Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

WITH interest rates at a 15-year high and the cost-of-living crisis raging, the winners and losers on the stock market aren’t always as easy to determine as you might think. Here are five well-known names reporting in July, all impacted in some way by the challenging economic conditions. This is not a recommendation to buy or sell these investments and is purely insight into some of the companies that will be announcing results or releasing trading updates in the weeks ahead.

Read on or jump to the relevant company below.

J. Sainsbury 

Back in the day (think pre-pandemic, pre-cost-of-living crisis) the pressures on supermarkets were straightforward - Tesco, Sainsbury and Asda et al were all pitted against one another for market share, while simultaneously allied in their efforts to keep the pesky German discounters at bay. Already it was growing increasingly clear that customers demanded value and were prepared to shop around for it. 

Fast forward to 2023 and that battle has not only intensified, it’s been made worse by rising raw material, supply chain and wage costs. 

Not that you’d know it, looking at the latest financial year, Sainsbury’s appears to have been doing pretty well out of it. The supermarket group generated revenue of £31.5bn, and this year analysts expect that to rise to £32.2bn. At the full-year stage in April, Sainsbury’s itself said it expected underlying pre-tax profits of between £6.4bn and £7bn for the full-year 2023/24. 

Having been accused of profiteering, the big four supermarkets have faced a grilling by a parliamentary committee over the cost of a weekly shop. Food prices remain a key reason why the headline rate of inflation remains so persistently high and these supermarkets have questions to answer over when prices will come down. 

For their part, Sainsburys and co argue that the costs, including a rising wage bill, make the challenge to grow earnings ever more complex.  

When Sainsbury’s reports in July, investors will be looking to see how the business is holding up, especially against its rivals, with all the supermarkets under pressure to keep slashing prices as the cost-of-living crisis saps shoppers’ spending power. 

Having invested £200 million in price cuts, in addition to Tesco-style Nectar card discounts on products and an Aldi price match, Sainsbury’s has made no bones about the fact that this is a fiercely competitive sector. 

J. Sainsbury posts its Q1 update on 4 July.


Barratt Developments 

It goes without saying that the latest hike in the base rate to 5% was not great news for the UK’s housebuilders. With mortgage rates only going to go up further still, willing and able buyers will inevitably become fewer in number. And all eyes will now be on Barratt Developments when it releases its latest trading update on 13 July. 

With the threat of recession being bandied about, even if it doesn’t come about, just the fact that it is mentioned is likely to further dampen enthusiasm for the already beleaguered housebuilding sector. 

Shares in all housebuilders immediately slumped on fears that mortgage costs will surge again as the Bank of England fights to control inflation, with Barratt Developments one of the biggest fallers in the FTSE 100. 

And it’s not economics, but also red-tape that’s posing a problem for the likes of Barratt. Analysts at UBS note that regulatory and planning uncertainties are already putting pressure on housebuilders and exacerbating housing supply shortages, particularly in London.


Unilever

Consumer goods group Unilever has no shortage of big brands to its name. From Marmite to Ben & Jerry’s, Dove soap to Hellman’s mayonnaise, these household brands have long been best-sellers. 

However, as the cost-of-living crisis deepens, encouraging some shoppers to switch down and leaving increasing numbers with no choice but to, the question is whether Unilever’s brand names have the sort of stickiness that only the inflation rate seems able to achieve at the moment. 

So far so good though. Unilever’s brands have proved they seem to have sticking power; even in a consumer spending crunch. It achieved strong quarterly revenue in the first three months of the year. An average price rise of 11% boosted its bottom line, despite sales remaining flat. This helped it to a record revenue of €14.8bn.  

Its chief executive Alan Jope denied Unilever was profiteering though, saying he was “very conscious that the consumer is hurting”. While not disclosing profitability figures for the first quarter, Mr Jope said the UK-based group’s operating margins had been squeezed, from 18.4% in 2021 to 16.1% last year. 

