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Alan Green joins the UK Investor Magazine for a broad discussion of UK Banks, China and results from Taylor Wimpey.
We discuss Natwest #NWG, LLoyds #LLOY, Taylor Wimpey #TW. and Mode #MODE.
Natwest and Lloyds reported after we looked at Barclays results on last week’s podcast and where largely similar in terms of earnings growth driven by a reversal of COVID provisions that ravaged profit last year.
Taylor Wimpey released bumper half year results which demonstrated the robustness of the UK housing market and we look at what investors can expect going forward.
We also pay attention to China and how relevant their growth story is as we emerge from the pandemic.
Alan Green discusses inflation, Barclays #BARC, Lloyds #LLOY & Open Orphan #ORPH on the UK Investor Magazine podcast
Alan Green joins the UK Investor Magazine Podcast to discuss Barclays (LON:BARC), Lloyds (LON:LLOY) and Open Orphan (LON:ORPH).
UK inflation rose to 2.5% in June up from 2.1% in May. Fuel prices were a large component of the rises as oil prices increased having cratered last year.
The FTSE 100 slipped in the wake of the announcement as sterling surged to highs of 1.3800 against the dollar.
Those companies operating in the consumer space were some of the bigger fallers whilst those that typically benefit from higher inflation and rates were among the top risers.
Alan Green joins the UK Investor Magazine podcast as we discuss Lloyds #LLOY Persimmon #PSN Corcel #CRCL Catenae Innovation #CTEA and Versarien #VRS
Alan Green joins the Podcast as we digest recent updates from FTSE 100 majors such as BP, WPP, Lloyds and Persimmon.
The shares operate in some of the most cyclical industries including commodities, advertising, finance and house building. This broad spread means these companies provide vital insight into the health of the wider economy.
While the recent updates from these companies were strong, the FTSE 100 is yet to breach 7,000 with any conviction, highlighting that investors could have already priced in much of the economic recovery to stock markets. We look at whether this signals we are entering the chapter for stock markets.
We discuss in detail Corcel (LON:CRCL), Catenae Innovation (LON:CTEA) and Versarien (LON:VRS).
Chart and Technicals
Shares of Lloyds have been trading in a tight range since the March “COVID sell-off” and, despite recovering the 50-day moving average in April, they dipped below this line in June and are now approaching the bottom of the range. The trend here is certainly weak, and if the stock continues to trade below this benchmark, we will expect a retest of 23.42p, a level last hit on November 21 2011. Shares are currently trading at 26.20p, and an end of week close above 28.4p will be required if the stock is to recover the 50-day moving average at 32.32p.
Summary and Atlantic View
Albeit Lloyds is long standing favourite of investors, fund managers and traders, it seems that the higher than expected impairment charge will mean that opportunities for share price improvement in the short term are going to be few and far between. That said, Lloyds is blessed with a strong balance sheet and a decent CET1 ratio to provide headroom above the regulatory requirements to protect against potential credit impairment. Unlike Barclays, Lloyds doesn’t have an investment banking arm to boost profits, so it is wholly reliant on making traditional banking and money lending as profitable as possible. For now the stock is mired in a trading range between 32p and 26p. Given this backdrop and uncertain outlook, for now Atlantic Capital Markets remain holders of the shares, although at either end of this trading range, they are a buy on weakness, particularly if the stock dips to the 10 year low of 23.42p, or conversely a sell into strength around 32p. Atlantic Rating: Hold
Gooch & Housego plc GHH updates that it is suffering from microelectronic headwinds despite which growth has continued. During the first four months of the financial year the business has seen a downturn in demand particularly from China. A cyclical downturn is also currently being experienced for industrial lasers. 2019 group trading performance is still expected to show low single digit growth compared to last year.
Glencore plc GLEN is pleased to report that it has delivered both record Adjusted EBITDA, up by 8% and significant cash returns to shareholders in 2018. The preliminary results also include net income attributable to equity holders down 41% and basic earnings per share also down 41%. Other highlights are that resolutions have been achieved with the Ontario Securities Commission regarding accounting, governance and disclosure matters and a refreshed management team has been appointed. Committees have been created to oversee the Group’s response to the U.S. Department of Justice’s investigation. Production guidance in all commodities for 2019 is that it is expected to be higher than 2018.
Intu Properties plc INTU claims its management team has produced robust operational performance in a challenging market for the year to 31st December, with increased like-for-like net rental income for the fourth consecutive year and 97 per cent occupancy. property valuations declined as sentiment weakened significantly. Valuations fell by a further 3 per cent in the final quarter of 2018, in addition to the 9 per cent fall over the first nine months. Sentiment in the retail sector is at an all-time low.
Hochschild Mining plc HOC reports another strong year of record production and prudent cost control. Revenue for the year to 31st November fell by 3%, adjusted EBITDA by 11%, Profit from continuing operations (pre-exceptional) was down by 66% and Profit from continuing operations (post-exceptional) by 88%. 2018 operational delivery exceeded guidance.
Lloyds Banking Group LLOY 2018 results show that it was a year of strong strategic and financial delivery. The UK economy has proven itself resilient with record employment, which has enabled the bank to see profits jump by 24% whilst the total ordinary dividend of 3.21 pence per share, is up 5 per cent on 2017 In addition to this a share buyback of up to £1.75 billion is proposed. A continued strong performance is expected for 2019 with a statutory return on tangible equity of 14 to 15 per cent.
