What to do during a pandemic: DIY, order stuff online and drink?
B&Q owner Kingfisher has done well out of the pandemic as consumers have found reasons and savings to tart up their homes and gardens. Q3 numbers suggest the trend has not waned, but it may not persist at these levels for much longer.
Total group sales rose 17.6% to £3.5bn, with like-for-like sales +12.6%. Home doer-uppers were the driver with B&Q LFLs +24% on constant currency basis, whilst trade desks at Screwfix saw sales at +12.8% on the same basis. Total UK & Ireland sales +19.9% compared with +19.2% in France, +7.5% in Poland, +10.6% in Romania and +18.1% in Iberia.
Whilst uncertainty over Covid-19 and the impact of temporary lockdown restrictions in most of its markets continue to limit the near-term visibility, management feel that consumers’ “renewed focus on homes” is supportive for sales.
Whilst this may be true in the near-term, shares have already handsomely since the March lows and sales momentum is unlikely to continue through 2021 as vaccines enable a return to more normal activities. KGF may have experienced a significant pull-forward in demand that won’t continue. Shares declined almost 4% in early trade before paring losses to track –2% as of send time.
Meanwhile, it’s well understood that kicking our heels at home has boosted online purchases and Royal Mail has achieved a milestone in its history as a result of the pandemic, though the trend has been going in this direction for many years. For the first time, parcels revenue at Royal Mail exceeds letters revenue, representing 60% of total revenue, compared with 47% in the prior period.
Parcel volumes rose 31% as letter vols declined 33%. Revenues at the GLS rose 21.7%, with an operating margin of +8.9% and profits +84.4% to £166m. Royal Mail revenues are now projected to be £380 to £580 million higher year on year, but the mix change costs are increasing to £210 million.
The results indicate Royal Mail is moving in the right direction in terms of the shift to parcels, and point to the large opportunity in this space that the company has been a bit slow to adapt hitherto. But it also points to some near-term cost implications from the mix change. Shares rose over 6% in early trade.
Finally, the demon drink has been an important salve and Naked Wines has prospered from its direct to consumer model. First half revenues surged 80% year-on-year to £157.1m.
New customers strong, with active ‘Angels’ base +37% to 757k. The company is now the largest direct to consumer wine merchant in the USA and it is doing a good job of scaling up the operations to respond to the demand in its core markets with warehouse capacity +104%. Fixed costs as percentage of revenues –5 percentage points is another positive. Outlook upgraded for sales growth to achieve 55-65% this year. Shares rose 7% in early trade.
Stocks opened lower in Europe this morning after a soft session on Wall Street despite positive vaccine updates. Yesterday, stocks on Wall Street fell, whilst European stocks rose after Pfizer and Biontech said their vaccine is 95% effective after completing the final phase three trial analysis. The Dow Jones industrial average and S&P 500 declined over 1%, and the Dow Transports index dropped 0.7% after hitting a record high.
The small cap Russell 2000 also dropped over 1% after achieving a fresh intra-day record high. There are definitely some fears that the lack of progress on a new stimulus aid package in the US is going to put pressure on corporates and earnings before the vaccines do their stuff. Meanwhile the virus is showing no signs of slowing down in its spread – New York now closing schools.
The initial reaction in the market to the Pfizer/Biontech news was positive but muted – after last Monday a result in this area had been almost fully priced in, especially since the Moderna news this week. What it does is underscore the fact that we are heading into a much brighter 2021, and whilst temporary lockdowns need to be endured, the back-to-normal trade is still ‘on’.
And there was more good health news this morning as the coronavirus vaccine being developed by AstraZeneca with Oxford University was shown to be safe and produces an immune response in all adults, according to a Lancet report covering mid-stage trials. Phase three efficacy results will follow soon enough, with hopes high for a vaccine to be ready this year.
Sterling went on a bit of a random walk yesterday afternoon, pushing up to week highs against the euro and dollar. GBPUSD tested 1.33, close at last week’s two-month high, while EURGBP dipped to 0.89150 before the pound pared gains. Are traders sniffing around for a Brexit deal?
EIA inventories showed a rise in US crude and gasoline stocks last week. Crude inventories rose by 768k barrels in the week to Nov 13th, lower than the expected build but this seems to be down to a rise in production to 10.9m bd from 10.5m bpd in the previous week. Crude stocks at Cushing, Oklahoma rose 1.2m barrels to 61.6m barrels, the highest level since May.
With vaccines not immediately on the horizon and the virus ripping through the US, inventories should only continue to build over the winter, and this could heap pressure on pricing. WTI (Jan) tested the $41.50 again before bouncing back to $42 but has peeled off this level in early trade this morning.
Elsewhere, watch for the EU leaders meeting online to try and agree the budget after Poland and Hungary vetoed the package. US jobless claims also on tap later seen at +700k. Bitcoin has pared gains to around $17,500 with the near-term support around $17,200-300 at yesterday’s lows. Below this calls for $16,600.