leadf
logo-loader

Asia to drive quarterly earnings growth at HSBC and Standard Chartered

Another busy week of earnings from FTSE 350 companies awaits

HSBC
HSBC reports its first quarter results on Friday

HSBC Holdings PLC (LON:HSBA) and Standard Chartered PLC (LON:STAN) are set to wrap up a busy two weeks of first quarter results from the UK’s major lenders.

Asia is expected to once again be the driving force behind the two banks’ quarterly earnings.

Standard Chartered is the first of the two to report in the coming week with the lender publishing its results on Wednesday followed by HSBC on Friday.

They are the last major UK banks to release quarterly earnings after Lloyds Banking Group PLC (LON:LLOY), Barclays PLC (LON:BARC) and Royal Bank of Scotland Group PLC (LON:RBS). 

Elsewhere, J Sainsbury plc (LON:SBRY) will reveal how well it fared in the face of tough competition and a weak consumer environment last year when it presents its full year earnings on Wednesday.

Investors will also be keen to see if fashion retailer Next Plc (LON:NXT) was able to rise above the struggles on the high street as online rivals take market share and consumers tighten the purse strings in response to higher inflation.

Across the Atlantic and away from corporate earnings, the Federal Reserve announces its latest interest rate decision on Wednesday while the all-important US non-farm payrolls report is due on Friday.

Higher US rates and Hong Kong loans benefit Standard Chartered

Standard Chartered is expected to report an increase in profits and revenues in the first quarter, boosted by loan growth in Hong Kong and US interest rate hikes.

Morgan Stanley estimates adjusted profits of US$1.22bn, compared to US$1.02bn the same period a year earlier.  Revenue is forecast to rise to US$3.91bn from US$3.61bn.

“We expect a profitable first quarter,” Morgan Stanley said, but left its rating at ‘underweight’ as it sees a “long road to rebuild returns to a level justifying the current share price valuation”.

The brokerage predicts operating costs of US$2.5bn, up from US$2.38bn last year, but thinks impairments should “remain contained” at US$250mln.

It also sees the emerging markets bank building its common equity tier 1 capital ratio by 20 basis points to 13.8%.

Asia continues to aid growth at HSBC

Like its sector peer, HSBC is seen delivering a strong first quarter on the back of growth in Hong Kong and Asia.

Morgan Stanley said HSBC remains its “top pick” and repeated an ‘overweight’ rating on the stock.

“Loan growth in Hong Kong is running at a fairly strong pace and is broad-based across segments, driven by a stable Chinese economy,” it said.

“We expect HSBC to report Hong Kong loans up +11% year-on-year which together with expanding margins, drives our expectations for retail banking and wealth management (RBWM) net interest income growth of +17% year-on-year in Hong Kong.”

In the UK, Morgan Stanley anticipates an 8% increase in RBWM net interest income, helped by a stronger pound and volume growth.

Group net interest income is projected to edged up to US$7.5bn from US$6.7bn.

Total income is expected to rise to US$13.9bn from US$12.8bn a year earlier and adjusted pre-tax profit is forecast to climb to US$6.1bn from US$5.9bn.

Morgan Stanley sees the CET 1 ratio rising by 20 basis points to 14.75.

“We expect outlook will focus on growth opportunities in Asia, the impact of rising rates, and capital return,” it said.

Sainsbury’s battles tough retail market and supermarket rivalry  

Sainsbury’s has achieved cost synergies from its acquisition of Argos last year but sales at the catalogue retailer have come under pressure from market challenges.

In a trading update in January, the supermarket chain said general merchandise revenues – predominantly made up of Argos’ sales – fell 1.4% in the third quarter due to a tough retail market.

However, Sainsbury’s was able to generate more savings from the takeover of Argos earlier than expected.

As a result of the boost from synergies, Sainsbury’s upgraded its full year guidance for underlying earnings (EBITDA) to a range of £80mln and £85mln from a previous estimate of £65mln.

Meanwhile, the core supermarket business has had to contend with competition from discounters Aldi and Lidl as well as higher cost inflation.

“Sainsbury’s historically has been successful in defending food market share; in more recent times this track record has weakened, reflecting a shift in discounters’ openings towards the south of England and a more effective Tesco,” said Jefferies.

Jefferies expects Sainsbury’s to report like-for-like sales growth, excluding fuel, of 1.4% for the year.

Weather eye on Next

The first quarter was likely a difficult one for clothing retailers, thanks to inclement weather, so hopes are not high for Next Plc’s (LON:NXT) update.

Snow at the end of February prompted the clothes seller to temporarily close 60 shops and industry data suggests fashion firms have yet to make up lost business in April.

Having said that, JPMorgan Cazenove notes that market research data from Kantar showed Next was only one of three retailers to show an improving trend in the 12 weeks to March 11.

The broker is predicting Brand sales were up 3% year-on-year in the first quarter.

Next’s management has highlighted that the first quarter will be going up against soft comparatives for the year before and warned the market not to get too excited by like-for-like sales figures.