Lloyds Banking Group LLOY produced a strong financial performance in the nine months to the 30th September with profits improved on both an underlying and on a statutory basis. Underlying profit rose by 8% and total income by 6%. The improvement continued into the third quarter which saw income rising by 8%. Statutory profit before tax over the nine months rose by 38%, the overall performance no doubt being helped by what the bank describes as a resilient UK economy and Brexit not even getting a mention.
Metro Bank MTRO also reports a strong third quarter with record customer growth of 33% compared to the previous year and a 77% rise in underlying quarter on quarter profits. Revenue increased by 113%. The Banks presence is no longer limited to central London as it takes what it calls its revolution in banking out into the high streets of suburban England.
Nighthawk Energy HAWK has seen a steady but significant decline in both gross and net production during the first nine months of the year. Gross production fell from 373,146 barrels in the first nine months of 2016 down to 317,445 barrels this year. On a net basis the fall was from 305,153 barrels last year down to 236,864 in the first nine months of the current year. Work has been suspended on the preparation of a circular about share payment options for deferred interest and royalties which will now revert to being paid in cash whilst the company assesses its restructuring options.
Defenx plc DFX Results for the year to 31st December are now expected to be materially below market forecasts to such an extent that a loss is expected, mainly due to weak management. Reasons for the turn round include previously anticipated orders are unlikely to be recognised in 2017, updates to address “certain performance issues” are taking longer than expected and the broadening of the product portfolio is also behind schedule. Steps are being taken to strengthen the executive management team.
Lloyds Banking Group LLOY claims it is transforming its Key Customer Journey and if you look at the additional billion pound or so compensation which it is being forced to cough up to customers whom it cheated over the years, it certainly needed transforming. In the second quarter it had to make additional provision of 700m as PPI claims against it rose above previous expectations. Then in the same quarter came a further hit of 340m. as it was forced to reimburse mortgage arrears fees which it had illegally charged to customers. And this is not some fly by night hole in the wall operation, its a bank for god’s sake which claims it wants customers to trust it with their money.
As for its half years results Lloyds claims to have produced another strong set, with the UK economy in resilient mode. The interim dividend is being increased by 18%. Underlying profit for the six months to the 30th June rose by 8% whilst statutory profit before tax was up by 4% and operating costs were down by 1%.
Diageo DGE reports operating profit up by 25% and net sales up 15% for the year to 30th June. On a like for like basis operating profit rose by 5.6%. With basic earnings per share up by 18%, the final dividend is being increased by5% and a share buy back program is announced of up to 1.5 billion pounds.
Weir Group WEIR North America has produced what it describes as a great set of results for the half year to 30th June, with both main businesses moving from an intense downturn into a recovery and growth phase. Revenue growth in North America reached 69% and generally growth overall accelerated, enabling an upgrade to be made to full year guidelines. Growth in orders of 11%has put Weir in a position where it can deliver strong constant currency revenue and profit growth for the full year. Despite that profit before tax on a constant currency basis is still down by 8%, although on a reported basis, there is a rise of 12%. The interim dividend remains unchanged at 15p per share.
Rentokil RTO is increasing its interim dividend by 15.2% for the half year to the 30th June afte a 12.5% rise in adjusted profit before tax and 10.9% in adjusted earnings per share. On a like for like basis revenue grew by 4.2%. The CEO i pleased with the continued momentum of the business.
Tate & Lyle TATE has made an encouraging start to the year with first quarter profits in constant currency terms, and volume both ahead of last year. Volume growth was strong in Asia Pacific, Latin America, Europe, the Middle East and Africa.Only North America was soft, with modest volume growth.
Lloyds Bank LLOY admits to having “positive operating jaws” which helped it to produce a strong first quarter financial performance and a significant improvement in statutory profit before tax, despite disagreeing with the house builders (see below) about the state of the UK economy, which the bank says still presents a challenging operating environment. As for those jaws, I never thought I would see the day when a bank would agree so openly that the widely held view about a banks resemblance to a certain type of large and very dangerous fish, appears to be correct !
Persimmon PSN claims that its continuing operational performance is excellent, helped by the resilience of the UK economy. does this mean that at long last challenging market conditions have disappeared. Forward sales revenue has risen by 11% on a year ago, whilst private sales rater per site are 12% ahead. The average selling price has, so far, been increased by 4.1%.
Taylor Wimpey TW is hopeful that the forthcoming general election will not disrupt the housing market after a good start has been made to the year. Average private net reservations so far this year, are up 16% on a year ago. The total order book has risen by 31% since the year end, whilst total order book value is up by 2% on a year ago. Build cost inflation for 2017 is expected to be between 3-4%.
WPP plc WPP First quarter revenue net sales and operating profit are all well above budget and well ahead of last year – at least until you strip out the helping hands provided by acquisitions and the weakness of sterling. On a like for like basis the picture looks far less impressive, with revenue rising by 0.2% and net sales by 0.8%. WPP regards net sales as the true test of its success or otherwise. In this respect North America was under pressure but the UK and continental Western Europe both grew strongly.
Weir Group WEIR is on track for a strong recovery in 2017, with first quarter order input up by 15%, oil and gas orders up by 50% and continued strong cash generation.