The blue-chip corporate reporting season moves up another gear in the coming week, with more numbers due from the banks and the drugmakers, and the oil majors also getting in on the act, while – Brexit aside – the economic focus will be on the latest Federal Reserve policy decision and then the US payrolls report at the end of the week.
On the lending front, Lloyds Banking Group PLCs (LON:LLOY) third-quarter profits on Thursday are going to take another big hit from PPI mis-selling charges but unless they are at the top end of the scale, other factors are more likely to move the shares.
The equine-branded banks results – which follow those from Royal Bank of Scotland Group PLC (LON:RBS) and Barclays PLC (LON:BARC) – last month suspended its share buyback as it warned of likely £1.2bn-£1.8bn PPI compensation costs due to a spike in complaints in the final weeks leading up to the 29 August deadline, taking its total bill to around £26bn.
Having in August sunk to a six-year low, Lloyds stock is actually 20% higher since its PPI warning last month, with Brexit optimism having provided a big boost after Boris Johnson agreed a deal with the EU.
In the third quarter last year, Lloyds reported pre-tax profit (PBT) of £1.8bn and underlying profits, excluding items such as conduct costs at just over £2bn, a level that has remained fairly constant, as proved in the second quarter of 2019.
Analysts at Citi predict Q3 underlying profit will be stable quarter-on-quarter, and they expect a £1.55bn PPI bill resulting in £0.5bn of reported PBT.
Amid a competitive mortgage market, Lloyds net interest margin (NIM) – the difference between its interest paid on savings and charged on loans – declined by two basis points in both the first and second quarters and Citi foresees further compression.
Russ Mould at AJ Bell said loan impairment costs will also be worth watching, with bad loan write-downs having risen at all five of the big five FTSE 100 banks and a continuation of this trend “a potential concern as it could suggest that borrowers are struggling” and “might also explain why central banks are performing a policy pivot and cutting rates, rather than hiking them”.
Uncertainty still surrounds HSBC
HSBC PLC (LON:HSBA) will report on quarterly numbers at the start of the week as uncertainty still encircles the global banking behemoth after chief executive John Flint was given the heave-ho in August.
Flint departed after just a year-and-a-half in the role because the group said it needed a change in leadership to address a “challenging global environment”.
The move followed a poor first-half performances from HSBCs US and European operations, and the abandonment of a 2020 profitability target for the American business.
More recently, reports emerged that interim chief executive officer Noel Quinn, perhaps wondered what he could do to inveigle his way into investor affections and grab the full-time role, was planning to unveil a huge cost-cutting plan to firing 10,000 staff around the world.
The plans, which will focus mainly on high-paid roles and come on top of over 4,000 redundancies already announced in the summer, are expected to be announced with these third-quarter earnings.
HSBC has warned this year that escalating trade war tensions between China and the United States, cuts to interest rates, and unrest in its key Hong Kong market and Brexit are hitting business.
Hong Kong protests loom large for Standard Chartered
While the UKs domestics banks are still struggling with the impact of the PPI scandal, one exception is Standard Chartered PLC (LON:STAN), which will report its third-quarter results on Wednesday.
Rather than PPI, the banks investors will be focusing on whether ongoing pro-democracy protests in Hong Kong, its biggest profit centre, have been weighing on the numbers as the turmoil drives capital out of the city.
The Hong Kong operation is particularly vulnerable to forced business closures as protestors and police confront each other on the streets, as well as a sharp drop in foreign currency purchases from visitors from mainland China.
The group had previously flagged that the instability could pose a risk to its earnings in its interim results in August, while ongoing Brexit uncertainty was also highlighted as a concern.
GlaxoSmithKline looks to lessen sting of Zantac recall
Following on from its €955mln travel vaccine deal with Danish biotech firm Bavarian Nordic on 21 October, investors in GlaxoSmithKline PLC (LON:GSK) will be looking for more good news in its third-quarter results on Wednesday.
The pharma giant upgraded its full-year profit expectations in July, however, it turned out to be more of a damage limitation as the firm said its profits were likely to fall by £262mln as opposed to previous estimates of up to £787mln.
Investors will be eyeing any possible changes to these forecasts, as well as any updates on the fallout from the groups Zantac heartburn drug, which was recalled earlier this month after authorities in the UK and US raised concerns over possible carcinogen contamination.
Scraping the bottom of the barrel at BP and Royal Dutch Shell
Investors will be eager to see how far declining oil prices have affected two of the worlds largest oil and gas producers, when BP (LON:BP.) and Royal Dutch Shell (LON:RDSA) give trading updates on Tuesday and Thursday respectively.
Brent crude prices have fallen by a fifth since April with trade war tensions accompanied by intrigues in the Iranian gulf, down below $60 a barrel for Brent crude at the start of October.
BPs shares have responded in tune with a 12% drop from their year-high in March and were hovering at 510.5p on at market close on Thursday.
