It’s going to be a big day for blue chip results on Wednesday with the start of the first-quarter reporting season for both the UK banking and drugs sectors being kicked off by Lloyds Banking Group PLC (LON:LLOY) and GlaxoSmithKline plc (LON:GSK), respectively.
The payment protection insurance (PPI) scandal has remained the thorn in Lloyds’ side in spite of the lender’s successful turnaround under chief executive Antonio Horta-Osório.
In its full year results in February, the group revealed it had set aside a further £600mln for PPI claims in the fourth quarter, bringing its total bill for the scandal to £18.7bn.
Lloyds said it had received more complaints after the FCA’s advertising campaign featuring a robotic head of Arnold Schwarzenegger urged victims to put in claims before the deadline.
Alongside the annual results, Lloyds unveiled a strategic plan for 2018-2020, which included targets for improving capital generation in order to deliver “progressive and sustainable ordinary dividends”.
Any update on that strategy will be eyed closely in the first quarter update as the taxpayer-rescued lender – which became fully private again last year – continues to progress.
Glaxo in flux
First quarter results from Glaxo, due out at noon on Wednesday, come at a time of flux for the company.
The drugs giant recently agreed to buy out Novartis's 36.5% stake in their consumer healthcare joint venture - the division that houses brands such as Beecham's and Panadol - for US$13bn in cash, which the management deemed was a better option than getting involved in the bidding for Pfizer's consumer division.
Glaxo is considering selling its Horlicks malted drinks business and its other consumer healthcare nutrition products to help fund the deal and is to kick off a strategic review of the assets.
It is probably too soon to expect any indication on whether the company will say night-night to Horlicks; likewise, the market is going to have to wait on tenterhooks a bit longer to learn whether generic competitors to its blockbuster HIV and respiratory drugs will come to market this year.
All of which makes it unlikely the company will commit to firm earnings guidance but it will probably try to talk up the new drugs pipeline, which while not one of the best in the industry does have some potential winners in it.
Whitbread split spotlight
As multiple activist investors push for a demerger of its Costa Coffee business, full-year results from Whitbread plc (LON:WTB) on Wednesday will provide a key focus for the City.
Activist hedge fund Elliott Advisors, who on 14 April revealed it had become the largest investor with over 6% of the share capital, is currently leading the charge to break Costa away from the rest of the FTSE 100-listed hospitaility group’s holdings which includes Premier Inn.
New York-based Sachem Head Capital Management, who owns a 3.4% stake, is also said to be pushing for a break-up the group.
Regarding the results themselves, analysts at Deutsche Bank are expecting a deceleration in like-for-like revenue to be offset by efficiency initiatives, with pre-tax profits estimated at £583mln, a 3.1% increase on the prior year on revenues of £3.32bn, down 7% year on year.
For Costa, analysts at the German bank forecast revenues of £1.3bn, up from £1.2bn last year, with an operating profit of £157mln, down from £158mln.
Meanwhile, Premier Inn is expected to report revenues of £2bn, up from £1.9bn last year, with a rise in operating profit to £492mln from £468mln.
Persimmon building up cash returns
The lead story at Persimmon PLC (LON:PSN) has been its increased cash returns to shareholders, and the market will be hoping for news on more in a trading update on Wednesday.
In February’s full year results, the FTSE 100-listed housebuilder pledged to return an extra 125p per share per year, taking anticipated returns to 1,300p in the 8 years to June 2021, more than twice the level originally planned.
With mountains of cash sat on the balance sheet, and plenty of land at its disposal, it’s easy to see the source of the group’s confidence.
However, the threat of a housing slowdown lingers, with UK interest rates look to be heading up again in May, and some housing market indicators are looking a bit shaky, so that means comments around current trading will be closely examined.
Significant events expected on Wednesday April 25:
Trading updates: Lloyds Banking Group PLC (LON:LLOY), Croda International PLC (LON:CRDA), Antofagasta PLC (LON:ANTO), Fresnillo PLC (LON:FRES), Intu Properties PLC (LON:INTU), Persimmon PLC (LON:PSN), Tullow Oil plc (LON:TLW)
Interims: GlaxoSmithKline PLC (Q1), Metro Bank PLC (Q1) (LON:MTRO), Fenner PLC (LON:FENR)
Finals: Whitbread PLC (LON:WTB), Boohoo.com PLC (LON:BOO), Keystone Law Group PLC (LON:KEYS), Warpaint London plc (LON:W7L)