Banks will be firmly on investors’ minds in the coming week, with third quarter updates due from a trio of leading UK players.
The FTSE 100-listed lender has been urged by activist investor Ed Bramson to shrink its investment bank and focus on retail banking.
Bramson, whose investment vehicle Sherborne owns a 5.4% stake in Barclays, has also called for chairman John McFarlane to step down.
It, therefore, goes without saying that Barclays will need to show it is on track to boost returns for shareholders when it reports its quarterly results.
UBS expects Barclays to report an adjusted pre-tax profit of £1.09bn for the quarter, compared to £1.19bn a year ago, on higher costs related to foreign exchange rates and investments. Total income is forecast to fall to £5.02bn from £5.17bn.
“If top-line misses in 3Q18 investors will want to see cost discipline, not investment plans (though we like the move to near shore in Glasgow and New Jersey),” UBS said.
Uneventful figures expected from Lloyds
UBS sees an “uneventful set of numbers despite the trees to be felled and ink spilled poring over the figures”.
In the first half, Lloyds took a fresh £460mln provision for its compensation scheme for the payment protection insurance (PPI) mis-selling scandal but pre-tax profit still increased 23% to £3.1bn on the back of higher income and lower costs.
For the third quarter, UBS predicts pre-tax profit of £1.96bn, including remediation costs of £100mln, compared to a profit of £2.08bn last year. Lloyds is expected to generate total income of £4.68bn for the period, up from £4.62bn last year.
“LBG is, in our view, an undervalued, strongly capital generative bank, operating with a cost advantage in a competitive market and with decent medium-term growth opportunities in lending, savings, investments and general insurance.”
RBS turnaround plan on track
The state-owned bank recently put the last of its major litigation issues behind it by paying a smaller-than-expected US$4.9bn fine to settle a US investigation into the sale of mortgage-backed securities between 2005 and 2007.
This paved the way for RBS to restart dividend payments in August’s interim results and prompted the government to resume winding down its stake following a £45.5bn bailout of the bank at the height of the financial crisis 10 years ago.
UBS predicts RBS will post a third-quarter adjusted pre-tax profit of £1.29bn, up from £1.25bn a year ago, and adjusted income to edge up to £3.18bn from £3.16bn.
While RBS has turned around its financial performance, UBS believes the bank’s strategy of seeking an improved market share in residential mortgages and opting out of the UK’s 0% balance transfer credit card sector leaves it more exposed to competitive pressures.
Customer confidence in focus at WPP
Away from the lenders, WPP PLC’s (LON:WPP) third-quarter trading update on Thursday will be the first opportunity for investors to gauge the early impact of new boss Mark Read.
Read officially took up the job in early September, replacing the ad giant’s founder Martin Sorrell who left under a cloud back in April.
It’s been a tricky start for the long-time WPP employee, who is having to deal with falling margins, industry pressures and the recent loss of a major contract with Ford.
“We will look for… [a] general refresh on client confidence, marketing spend trends, competitive pricing pressure and management’s thoughts on the federal investigation into industry-wide media buying practices that was recently launched in the US,” said City broker Shore Capital.
Any news on Read’s restructuring plans, due before the end of the year, will also be eyed.
Costa sale overshadows Whitbread
Meanwhile, Tuesday’s interim results from Whitbread plc (LON:WYB) have rather been overshadowed by the news in August of the sale of the Costa coffee business for £3.9bn in cash to Coca-Cola Corp.
That deal was approved by shareholders at a recent meeting and they will now be looking for more details about how the company plans to return the bulk of the proceeds to investors.
In a preview of the interims, Graham Spooner, investment research analyst at The Share Centre commented: “Some of the money is earmarked for expansion of Premier Inn and the market will be interested to hear any further details of that as well as any news on recent trading.
“A slightly weak like-for-like sales figure at the last update in June caused a ripple of surprise among some analysts.”
Fuel costs headwind for IAG
British Airways owner IAG (LON:IAG) will issue its third-quarter results on Friday, a week after another airline – Cyprus-based Cobalt Aero – ran into trouble.