Life after Sorrell

Trading news from advertising giant WPP group PLC (LON:WPP) on Monday, will likely still be overshadowed by the departure of its founder and chief executive, Martin Sorrell at the start of the month.

WPP had a challenging first quarter of 2018, culminating I Sorrell stepping down amid an internal investigation into allegations of personal misconduct.

In March, the advertising agency reported its worst annual performance since the financial crisis and forecast no growth for 2018.

Shore Capital downgraded its current year and full-year 2019 pre-tax profit forecasts for WPP by 5% and 7% respectively following the numbers, when it also cut its rating back to ‘hold’ from ‘buy’.

In a preview for the Q1 numbers, the City broker’s analysts said: “It would therefore be extremely disappointing to have to make further adjustments.”

They added: “By way of a benchmark Bloomberg consensus suggests Q1 revenues of £3.5bn and EBITDA of £1.0bn.”

Expansion moves at IAG

International Airlines Group (LON:IAG), already the owner of British Airways, Aer Lingus, Iberia, and Vueling, has been expanding further in recent months, so any comment on deals will be eyed in its first quarter results on Friday.

In January, IAG confirmed it the purchase of insolvent Austrian carrier Niki for a total of €36.5mln, with the airline is one of the best assets to be sold out of the collapse of Air Berlin toward the end of 2017.

Meanwhile in April, IAG announced that it had acquired a 4.61% stake in Norwegian Air Shuttle and is considering buying the whole group.

The FTSE 100-listed firm raised its annual profit target for 2018-2022 back in November last year and said its aIMIng to reach underlying earnings before restructuring costs (EBITDAR) of €6.5bn per year on average for the period, compared to €5.3bn per year on average for 2016-2020.

BP set to report flat production

Better crude prices are good news for Big Oil, obviously, but, it is not necessarily that simple for investors in BP Plc (LON:BP), which like rival Royal Dutch Shell, has many more moving parts.

Shell shares were on the back foot after its first quarter results, as crude strength didn’t translate directly to free cash flow.

Morgan Stanley analysts, in a recent note, said they expected BP’s first quarter production to be broadly flat (on a quarter on quarter basis), as higher contribution from key 2017 startups would likely be offset by the expiration of Abu Dhabi offshore assets.

“We expect the benefit of seasonally lower cash costs to be offset by higher DD&A (depreciation, depletion and amortisation of oil and gas properties),” said analyst Martjin Rats.

“Still we expect exploration and production earnings (EBIT) to increase primarily due to higher Brent prices.”

Russia and risk on the agenda for Glencore investors

Russia and risk will among the talking points as Glencore Plc (LON:GLEN) release results

The miner and commodity group has a long history trading with Russia, highlighted RBC Capital analyst Tyler Broda.

In a note the analyst said that the share price weakness in the wake of the recent political tensions actually presented a buying opportunity – or, in his exact words, it provided “an even better entry point.”

“The revised Russian sanctions represent another headline risk but with a minor tangible impact,” Broda said.

"We continue to see Glencore's compelling valuation as providing a strong entry point for investors."

Activists want action at S&N

Smith & Nephew PLC’s (LON:SN.) first quarter trading update comes against a background of takeover speculation and talk of activist investors getting antsy.

Then again, Smith & Nephew and takeover speculation go together like fish & chips and like fish & chips, should be taken with a pinch of salt.

The market is expecting US$1.22bn of revenues in the first quarter and underlying year-on-year revenue growth of 1.6%.

“Following a strong Q4, there is likely to a bit of a ‘hangover’ in Q1. Furthermore, the company faces one fewer trading day and an Easter effect,” said JPMorgan Cazenove.

Tasty update seen from Just Eat

Just Eat PLC’s (LON:JE.) will issue a first-quarter trading update on Tuesday which could make for tasty reading, although only revenues will be reported, and no update is expected on the group’s investment plans.

Deutsche Bank forecasts the FTSE 100-listed firm reporting revenues of £156m of revenues, up 31% year-on-year.

The bank’s analysts estimate Just Eat to report 48mln of orders in Q1, up 23% year-on-year driven by Skip the Dishes and Developing markets.

In the UK, the analysts forecast 18% order growth, as Q1 2017 is a relatively easy comparative

In Australia, however, they expect to see no order growth on the back of platform challenges, competition and tough comparatives.

Early sales patterns eyed at Indivior

First quarter results from Indivior PLC (LON:INDV) will come out at noon on Wednesday to keep the pharmaceutical company’s North American investors sweet.

The update comes less than two weeks after it filed a new drug submission for its SUBLOCADE treatment for severe opioid use disorder with Health Canada’s Therapeutics Drugs Directorate.

The US launch was scheduled for the week of February 26, so the statement may contain an update on early sales patterns. The board has warned the market that revenues are expected to be “relatively modest” in the early stages of launch.

Jefferies is predicting peak sales of SUBLOCADE of US$2bn a year following a proprietary survey.

For the full-year, Indivior has issued guidance for net revenue of US$1,130mln-$1,170mln and net income in a range of US$290mln-$320mln, excluding exceptional items and at constant FX.

