If the scheduled news is anything to go by then the coming week could be relatively quiet,
but appearances can sometimes be deceptive – after all the latest edition of the St
Leger horse race is due to be run at Doncaster’s Town Moor track on Saturday 11th September.
The running of the final so-called Classic of the season is often seen as heralding the end
of the summer lull in stock market trading and a return to higher levels of activity,
as per the old saying “Sell in May, go away and come back again on St. Leger day.”
Make of that what you will but the latest Chinese inflation figures on Wednesday 8th September
and US factory gate (or produce price index) inflation numbers on Friday 10th
should be informative. They will have central banks on high alert,
as the debate over whether the current spike in inflation is “transitory” or not
and the main macroeconomic item of the week could just two interest rate decisions – one from the
Reserve Bank of Australia (RBA) on Tuesday 7th and one from the Bank of Canada (BOC) on the 8th.
The RBA’s current headline interest rate is 0.1% and the BoC’s is 0.25%. What makes
this interesting is that the BoC already tapering its Quantitative Easing (QE) scheme
and the RBA is due to start in September, so they are already gently tightening monetary policy.
Moreover, Korea and Iceland became the first developed-market central banks to raise interest
rates this year, after a slew of hikes from emerging markets like Brazil, Russia and Mexico.
That took the total to 46 rate increases in 2021 from central banks compared to just 8 cuts.
They are all looking to nip inflation in the bud – be it price inflation,
housing or even asset prices more generally – so it will be interesting to see what the RBA and BoC
say on this front, even if the Reserve Bank of New Zealand postponed an expected rate rise in August,
citing an outbreak of a new COVID variant in the country as the reason.
The US Federal Reserve, Bank of England and European Central Bank are still debating
tighter policy, but some monetary authorities are getting on with it.
The key now will be whether the bigger banks follow, or the early movers must
stop and reverse track (which is what happened on more than one occasion in the past decade).
On the corporate front, not one FTSE 100 firm is scheduled to make an announcement in the
coming week, although a good number of mid- and small-caps are due to update shareholders
on trading with either first-half or full-year results. Names which may be worthy of further
note, because of what they say about themselves, their industry or the economy more generally,
include the following, although these dates could yet be subject to change:
• Estate agent Belvoir and Dechra Pharmaceuticals on Monday 6th September
• Cleaning products expert McBride,
house builder Vistry and niche building materials firm Alumasc on the 7th
• Retailer Inspecs, Gamma Communications and chilled foods producer Bakkavor on the 8th
• Bid target and grocer Morrisons, broadcaster STV,
litigation funder Burford Capital and transport specialist FirstGroup on the 9th
• Before Sussex-based engineering services firm Ricardo closes out the week
on Friday 10th September.
But the stock which could just cause the biggest fuss in the week ahead is soft
furnishings and homewares retailer Dunelm (DNLM). The FTSE 250 index member is slated
to release its full-year results to the end of June on Wednesday 8th September.
The company’s business model proved ideally suited to the pandemic- and lockdown-blighted
year of 2020, as its website kept customers served and those customers spent money on their house
which may have otherwise gone on holidays or other items. However, investors’ affections in 2021 have
– so far at least – switched to those firms which may show a faster recovery going forward, if only
because their sales, profits and cash flows took a big hit during the worst of the viral outbreak.
The upshot is that Dunelm’s shares are down by 15% over the 12 months
and have made little progress in 2021, despite some very upbeat trading updates,
the last one of which covered the fourth quarter and came out in July.
Chief executive officer Nick Wilkinson revealed
• Sales for the whole year rose by 26%, with the fourth quarter up by 102% as physical
stores reopened. For the year, digital sales reached 46% of the total, although
that had slipped to 37% in the fourth quarter as shoppers got to, well go the shops again.
• Gross margins rose owing to the postponement of the traditional summer sale
• And that pre-tax profit would reach £158 million, slightly ahead of analysts’ forecasts
So, when it comes to these full-year figures, analysts will be looking at those benchmarks
and any guidance for the financial year to June 2022. Three key figures will grab the headlines.
• The first is sales. Dunelm has already flagged that 2021 sales to £1.3 billion,
so analysts will look for any comments on first-quarter trading, two months in, and any
forecasts for the year to June 2022. The current consensus is for a 5% increase to £1.4 billion.
• The second is profits. Again, Dunelm has already revealed that its gross margin rose
by 1.3 percentage points in the year to June, implying a figure of 51.6% but it has already
flagged a dip of 0.7 to 1.0 percentage points in the coming year, due to the timing of summer
sale and input cost pressures. That contributes to analysts’ forecasts for a minor increase in
pre-tax profit in the year to June 2022 to £163 million, from the £158 million just booked.
• The third is the dividend. Dunelm’s balance sheet had £129 million in net cash at the year
end, according to the July trading statement, and the firm returned to the dividend list in
February with a 12p-a-share payment for the first half. For the full year analysts are looking for
33p a share with a further increase expected for the year to June 2022. Note also that in
the past Dunelm has paid out special dividends and launched share buybacks for good measure.
More strategically, watch out for any further comments on supply chain disruption,
cost or price increases and plans for investment in both digital capability and warehousing space.
Dunelm is breaking ground on new warehouses in Daventry and Stoke, sites expected to
cost £12 million and add £8 million to operating costs in the year to June 2022.
I hope that you and your families are all in good health and good spirits. Thank you for listening
and I look forward to talking to you again next week.