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  • What can investors expect in July?

    We look at what’s coming up for the markets next month.

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    We’ll have to wait a little while longer to find out who, but this time next month we’ll have a new Prime Minister.

    Since the race for Downing Street will likely dominate the headlines in the coming week, we’re putting company results front and centre of our preview.

    The tech giants report

    It’s been an intriguing year for the tech giants, with plenty of downs as well as ups.

    Netflix will be one of the first out of the blocks with its second quarter results on 17 July. The streaming service has delivered some strong numbers of late, although last time out its guidance was slightly below forecasts. Investors will be hoping the group can deliver more than the 5m net subscriber additions targeted.

    We’ll also have our eye on the cash flow statement. Spending on content and marketing has been stepping up, and with the imminent launch of Disney’s streaming services, that’s unlikely to change. Netflix recently announced its intention to raise another $2bn.

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    Later in the month we can expect to see results from Microsoft, Amazon, Alphabet, and Facebook – of which we think Alphabet’s update will be the most interesting.

    Last month, investors’ nerves were frayed by news the US Department of Justice could investigate whether the Google owner is unfairly suppressing competition. While there’s plenty of water to pass under the bridge before any investigation commences, never mind concludes, that’s a worry.

    And the timing of the news hasn’t been the best. At the last set of results, Alphabet’s revenue disappointed, despite rising 17%. Alphabet investors could use a reassuring update.

    Still, we think it’s worth keeping things in context. Revenue growth may be slowing, at the same time spending on projects from content vetting tools at YouTube to life sciences research is stepping up, but analysts still expect the company to generate significant free cash flow.

    For those looking to mark their card ahead of results, analysts are looking for at least $6bn of free cash flow this quarter.

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    Eyes to the skies

    We’ll also have a close eye on the airline industry, with Ryanair and easyJet both due to report after a turbulent few months.

    The budget airlines have been under the cosh from price competition, which has squeezed fares at Ryanair down to just €37 a ticket.

    Things aren’t that rosy at easyJet either. Prices have been falling, and it looks like capacity growth is going to plateau. While capacity will still likely rise, the group has said growth will be at the lower end of recent levels.

    On the bright side, reducing growth rates means capital expenditure will be lower. That reduces the amount of cash flowing out of the business, which should have the knock on effect of lowering debt levels.

    However, easyJet can’t ignore the fact that flying fewer passengers will hamper revenue growth. With the tailwind from cheaper fuel costs fading, and the dollar’s rise against sterling also hurting the group (remember fuel is priced in dollars) this will feed through to profits.

    With that in mind, it’ll be interesting to see if easyJet takes a firmer stance on prices to preserve its bottom line when third quarter results are released on 18 July.

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    July also brings results from a swathe of the UK’s housebuilders, and there are plenty of things to look out for.

    Firstly, there’s the elephant in the room – Brexit. We hear a lot about how the UK’s impending departure could impact house prices, and the associated uncertainty has resulted in fewer transactions and price falls in many areas.

    However, the problems have been largely contained within the secondary market. For the builders, it seems the assistance provided to first-time buyers by Help-to-Buy, and affordable mortgage rates, have trumped the wider uncertainty.

    To get a flavour of if that’s changing, we’ll have our eyes on forward sales and reservation rates in this round of results.

    Then there’s the more stock-specific questions. Persimmon, for example, has been under fire for the quality of its homes and received a lower rating than all its major peers in the Home Builders Federation’s annual customer satisfaction survey. Shortly afterwards, the group launched an independent review of its practices. While ongoing demand will of course be important, it’ll be worth keeping tabs on the issue in next month’s results.

    Elsewhere, we’ll be interested to see what Barratt Developments does on shareholder returns.

    CEO David Thomas has followed Berkeley Group’s lead in promising to split returns between dividends and share buybacks. Intuitively one would imagine the group would look more towards share buybacks if it deemed the price to be too low, and distribute more income when the price is higher.

    An update on trading is due on 10 July.

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    Find out more about Barratt

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    The author and a connected party hold shares in Alphabet.

    Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss.

    This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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