Analysts at AJ Bell say that the oil giants earnings are likely to have been damaged by the dip in prices, as well as ongoing environmental concerns, but say that investors should pay attention to cash flow numbers, since this will dictate the dividend.
Meanwhile at Shell, Goldman Sachs is optimistic that the firm offers “one of the strongest cash returns to shareholders” with a c.6% dividend yield paid in cash.
Analysts at the US investment bank added that Shells investment in the middle east and north Africa, with new concessions off the coast of Egypt due to begin exploration in 2020, has potential to grow the company, but may also have exposed it to short term security risks.
Bounce-back eyed at BT Group
On Thursday, BT Group PLC (LON:BT.A) puts out second-quarter numbers with its shares similarly bouncing from recent long-term lows.
The former telecoms monopoly Augusts Q1 results led to the shares dropping to their lowest level since 2011 as investor fears were stoked about a dividend cut.
Cash flows were dialled down by a third due to the companys roll-out of high-speed broadband and a consumer market that is “significantly more competitive and aggressive than last year”.
Chief executive Philip Jansen, who joined at the start of the year, assured that the group remained “on track” to meet its full-year targets, which include free cash flow of £1.9bn-£2.1bn.
However he insisted that regulatory winds are moving in favour of the sector, pointing to the government's reiterated ambition for full fibre broadband across the country, saying he was confident there will be “further steps to stimulate investment”.
Recently, UBS analysts said a meeting with Jansen revealed no more detail on how any expanded fibre rollout would be financed, leaving investors to continue worrying about a dividend cut, in addition to further cost savings, reallocation of capex and higher debt.
Within an increasingly competitive market, analysts said the CEO indicated BT “will not sit back and lose market share”, but even though some rivals 5G mobile promotions are “not rational”.
Next up
Next PLC (LON:NXT) was among the retailers blaming the unusually warm weather in September for low pre-autumn sales, with investors expecting some detail on the matter in Wednesdays trading statement.
Analysts think there may be comments on increased competitor discounting in online sales, following ASOSs statement earlier this month, although they jumped 12.6% in the six months to the end of July, offsetting a 5.5% dip in store sales.
Pilot strikes and weak bookings cloud the skies for IAG
British Airways owner International Consolidated Airlines Group PLCs (LON:IAG) third-quarter results on Thursday may get off to a turbulent start following a profit warning in September when pilot strikes and weak bookings forced it to cut its full-year profit guidance by around 6%.
Investors will likely be on the lookout to see if both of these factors are set to continue into the coming months, and with BAs pilots union still not having accepted its offer of an 11.5% payrise, further strikes could be on the horizon.
There is also the risk that booking declines, which have been concentrated among IAGs budget brands such as Vueling and LEVEL, are indicative of wider economic weakness.
With this in mind, non-fuel costs per average seat kilometre will be eyed closely as weaker booking will mean costs may have to be cut to maintain margins.
Positive signs needed for ConvtaTech
ConvaTec Group PLC (LON:CTEC) is set to release a trading update on Wednesday, possibly loathed by investors as third-quarter results have been historically disappointing, although analysts say any positive signs will be welcomed by the market.
Full-year sales consensus is broadly flat year-on-year, at US$1.8bn, with debt crunching 8% to US$1.2bn.
There will not be many comments from Karim Bitar, appointed chief executive last month after the medical products company underwent a leadership reshuffle forced alongside the profit warning issued last year.
Investors spooked at Smith & Nephew changes
Smith & Nephew PLC (LON:SN) already spooked investors ahead of its Halloween trading update when chief executive Namal Nawana announced earlier this week plans to leave the artificial hip and knee company after only 18 months on the post.
Ronald Diggelmann, who joined the FTSE 100 firm in March 2018 as a non-executive director, will replace him as of 31 October, in what analysts call a “crucial” phase in its history as it has unveiled a new commercial model after ten years of below market growth.
Tense times for trader Plus500
Ever-volatile Plus500 Ltd (LON:PLUS) will give a trading statement on Tuesday, hoping to continue the uptick in its last quarterly revenues.
Back in July, the online trading platform, which is headquartered in Israel but operates a subsidiary in London, said turnover was up to US$148mln helped by increased volatility in financial markets.
Investors will be hoping to see last quarters gain in customers spilling over into higher revenues in the third quarter.
Shares have more than halved since February, hovering at 788p on Friday, following a profit warning that said tighter regulations were causing a slump in CFD (contract for difference) trading, sending revenues down from a mega-year in 2018 based on surging cryptocurrencies.
Significant events on Monday 28 October:
Trading statement: HSBC Holdings PLC (LON:HSBA), Photo-Me International PLC (LON:PHTM)
AGMs: Bilby PLC (LON:BILB), Petra Diamonds Ltd (LON:PDL), Verseon Corp (LON:VERS)
Economic data: CBI Distributive Trades
Significant events on Tuesday 29 October:
Interims: Bloomsbury Publishing Plc (LON:BMY)
Trading statement: Read More – Source