However, there’s no denying that shoppers, especially those in North America, have been unexpectedly willing to tolerate the price rises in the first three months of the year. The company’s sales volumes recovered more strongly than expected from a 3.6% drop in the previous quarter and they came in flat year-on-year. Add to this the fact that Unilever isn’t dependent solely on the UK - selling its products in more than 190 countries - and this company’s stable of big grand must-haves could see it through the economic crisis. 

What might turn out to be more of a disruptor is the arrival on the board of activist investor Nelson Peltz, who has been building the stake he holds in his Trian fund. This has sparked a series of leadership changes. Out-going is Mr Jope, a 35-year Unilever veteran who announced his retirement last September, just months after Peltz joined the board. He is followed by chair Nils Andersen, chief financial officer Graeme Pitkethly and chief digital officer Conny Braams.  

The Trian founder has a long record of activism in the consumer goods sector. He orchestrated changes at Procter & Gamble and was behind the 2012 break-up of Kraft Foods into Heinz and Mondelez.  

Unilever’s half-year results are due out on 25 July.


Lloyds Banking Group 

Seen as something of a bellwether of the UK economy, UK-focused bank Lloyds is seen as a good indicator of the financial health of the UK’s consumers and its small business owners. It is also something of an immediate beneficiary of each interest rate rise, seeing as net margins rise due to the fact that what it pays savers and the income it generates from borrowers, is never equal. 

That was evident well before this latest rate rise. With 12 rate rises having preceded it, Lloyds has been seeing its earnings surge. First quarter pre-tax profits up 46% to £2.26bn beat analysts’ forecasts of around £1.95bn.  While net income, generated after deposit pay outs, rose 15% to £4.7bn. 

However, we also know that the bank is highly exposed to consumer confidence, or rather lack of it right now. Customer deposits fell by £2.2bn to £473.1bn in the first quarter; partly driven by seasonal customer outflows, including tax payments, higher spend and a more competitive market, Lloyds said. 

Perhaps more concerning is its exposure to the mortgage market. As one of the largest mortgage lenders, if arrears start to mount, Lloyds will feel the backdraft.  It’s aware of that though and has increased bad loan provisions to £243m to cover potential losses after reporting a "modest" rise in arrears. It said that has been mainly in commercial banking loans and mortgages. This compares to £177m set aside in the same period a year ago but is below the £356m provision forecast by analysts. 

Lloyds Banking Group posts its half-year results on 26 July. 


Shell 

It might only be a small investor, after all the Church of England’s oil and gas holdings account for less than 1% of the endowment fund, while the pension pot has about £7mn invested, but it has played a far larger part in discussions with oil companies, like Shell, over climate change. That the Church is selling its investments in Shell (along with those in BP, Exxon and Total and seven other big oil and gas companies) speaks volumes and is a damning indictment of these companies’ efforts to halt global warming. 

Shell isn’t likely to find favour with motorists and households either if its second quarter results show the same sort of forecast-beating profits we’ve seen of late. Continuing surging oil company profits, driven by higher prices, have reignited calls for a further strengthening of windfall taxes by the UK government as consumers struggle with the cost of living crisis and soaring inflation. 

Shareholders were rewarded though. The company announced a new $4bn share buyback and held its dividend at $0.2875 per share, after Shell beat forecasts to post a first quarter net profit of $9.65bn (£7.6bn). Boosted by strong returns from its trading division and higher liquefied natural gas, which offset lower oil and gas prices, earnings also beat a company-provided forecast of $8bn. 

The results immediately re-fuelled calls for the current windfall tax regime to be strengthened, with Sharon Graham, general secretary of the Unite union, saying both BP and Shell were "continuing the profiteering bonanza". 

And Shell’s new chief executive, Wael Sawan, who took the helm in January, may not have helped matters much here either. He has promised to be “ruthless” in his pursuit of higher returns for shareholders. He has set out a plan for Europe’s largest energy company to cut costs, boost shareholder pay outs and devote a higher proportion of spending to oil and gas.  

While the news was no doubt welcomed by many investors, others will have questioned how that fits in with the plan launched just two years ago by his predecessor, Ben van Beurden, to achieve net zero emissions by 2050 by increasing investment in clean energy. 

Perhaps we’ll get some answers to that when Shell posts its second quarter update on 27 July.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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