Weekly Newsletters

29 July 2022 | William Buckhurst

That Was The Week That Was

MACRO

  • US GDP was -0.9% annualised for Q2 unofficially signalling the start of a recession following a 1.6% contraction in the first quarter

COMPANY NEWS

A very busy week for company results:

  • Microsoft missed revenue expectations, but its Azure cloud business saw sales grow 40% year on year and CEO Satya Nadella said that IT spend continues to grow as a percentage of GDP
  • Alphabet saw annual revenue growth fall to its slowest pace in two years (13% growth) but the shares responded well as the slowdown was not as bad as expected. Google’s cloud division, although still loss making, saw revenues grow 36% year on year
  • Amazon shares rose after it beat revenue expectations and offered an upbeat forecast for the remainder of the year, as the company reined in ecommerce costs and benefited from strong demand for its cloud computing business
  • Keyence reported another set of record numbers for Q1. Asia sales were down 19% YoY due to China lockdowns but that was made up for by growth of 26% in Europe and 17% in the Americas
  • Shell announced its second-best quarter ever on the back of a strong oil price
  • Rio Tinto delivered largely flat production but strong free cash flow and as a result announced their second highest ever interim dividend of $4.3bn, a 50% pay out in line with their policy
  • Newmont Corporation shares closed the week down sharply after announcing lower than expected production numbers and higher than expected costs due to markedly higher labour and fuel charges
  • Linde took a hefty charge from its withdrawal from Russia and Ukraine, but still raised its full-year guidance after higher prices and volumes boosted profits
  • Visa reported quarterly net revenues of $7.3bn, which represents growth of 19% from the previous year showing sustained levels of growth in overall payments volume, cross-border volume and processed transactions 
  • LVMH benefitted from a tourist boom in Europe and the US as it posted higher than expected revenue for the second quarter, offsetting a drop in its Chinese business 
  • Nestle delivered strong organic growth and a rise in profits. Sales were bolstered by steep price increases to offset rising input costs
  • Unilever announced sales growth of 8.1% (9.8% price growth and 1.6% volume decline) and raised guidance. Management said that against a tough backdrop, they expect to increase margins in 2023 and 2024 through pricing, mix and savings
  • Diageo also said that it was able to raise prices to "more than offset" its cost inflation of roughly 7-8% since the start of the Russia's invasion of Ukraine. Net sales jumped 21.4% to £15.5bn in the year to 30th June
  • Bristol Myers Squibb exceeded expectations on Q2 revenue and profits. They saw particular strength in their myeloma drug, Revlimid, despite generic competition. The shares remain very cheap
  • Merck also exceeded expectations on revenue and profits while raising their FY 2022 guidance
  • Compass raised FY 2022 guidance on revenue growth to 35%
  • Activist investor Elliot Management announced that it had taken a large stake in Paypal

SMALL CAP NEWS

Following the profit warning by Wickes due to softening demand in DIY and DIFM (do-it-for-me) markets, all eyes were on building results, but Ibstock and Breedon came through with very solid prints with the latter reporting 12% revenue growth and earnings increasing by 19%. This confidence (and balance sheet strength) allowed them to put up the dividend up by 40% and we wait on further M&A deals as management continues to point to an encouraging pipeline

THIS WEEK IN HISTORY

1953: The Korean Armistice is signed, signalling the end of the three-year conflict. After the armistice was signed, stock markets would double over the next three years

1998: Russian markets fall 9% in a day, their largest one day decline ever. The Russian stock market is up around 1,000% since then, despite recent falls

IN OTHER NEWS

The US Federal Reserve has said it can bring down inflation without sending the economy backward. Many question that. “I have always taken Fed-speak with a bit of salt, but when it comes to a recession, as I told my team this morning, a ton of salt.” Michael Arone, a strategist at State Street Global Advisors, told the NYT. Here at Vermeer Partners – we tend to agree

MARKET DATA

% returns

1 Week

1 Month

1 Year

5 Years

UK Equities (% return)

1.95

2.18

1.90

1.61

World Equities (% return)

3.43

6.71

-7.05

45.24

10 Year US Treasury Yield (%)

2.65

3.10

1.28

2.29

GBP / USD (fx rate)

1.22

1.22

1.40

1.31

 As at 29th July 2022. Source: Financial Express

 

 

 

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