Must read: Bank of England, AB Foods, Sainsbury's

Next week is set to be a busy week in terms of UK corporate earnings. We will hear from companies including BP (LSE:BP.), Associated British Foods (LSE:ABF), Wetherspoon (J D) (LSE:JDW), Marks & Spencer Group (LSE:MKS), ITV (LSE:ITV), Diageo (LSE:DGE) and Sainsbury (J) (LSE:SBRY). US earnings season continues with highlights including Uber Technologies Inc (NYSE:UBER), Pfizer Inc (NYSE:PFE), and McDonald's Corp (NYSE:MCD).

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On the economic agenda, investors will be looking out for key PMI readings from China, the US, the Eurozone and the UK. Also in focus will be interest rate decisions from the Bank of England and the Reserve Bank of Australia.

BANK OF ENGLAND – THURS 6 NOVEMBER

Victoria Scholar, Head of Investment, interactive investor says, “The Bank of England will announce its interest rate decision on Thursday 6th November with most analysts expecting the base rate to remain unchanged at 4%.

The UK’s latest annual consumer price inflation defied expectations, coming in better than expected at 3.8% for September, unchanged versus the previous two months, despite forecasts for a rise to 4%. Core inflation also slowed unexpectedly, dropping from 3.6% to 3.5%. In another encouraging sign, annual food and non-alcoholic drinks inflation fell to 4.5% from 5.1% in August and the monthly figure actually declined by 0.2% representing the first fall in 16 months.

Fresh figures from the British Retail Consortium this week paint a similarly encouraging picture – UK shop price inflation fell to 1% in October down from 1.4% in September, the first drop after seven straight increases.

Meanwhile in terms of the jobs market, the latest unemployment rate rose slightly to 4.8% in September, vacancies fell for the 39th period, and wage growth excluding bonuses fell to 4.7% in the three months to August.

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The latest economic data with improving signs of easing inflation and growing slack in the labour market point to an environment that increasingly warrants an interest rate cut from the Bank of England. However, there is a mega cloud of uncertainty for consumers and businesses with many in both camps refraining from big spending decisions until after the government’s tax and spending plans are revealed in the Autumn Budget.

It would probably make most sense for the Monetary Policy Committee (MPC) to hold off from loosening monetary policy until the Chancellor has set out her fiscal plans. However some economists including those at Goldman Sachs believe the Bank of England will push on anyway by carrying out a 25 basis point cut on Thursday.

Looking further ahead, economists are divided over the central bank’s next move with some anticipating a rate cut in December, while others believe the MPC will wait until the new year.”

ASSOCIATED BRITISH FOODS FY – TUES 4 NOVEMBER

Richard Hunter, Head of Markets, interactive investor says, “At its latest trading statement in September, AB Foods revealed that it was finding the current environment heavy going, with the Sugar business still leaving anything but a sweet taste in the mouth for investors.

Although the Sugar division only accounts for around 11% of group sales, lower European sugar and higher beet prices, along with a loss at its UK bioethanol business, Vivergo, are still expected to cause an annual loss of £40 million for the unit versus previous estimates of profit up to £75 million.

The second largest unit is Grocery, which accounts for 22% of group sales, where trading is expected to be in line with the previous year. Strong showings from Ovaltine and Twinings have helped cushion the blow, while the announcement of the Hovis acquisition should result in financial sustainability as early as next year.

As ever, the main focus is on the group’s jewel in the crown, Primark, which is responsible for 47% of overall revenues. However, growth has been hard to come by and has come up against some tough comparatives from the prior year. In addition, cautious consumer sentiment is already beginning to weigh on prospects, as had largely been predicted following the measures announced in the Budget which were seen as being particularly harmful to the retail sector.

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The sector itself is famously competitive, and Primark now lines up against the likes of Chinese players such as Shein and Temu, while its online offering is still far behind that of Next.

That being said, while the US business is still in its fledgling stage, accounting for 5% of group revenues, the potential for growth is evident as the group focuses on investment and marketing to lift brand awareness in what could be a major opportunity.

Overall for Primark, while the online offering is far from the finished product as seen at many of its competitors, it is part of a two-pronged approach whereby physical stores remain a top priority for the group.

As a traditional conglomerate, AB Foods benefits from business and geographical diversification, which in turn can often result in various units being able to pick up some of the slack elsewhere depending on the economic cycle. A dividend yield (including specials) of 3.9% is attractive enough, in addition to the previously announced £500 million share buyback programme. Shares have managed to gain by 12% in the year to date, but over the last year have slipped to a 0.3% decline.”

SAINSBURY'S HALF-YEAR – THURS 6 NOVEMBER

Richard Hunter says, “Sainsbury’s first quarter numbers in July were ahead of expectations, which augurs well for the imminent half-year report.

Its Grocery category was the star of the show, helped along by its convenience and online components, where overall growth of 6% included an uplift of 18% in its Taste the Difference range.

As such, guidance for the full-year for the group as a whole was maintained at underlying operating profit of around £1 billion, which would equal the previous year’s showing.

Sainsbury tends to be less affected by the current tariff wars, although food inflation is of course a concern. It also has exposure to a skittish consumer in terms of discretionary spend via its Argos brand, which has been facing difficulties in recent times.

With customers searching for perceived and actual value, the availability of the group’s Nectar scheme is also playing its part in increasing Sainsbury’s market share over the period and now extends to 9000 products. Indeed, the company estimates that within three years, Nectar will provide incremental profit of £100 million which would be a significant bonus given the ferocity of competition which the sector attracts. Promisingly, the target is already ahead of schedule, with £39 million achieved in year one.

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The group’s prodigious cash flow enabled another increase to the dividend, giving a healthy yield of 3.9%, alongside the previous announcements of both a £200 million share buyback programme and the earmarking of a further £250 million for a special dividend during the year as a result of the sale of its banking operation.

Elsewhere, challenges remain. Quite apart from the impending cost pressures resulting from the Budget measures, which are expected to add £140 million of costs per annum, its non-food businesses are a mixed bag. There had been warning signs over the last few months that the consumer is becoming increasingly selective in non-essential items which, coupled with other competitors specifically concentrated in this space, had somewhat left Sainsbury trailing. More broadly, supermarkets may be about to embark on a price war and Asda’s aggressive assault on prices, if it fully happens, will likely shave profits across the sector.

Nonetheless, the shares are up by 25% so far this year and hopes are high that the group can continue to grab more market share, where it is currently in second place in the UK with 15.3%, sandwiched between Asda (11.8%) and supermarket behemoth Tesco (28.3%), the latter of which remains the preferred play in the sector.”