Small Cap Review
Share Talk Weekly Small-Cap Report July 17th 2021
Sjrowe July 17, 2021
As we dive into the Share Talk Weekly Small-Cap Report on July 17th 2021. Much attention will be paid to the U.S. markets with the start of earnings season and figures from Coca Cola, Netflix, Johnson & Johnson and many others should be represented.
In the coming week, updates and results are expected from a number of well-known blue-chip companies, including postal operator Royal Mail, airline EasyJet, consumer goods giant Unilever and cell phone network Vodafone. Investors will also be keeping an eye on the United States, as the quarterly earnings season begins on the other side of the Atlantic.
News in the mining sector
After Rio Tinto provided the market with the latest news, it was the turn of other companies Anglo American PLC (LON:AAL), BHP PLC (LON:BLT) and Antofagasta PLC (LON:ANTO).
Possible trends "read" in Rio were rising costs, mainly due to higher labour costs and diesel prices, and the strong recovery of the world economy in the first half of the year, especially in China.
EasyJet about to land low-cost airline EasyJet PLC (LON:EZJ) is scheduled to provide an update on its results on Tuesday, although given the "yo-yo" state of travel restrictions in the U.K., it is unclear how the future will unfold.
The airline had already been flying high in anticipation of an easing of restrictions, but the imminent return of several Spanish islands to the yellow list may have dampened the outlook somewhat.
However, easyJet expects the other countries that have been included on the green list to help make up the shortfall and any details on summer bookings are likely to attract a lot of attention.
Investors also expect an improvement in earnings, which fell 91% year-on-year in the last quarter.
Royal Mail publishes commercial update
All eyes will be on Royal Mail PLC's (LON:RMG) trading updates on Wednesday, as investors continue to assess how the postal services provider is adjusting to the upturn in economic activity and the likely slowdown in demand for its parcel delivery services.
Last year's gains were boosted by increased parcel volumes during the pandemic, but now that the roads are open again, the question is how to maintain this momentum, although the fact that online shopping figures are still higher than before the COVID-19 outbreak may be reassuring.
Emphasis will also be placed on controlling the company's costs as it concentrates on the more expensive business of delivering parcels rather than letters.
Unilever Business Update
Unilever PLC (LON:ULVR) will release its second-quarter results on Thursday. The company's shares remain slightly below where they were at the end of 2019 and 16% below their all-time high in September 2019.
The consumer goods company has benefited from its strong line of household products over the past year and a half as people have been more diligent about cleaning their homes and washing their hands during the pandemic.
The company's shares were among the most bought on the three main UK investment platforms. Investors were eagerly awaiting the Anglo-Dutch giant's decision on how to spin off the tea business later this year: IPO, spin-off, joint venture or sale.
In recent weeks, in the face of rising inflation, JP Morgan has said that Unilever is one of the companies most affected by rising prices among the consumer goods sectors.
Commodity inflation has generally been elevated this year, but as the global economy recovers, and while JP Morgan sees some stabilization, it still expects commodity cost inflation (CCI) to be at "very elevated" levels this year and next.
Unilever posted adjusted sales growth of 5.7% in the first quarter, better than expected since 2015, although analysts had expected a decline to 4.2% in the second quarter.
Daily Mail News
Daily Mail and General Trust PLC's (LON:DMGT) nine-month trading update is likely to be overshadowed by its owner's recently announced intention to take the company public.
Rothermere Continuation said it would make an offer of around 251 pence per share for what remains of the press and exhibitions business following the completion of two transactions: the possible sale of RMS's risk insurance business and the IPO of online car retailer Cazoo, in which it has a 16% stake.
Analysts will be interested to know whether this change is due to the core group showing signs of better-than-expected performance or vice versa; in the latter case, owners often prefer to keep the company private so that they can make long-term adjustments away from prying eyes.
The workspace expects a significant recovery after its opening
Workspace Group PLC (LON:WKP) has had a tough time since the start of the pandemic, but Canadian investment bank RBC believes a strong recovery is on the horizon.
