update continues to the good news story but does not shift the narrative materially.
ASOS returns to sense of normality
ASOS (ASOS) seems to have settled down into some post lockdown normality. It has been a rollercoaster ride over the last 18 months. When lockdowns initially kicked in, demand for the online retailer’s clothes rocketed and so did its share price. However, the supply chain issues checked this and now it’s market cap is back to where it started.
Its recent trading update came in at five per cent, which was a little below consensus. Growth was mainly driven by 13 per cent increase in UK revenue. Increased demand for going outwear suggests that people aren’t totally opposed to fun anymore. US growth was also pleasing, up 7 per cent (11 per cent on a constant currency basis) and now it has debuted its partnership with outlet store Nordstrom there the hope will be for further expansion.
The fly in the ointment is that supply chain issues are persevering. Gross margin decreased by 400 basis points to 43 per cent driven by increased freight price. ASOS has also been using airplanes to get its goods on time – which is more expensive than the traditional boats.
These prices will normalise, eventually. And when they do, the sales growth generated against tricky comparators from last year will look a little sweeter. The share price jumped 11 per cent by 9am this morning. AS
Persimmon issues bullish trading update
Despite rising costs, pandemic-linked supply dislocation, and a tepid increase in the average selling price, housebuilder Persimmon (PSN) expects to report an underlying operating margin of around 28 per cent when it publishes 2021 numbers in March.
This would be in line with 2020 profitability and would translate to operating profits of around £1bn, against projected revenue figures of £3.61bn.
Management is also encouraged by the outlook, and Persimmon believes the price point of its homes – around 18 per cent below the national average selling price – puts it in a strong position to serve first-time buyers and the many individuals for whom the pandemic has prompted a reassessment of “type of accommodation that they wish to enjoy”. The average selling price was £237,050, up 3 per cent on 2020 but below the average price rise for both new build and older homes nationally, which Persimmon put down to a change in the “regional mix of sales”.
However, the market appears put out by a lack of comment on surplus cash returns and special dividends – as well as a relatively muted response on the cladding issue – as a negative, initially pushing the shares down 3 per cent in this morning’s trading session.
Halfords (HFD) stuck to guidance for the full year (-3 per cent in early trade), Dechra (DPH) +1.7 per cent with results in line. Hays (HAS) +1 per cent after reporting a record quarter with fees up 37 per cent. Perfect conditions for recruiters with staffing shortages everywhere. Countryside (CSP) -15 per cent, said trading below expectations; CEO Iain McPherson to step down.
Digital infra trusts keep on raising funds
Digital 9 Infrastructure (DIG9) has announced a placing of new ordinary shares at 108p each – a 1.5 per cent discount to the closing price from 12 January and a 4.5 per cent premium to the portfolio’s net asset value (NAV) from the end of June 2021. The board of the trust, which only launched last year, said it was currently “substantially fully deployed/committed” and had identified a pipeline of roughly £325m of new investments. Rival Cordiant Digital Infrastructure (CORD) announced its own plans for a share placing earlier this month. DB
Hydrogen trust looks to the future
HydrogenOne Capital Growth (HGEN), the hydrogen sector fund launched last summer, has deployed 46 per cent of the net proceeds it raised at launch, with 37 per cent put into three private companies and 9 per cent into 19 listed positions. In an update the trust’s board said the investments spanned the “full hydrogen value chain”, with most of the focus in the UK and EU.
The board now expects the proceeds from its 2021 launch to be fully deployed by the second quarter of this year, adding that its pipeline of potential investments was “approximately 10 times in excess of the remaining net proceeds from launch available for deployment”. The company is therefore considering options for further fundraising. DB
Tech trust cuts its fees
The board and investment manager on the Polar Capital Technology Trust (PCT) have agreed to cut and simplify its fees following a review. Currently the base management fee has four tiers, with 1 per cent charged on the first £800m of assets, 0.85 per cent between £800m and £1.6bn, 0.8 per cent between £1.6bn and £2bn and 0.7 per cent above that.
From May a base management fee of 0.8 per cent will apply to the first £2bn of assets, with a 0.7 per cent fee between £2bn and £3.5bn and 0.6 per cent on assets above that. No changes have been made to the trust’s performance fee. DB