US midterm elections, Primark, Morrisons and Imperial Brands make for busy day ahead

The day ahead will see Americans go to the polls to vote in the midterm elections but closer to home the focus is on financials from AB Foods, Morrison's and Imperial Brands

The Republicans are at risk of losing their majority in the House of Representatives

The US midterm elections on Tuesday will give Americans the chance to give their assessment on the first two years of Donald Trump’s presidency.

All 435 House of Representative seats are up for grabs along with 35 of the 100 Senate seats in the midterm elections - which are held halfway through a president's term and are often seen as a referendum on the current administration. 

Trump's Republican Party currently holds majorities in both the House of Representatives and the Senate but the Democrats will be looking to break this stranglehold.

Opinion polls suggest the Democrats are well placed to gain the 23 seats they need to take back control of the House of Representatives but will face a tougher challenge in the Senate. 

“The expected outcome is that the Democrats will win the House of Representatives and the Republicans will tighten their grip on the Senate,” said Tom Stevenson, investment director for Personal Investing at Fidelity International.

“If it plays out like this, it will be business as usual for markets. In usual circumstances, the year after the mid-terms is a good time to be invested because Presidents with an eye on re-election start to loosen the purse strings, giving the economy and markets a boost.”

Primark continues to drive growth at AB Foods  

In company news, Associated British Foods plc (LON:ABF) reports its full year results on Tuesday when earnings are expected to be boosted by a strong performance at its Primark, grocery and ingredients businesses.

The group said in a September trading update that a decline in European sugar prices had resulted in much lower revenue and adjusted operating profit in the sugar division.

It also warned that it would take a £20mln hit to full-year profits related to a strengthening of the pound since two-thirds of its operating profit is earned outside the UK

However, the group anticipates the slump in the sugar business to be offset by higher profits and revenues at the Primark, agriculture and ingredients units.

The company’s star performer, Primark, is expected to deliver sales growth of 5.5% at constant currency, although like-for-like sales are forecast to decline 2% amid the challenges high street retailers are facing from a consumer shift towards online shopping.

“The market was slightly disappointed with the company’s last update in September which showed a fall in sales at Primark and a deteriorating outlook for sugar business,” said Graham Spooner, investment research analyst at The Share Centre.

“As Primark enters the important festive sales season investors will be listening for any comments on expectations and the level of anticipated discounting.”

Analysts at Jefferies estimate revenues will rise to £15.8bn from £15.4bn last year and profit before tax and other items will increase to £1.96bn from £1.91bn.

More of the same from Morrisons

Wm Morrison Supermarkets PLC (LON:MRW) has put in good operating performances in recent quarters, driven by a restructuring of its business driven through by chief executive David Potts.

However, The Share Centre's Spooner thinks that unusual weather patterns over this year may have a knock on effect on the latest quarterly figures.

The analyst thinks it may be difficult for Morrison’s to reproduce the 6.3% like-for-like sales growth it experienced in the second quarter which was helped by the warm weather, but says investors should be fairly happy with the third-quarter estimate of roughly 2.4% that research house Kantar has produced.

Spooner concluded: “While many will applaud what management have done, it is no doubt true that there remain many challenges, with the German discounters who have upped the ante by seeking further expansion, and a proposed Sainsbury Asda merger pose the biggest problems.”

Investors to focus on performance of Imperial Brands cigarette alternatives 

Imperial Brands PLC (LON:IMB) has been focusing on its cigarette alternatives following a tough year for tobacco stocks due to worries about the US clamping down on regulation.

In October, the US Food and Drug Administration highlighted research that discovered that cutting nicotine by as much as 96% would improve public health. 

Investors will therefore be paying close attention to any comments from Imperial Brands on the performance of the company’s next-generation products when it reports its full year results on Tuesday.

The Lambert & Butler, Winston and Gauloises cigarette maker said in a September trading update that it was on track to deliver full year results in line with expectations, supported by higher sales of alternative cigarette products.

As a stock of longstanding appeal to income-seekers, thanks to its strong dividend record, any comments on future dividends will be very much of interest as well.


Significant events expected: 

US mid-term elections

Trading updates: Wm Morrison Supermarkets PLC (LON:MRW), Sky PLC (Q1) (LON:SKY), Direct Line Insurance Group PLC (LON:DLG), William Hill plc (LON:WMH), Purplebricks PLC (LON:PURP), Weir PLC (LON:WEIR), Vesuvius Plc (LON:VSVS), Georgia Capital PLC (LON:CGEO)

Finals: Associated British Foods plc (LON:ABF), Imperial Brands PLC (LON:IMB), Connect Group PLC (LON:CNCT), Up Global Sourcing Holdings PLC (LON:UPGS)

Interims: Randgold Resources PLC (Q3) (LON:RRS), Castleton Technology PLC (LON:CTP), First Derivatives PLC (LON:FDP), Verona Pharma PLC (LON:VRP)

Traffic figures: International Consolidated Airlines Group PLC (LON:IAG)

Economic data: US JOLT job openings

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