One thing analysts will be keeping an eye on is the provision for investigative and antitrust litigation matters, which was recently increased to US$438mln.

The company appears to be fighting a losing battle against companies looking to produce a generic version of Suboxone, one of the best-selling treatments for heroin addiction, but it will fight every step of the way in the hope of delaying the inevitable.

FOMC meeting, US jobs in focus

The main economic focus this week will be on the US, with the latest Federal Reserve monetary policy decision due on Wednesday, to be followed by the April non-farm payrolls report on Friday.

In a preview of the meeting, economists at Societe Generale said: “ We expect the Fed to hold rates steady at the May 2 FOMC meeting, and with no new projections or a press conference, the only changes will be to the FOMC statement.”

They added: “The biggest change could be to the assessment of current inflation, especially given our expectation that both the headline and core PCE deflators will likely be at target by the time of the meeting.”

The SocGen economists concluded: “Given the solid underlying pace of job growth, we expect the Fed to retain the language on the labor market.”

US non-farm payrolls disappointed in March, with an increase of just 103,000 against forecasts for 193,000 additions, while the unemployment rate was at 4.1%, so analysts will be hoping for a better number in April’s jobs report.

 

Significant events expected:

Monday April 30:

Trading update: WPP PLC (LON:WPP), Carpetright PLC (LON:CPR), Ferguson Plc (Q3) (LON:FERG)

Finals: J Sainsbury plc (LON:SBRY), Diversified Oil & Gas PLC (LON:DGOC), Interserve PLC (LON:IRV), Luceco PLC (LON:LUCE), Randall & Quilter Investment Holdings PLC (LON:RQIH), Tanfield Group PLC (LON:TAN)

Interims: Image Scan Holdings Plc (LON:IGE), Up Global Sourcing Holdings PLC (LON:UPGS)

Economic data: US personal income and outlays; US pending home sales

 

Tuesday May 1:

Two-day FOMC meeting begins

Interims: BP PLC (Q1) (LON:BP), Just Eat PLC (LON:JE.)

Finals: Nasstar Plc (LON:NASA), Pelatro PLC (LON:PTRO)

Trading updates: DS Smith PLC (LON:SMDS), Jardine Lloyds Thompson Group PLC (LON:JLT), Plus 500 Ltd (LON:PLUS), Virgin Money Holdings (UK) PLC (LON:VM.)

Economic data: UK manufacturing PMI; US ISM manufacturing index; US manufacturing PMI; US construction spending

 

Wednesday May 2:

US interest rate decision

Trading updates: Next Plc (LON:NXT), Standard Chartered PLC (Q1) (LON:STAN), Paddy Power Betfair plc (LON:PPB), Direct Line Insurance Group PLC (LON:DLG), ConvaTec Group PLC (LON:CTEC), Accsys Technologies PLC (LON:AXS), Howden Joinery Group PLC (LON:HWDN), IWG PLC (LON:IWG), PPHE Hotel Group PLC (LON:PPH)

Interims: Avon Rubber PLC (LON:AVON), Indivior PLC (Q1) (LON:INDV), Inmarsat Plc (Q1) (LON:ISAT), Sage Group PLC (LON:SGE)

Economic data: UK construction PMI; EU prelIMInary Q1 GDP; US ADP employment report

 

Thursday May 3:

Trading updates: Glencore PLC (LON:GLEN), Smith & Nephew PLC (LON:SN.), IMI PLC (LON:IMI), Trinity Mirror PLC (LON:TNI), Eqiniti Group PLC (LON:EQN), James Fisher & Sons plc (LON:FSJ)

Interims: Centamin PLC (LON:CEY), esure group PLC (LON:ESUR), Lancashire Holdings PLC (Q1) (LON:LRE)

Finals: Elektron Technology PLC (LON:EKT)

Ex-dividends: FTSE 100 index – G4S PLC (LON:GFS), Kingfisher PLC (LON:KGF), London Stock Exchange Group PLC (LON:LSE), Mondi Plc (LON:MNDI), Unilever plc (LON:ULVR)

Economic data: UK services PMI; US Challenger jobs cuts; US services PMI; US weekly jobless claims; US international trade; US ISM non-manufacturing; US factory orders

 

Friday May 4:

Interims: HSBC PLC (Q1), (LON:HSBA), International Airlines Group PLC (Q1) (LON:IAG), InterContinental Hotels PLC (LON:IHG), Numis Corporation PLC (LON:NUM)

Traffic figures: easyJet PLC (LON:EZJ)

Economic data: US non-farm payrolls

Add related topics to MyProactive

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

FOR OUR FULL DISCLAIMER CLICK HERE

Benchmark Holdings' present at the Proactive One2One Virtual Forum

Benchmark Holdings' (LON:BMK) Trond Williksen, CEO & Septime Maguire, CFO pitch to investors at the Proactive One2One virtual forum.  Benchmark's mission is to enable aquaculture producers to improve their sustainability and profitability. We bring together biology and technology, to...

1 day ago

14 min read