The European Central Bank offers its latest monetary policy announcement on Thursday 22nd
April and economists will be looking to whether President Christine Lagarde makes any adjustments
to interest rates or quantitative easing (QE). Neither is expected, but just in case:
• the main refinancing rate stands at zero – as it has since September 2019
• the Pandemic Emergency Purchase Programme, or PEPP, has a current limit of €1.85 trillion,
from its inception date on March 2020 to March 2022. This latest version of the QE programme
has been expanded in scope twice already, from its initial level of €750 billion.
This means the ECB’s balance sheet now carries assets with a value of €7.5 trillion, up 44%
year-on-year. Make of that what you will, but it looks like there’s little turning back from here.
On the home front, the big picture will be dominated by the latest
unemployment numbers on Tuesday 20th April
The last published unemployment rate was 5%, as 1.7 million people were out of work
– a little lower than in December although that figure still meant that some 339,000 people
had lost their job since the start of the pandemic. It could have been worse as the
furlough scheme has helped to keep the unemployment rate down – there were still
some 4.7 million people on that at the end of January, according to the March Budget.
It will be no comfort at all to those who have been unlucky enough to lose their job, but the
UK’s average jobless rate since 1971 in 6.8% and we are still below that, which is something.
Moreover, the Office for Budget Responsibility now thinks that the jobless rate could peak at
around 6.5% later this year, rather than its prior estimate of 7.5%,
so that may also offer a little hope for the future.
However, the claimant count is still high. This stands at 2.7 million people and measures not
just those who are out of work but those who are having to claim other unemployment related
benefits, such as Universal Credit, and not just jobseeker’s allowance.
Times are therefore still tough for a lot of people and hence this concept of the K-shaped
recovery, where some are doing very nicely thank you, very much, and they’ll be able to
go out and spend this month, whereas that is not the case for a significant number of consumers.
On the corporate front, the first-quarter reporting season in the USA is about to hit
top gear. After the big banks last week, it will be Netflix and Intel, as well as
United Airlines and Southwest Airlines, that might help to set the tone in the coming week.
Here in the UK almost a dozen FTSE 100 firms are due to update their shareholders on how
the year is going, although most will do so via a trading statement rather than first-half or
full-year results. A number of mid- and small caps are scheduled to do the same
and names which could be worthy of note include the following,
although do please remember that these dates are potentially subject to change:
• Rio Tinto and BHP on Tuesday 20th, to kick off a busy week for the miners
• Bunzl, Antofagasta and Hochschild Mining on Wednesday 21st
• RELX, Taylor Wimpey, Rentokil and Spectris,
as well as three more miners in the form of Anglo American, Polymetal and Centamin on Thursday 22nd
But for me the company capable of causing the biggest fuss in the week ahead is
Associated British Foods. The owner of Primark, British Sugar and Twinings tea
is scheduled to report its first-half results for the year to September 2021 on Tuesday 20th April.
Shares in the conglomerate are up by around a quarter over the past year. That is good going
given the extremely testing backdrop, and it is also better than the FTSE 100, which has advanced
by around a fifth over the same time period. AB Foods’ solid balance sheet (£1.6 billion in net
cash at the full-year stage last August, excluding lease liabilities, although £2.1 billion of debt
including them), its diversified business and hopes that Primark will benefit from a reopening
of stores are all potential explanations as to why the shares have outperformed.
Such has been the pace of change in the COVID situation, with lockdowns and easings coming
and going in the UK, Ireland, Europe and beyond, that ABFoods has felt
obliged to issue no fewer than four trading updates since November’s full-year results.
The net result is that AB Foods has forecast a drop in sales,
operating profit and adjusted earnings per share for the fiscal first half.
Just for your reference, the numbers attained in the first half a year ago were:
• Sales of £7.6 billion
• Adjusted operating profit of £682 million
• Adjusted earnings per share of 61.8p
For the full year to September analysts are forecasting a small increase in sales,
broadly flat operating profit at just above £1 billion and an improvement in adjusted earnings
per share from last year’s 81.1p, thanks to lockdowns slowly coming to an end (we hope.)
Analysts will therefore focus as much on any comment for the second half and the full-year
as they will the numbers for the October to March period.
Analysts and investors will look to the divisional mix of earnings.
Primark was the biggest earner in the first half of last year but it then
fell into loss in the second half, while the other divisions – Grocery, Sugar,
Agriculture and Ingredients – all showed improvements across the year as a whole.
February’s trading statement flagged year-on-year increases in sales and
profits at all four of those units again for the first half period,
but then warned of a 40% drop in sales at Primark to £2.2 billion and the likelihood of an operating
result near breakeven from the Retail operation, which does not really have an online presence.
Finally, attention will switch to the dividend. AB Foods cancelled both its interim and its
full-year payments last year, ending a long run of increases in its annual payment. Management
may decide to err on the side of caution at this first-half stage,
as Primark’s stores reopen, but analysts have pencilled in a full-year payment of 36p per share,
which, if paid, would equate a total distribution of £285 million.
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.