In the year to March 2021, workspace rents fell by 24%, significantly more than the 9% drop in 2008/09, as around a tenth of clients, mainly SMEs, took advantage of rental flexibility to relocate and others to downsize.
Management noted that the recovery in rental activity in the fourth quarter has continued into the new financial year and that the outlook has exceeded pre-pandemic levels. Thursday's review, to be released on the day of the annual general meeting, will show whether the trend continues.
Vodafone in the news
Vodafone Group PLC's (LON:VOD) mobile network update on Friday is expected to focus on the company's plans to expand digital services in Europe and Africa, and its performance in the first quarter of this year, following more neutral results in the previous quarter.
Shareholder attention should focus on the company's performance in its core market, Germany, as well as progress on its plans to power all of its European operations with renewable energy and reduce its carbon emissions to zero by 2030.
Result in the United States
Tuesday kicks off earnings season on both sides of the Atlantic. Tuesday brings results from Netflix Inc (NASDAQ:NFLX), United Airlines, tobacco giant Philip Morris and oil services giant Halliburton, and on Wednesday from titans Coca-Cola, Johnson & Johnson and Verizon.
Intel, Twitter and Snapchat owner Snap Inc. report Thursday, followed by American Express, Chevron and Schlumberger on Friday.
According to analyst Suzanne Streeter of Hargreaves Lansdown, Netflix's subscriber growth, one of the FAANG stocks, stalled in the first quarter and the latest figures are expected to show a further decline in the streaming giant's market share.
"Not only are Disney and Amazon attracting new viewers with their current hit shows and catalogs, but the expected reopening of movie theaters could reduce the number of subscribers."
Netflix added just under 4 million new paid subscriptions in the first quarter, well below expectations, and its forecast for the final quarter points to a significant slowdown to 1 million subscriptions, which would be the lowest in the company's history.
"The numbers may surprise on the positive side, but with the reopening of other entertainment options, it's getting harder and harder to keep viewers' attention on the screen," Streeter said.
Coca-Cola Co (NYSE:KO) results on Thursday were expected to show the downside of the pandemic, as Coke's sales in bars and restaurants fell, pressuring prices and thus profit margins.
"But now that the municipality is reopening, we can expect this trend to reverse," says Streeter colleague William Ryder, with overall volumes returning to 2019 levels in March.
"Despite an increase in market share in stores and bars, Coca-Cola managed to lose market share overall. This is because the group has an exceptionally strong position in bars and restaurants, so the decline in sales in this sector was enough to reduce Coca-Cola's market share."
In addition to regional sales trends, investors expect to learn about Coca-Cola's new product launches. The "lift and shift" strategy aims to transfer products that have been successful in one market to other markets.
The real earnings buzz in the U.S. will come next week, when Tesla and the $2 trillion club of companies will appear alongside Microsoft and Apple, as well as names like Amazon.com, Alphabet Inc and Facebook, which are only worth $1 trillion.
Macroeconomic issues central banks around the world are under scrutiny today, and next week it will be the European Central Bank's turn, especially as some steering committee members have warned of the danger of uncontrolled inflation.
The latest preliminary inflation data of 1.9%, down from 2% the previous month, will "dampen the heat a bit, but it could still be an interesting meeting," said analysts at AJ Bell.
This week's UK macroeconomic data includes Halifax housing data on Monday, government debt on Wednesday, GfK consumer confidence on Thursday night and official retail sales data on Friday, as well as PMI flash surveys.
While manufacturing and construction PMIs were very positive, exceeding 60 in the last three months, official ONS data showed much weaker economic activity, noted Michael Hewson of CMC Markets. A similar divergence was seen in services data, while retail sales data showed an unexpected decline in June.
"This week, the July flash PMI is expected to post another fairly decent reading, but given recent trends, we should treat these PMI numbers with more caution, as they also leave out some important parts of the economy that are still struggling. One trend to watch closely is the increase in prices reported by companies struggling to find the materials needed for their goods and services," he added.