According to Liberum, IAG is set to be “one of the few airlines continuing to post profit growth this year”.
On the other hand, the City broker was not overly impressed with the airline group’s September traffic stats, which saw the load factor – a measurement of how full its planes were – fall a percentage point to 84.6%.
“Not terribly encouraging to see load factors fall, although we cannot see what is happening on the unit revenue side of the equation,” Liberum said.
Second-quarter results were in line with expectations, with profit growth driven by growth and a slight margin improvement.
Fuel costs are likely to remain a significant headwind for the company.
Headwinds too for Ryanair
The company recently provided a trading update so the Swiss bank expects more details on the airline’s union negotiation progress and on ancillary revenue growth.
Buy-backs key for Glencore
Glencore has certainly not been without its troubles in recent times, nonetheless, City sentiments have been turning, at least partially thanks to the buy-backs.
Morgan Stanley recently upgraded its stance for Glencore to ‘overweight’ from ‘equal-weight’.
The upgrade came after Glencore announced that its ongoing US$1bn share buyback programme was being extended by US$1bn and will now complete on 20 February 2019, the day before the company's 2018 full year results announcement.
"The company is reacting to the improved valuation of its own equity by switching from opportunistic M&A to share buybacks," Morgan Stanley said.
"The group's 2019 FCF on spot of US$9bn (ex-working capital) and end of 2018 net debt of US$11.2bn versus the Glencore self-imposed cap of US$16bn suggest ample room to add to the programme."
Morgan Stanley added that the fundamentals and commodity mix are unchanged and “look attractive” with 40% of earnings (EBITDA) on spot prices from copper and 50% of industrial sales related to electrification of the drive train.
Copper clouds for Antofagasta
Back in August, fellow blue-chip miner Antofagasta PLC (LON:ANTO) cautioned the market over the much publicised global trade tensions that have clouded the short-term copper demand outlook for large-scale miners – which are generally reliant on the continuing industrialisation of China.
At that time, Antofagasta also reported a drop in first-half earnings and cut its dividend. The FTSE 100-listed group saw its underlying earnings (EBITDA) fall by 16.2% to US$904.2mln for the first six months of 2018, down from US$1.079bn a year earlier.
Plainly, financial performance and the commodity outlook will remain important factors for investors.
But sentiment has improved in some quarters, with RBC Capital having recently upgraded its rating - to ‘outperform’ from ‘sector perform’ – largely on valuation grounds, as a response to a weakness in Antofagasta’s share price.
Market conditions key for Hastings
On the second line, car insurance firm Hastings Group Holdings PLC (LON:HSTG) will issue a third-quarter trading update on Thursday having topped profit expectations with its half-year results.
Analysts will be taking a close look at the growth in live customer policies, which has slowed of late, reflecting more difficult market conditions.
Significant announcements expected week ending October 26:
Monday, October 22:
Economic data: Chicago Fed National Activity index
Tuesday, October 23:
Trading update: Anglo American PLC (LON:AAL), Bunzl PLC (Q3) (LON:BNZL), Travis Perkins PLC (Q3) (LON:TPK), St James’s Place PLC (LON:STJ), Intu Properties PLC (LON:INTU), McBride plc (LON:MCB), Plus 500 Limited (LON:PLUS)
Economic data: CBI industrial trends survey; Richmond Fed manufacturing index
Wednesday, October 24:
Trading update: Barclays PLC (Q3) (LON:BARC), Antofagasta PLC (Q3) (LON:ANTO), Fresnillo PLC (LON:FRES), Cobham PLC (LON:COB), Serco PLC (LON:SRP), Metro Bank PLC (Q3) (LON:MTRO), Tatton Asset Management Plc (LON:TAM)
Economic data: UK trade in goods; US new home sales; Fed Beige Book
Thursday, October 25:
Finals: RDI REIT PLC (LON:RDI)
Economic data: ECB policy meeting, CBI UK distributive trades survey; US weekly jobless claims; US durable goods orders; US pending home sales, international trade in goods
Friday, October 26:
Economic data: US Q3 preliminary GDP; University of Michigan final consumer sentiment survey