Although U.S. stock markets hit new highs last week, market analyst Marshall Gittler of BDSwiss reminded that coronavirus fears appear to be too short-lived.
"But just because the market has forgotten about the virus for the moment doesn't mean the virus has forgotten about us. They may not realize it, but worldwide we have had more new cases of the virus this year than in all of last year, and this year is barely over," he said.
Gradually, the number of cases is increasing again in all regions, although, thanks to the introduction of the vaccine in many countries, new cases are not causing more deaths.
"A big problem is in the developing world, where few people have access to vaccines, and even if they do, they are often not the most effective vaccines. As long as the virus keeps circulating out there, it will mutate and come back to bite everyone." I'm afraid we haven't heard the last of this story."
Major announcements are expected in the week leading up to July 23, 2021:
Monday, July 19, 2021:
Transaction announcements: Parsley Box Group Plc (LON:MEAL)
Provisional Results: SThree PLC (LON:STEM)
Tuesday, July 20, 2021:
Trading announcements: easyJet PLC (LON:EZJ), Anglo American PLC (LON:AAL), BHP Group PLC (LON:BHP), CVS Group PLC (LON:CVSG), Luceco PLC (LON:LUCE), Integrafin Holdings PLC (LON:IHP)
Final: Begbies Traynor Group PLC (LON:BEG), Gateley Holdings PLC (LON:GTLY), Sosandar PLC (LON:SOS), Supreme PLC (LON:SUP)
Interim Results: One Media iP Group PLC (LON:OMIP), Audioboom Group PLC (LON:BOOM), TClarke PLC (LON:CTO)
Wednesday, July 21, 2021:
Trading announcements: Royal Mail PLC (LON:RMG), Antofagasta PLC (LON:ANTO), Petra Diamonds Ltd (LON:PDL), Close Bros Group PLC (LON:CBG), Euromoney Institutional Investor PLC (LON:ERM), QinetiQ Group PLC (LON:QQ.)
Interim Results: Gresham Technologies plc (LON:GHT), RTC Group PLC (LON:RTC)
Thursday, July 22, 2021:
Commercial: Daily Mail & General Trust PLC (LON:DMGT), AJ Bell PLC (LON:AJB), Diploma PLC (LON:DPLM), PensionBee Group PLC (LON:PBEE), SSE PLC (LON:SSE), Britvic PLC (LON:BVIC), Countryside Properties PLC (LON:CSP), Workspace Group PLC (LON:WKP).
Final : Mulberry Group PLC (LON:MUL), Ideagen PLC (LON:IDEA), IG Group Holdings PLC (LON:IGG)
Interim Results: Unilever PLC (LON:ULVR), Centrica PLC (LON:CNA), Howden Joinery Group PLC (LON:HWDN), Franchise Brands PLC (LON:FRAN), Breedon Group PLC (LON:BREE), Moneysupermarket.com Group PLC (LON:MONY)
FTSE 100 ex-dividend, which has subtracted 1.26 points from the index: Persimmon PLC (LON:PSN)
Economic data: U.S. unemployment benefit claims
Friday, July 23, 2021:
Transaction announcements: Vodafone Group PLC (LON:VOD), Premier Foods PLC (LON:PREM), Record PLC (LON:REC), Brewin Dolphin Holdings PLC (LON:BRW)
Interim Results: Beazley PLC (LON:BEZ), Tricorn Group PLC (LON:TCN)
Economic data: UK consumer confidence, UK retail sales, UK flash PMI, US flash PMI.
Tags: American Express, Anglo American, Antofagasta, BHP PLC, Chevron, Coca-Cola, DAILY MAIL, Easyjet, General Trust, Halliburton, Intel, Johnson & Johnson, Netflix, Philip Morris, Royal Mail, Schlumberger, Snap Inc, Snapchat, Twitter, U.S. markets, Unilever, United Airlines, Verizon, Vodafone, Workspace Group
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