Lloyds capital levels face scrutiny; and has retail bounced back?

Thursday's City agenda also includes results from Anglo American, BAE Systems and Hays

Lloyds Banking Group -

Thursday brings some big company announcements and will also reveal how well retail sales have bounced back in 2020 after what was said to be the worst year in a decade for the sector.

Before January’s retail figures are released, there is likely to be plenty of interest in another party with an interest in the shifting sands on the high street, Lloyds Banking Group PLC (LON:LLOY).

Investors will be keen to see what the lender, which is shutting a further 56 branches this year after closing 151 over the past two, says about further cost cutting and shareholder returns. 

In September, Lloyds suspended its share buyback scheme after quarterly profits crashed after it had to take £1.8bn of extra provisions for PPI compensation.

Chief executive António Horta-Osório, whose salary was recently cut by around £228,000 because of a storm over excessive pay, issued a more sombre outlook for the full year and warned that “continued economic uncertainty could further impact the outlook”.

Analysts at Credit Suisse recently said they expect Lloyds to have to increase its CET1 capital target, which will further reduce its capacity for cash returns over and above the ordinary dividend, with the lender not having the same capacity to make “self-help” improvements as other big banks and having performed relatively poorly in last year Bank of England stress tests.

Analyst Nicholas Hyett at Hargreaves Lansdown said: “Given the low expectations for 2019 we think investors will be paying more attention to management’s comments about the year ahead.

“Lloyds’ ‘Boris bounce’ was short-lived, suggesting investors aren’t exactly upbeat, and the shares are some way below where they were trading on the day before the election. That’s not been helped by the increasing likelihood of a cut in interest rates from the Bank of England this year, which is bad news for bank margins.”

Anglo called out

In another sector, Anglo American plc (LON:AAL) finals also come amid concern about cash levels and investor returns.

The FTSE 100-listed miner should expect continued scepticism over its takeover of Sirius Minerals PLC (LON:SXX) as it reports results, UBS said in its preview. 

The acquisition of the cash-strapped fertiliser miner comes amid polyhaylite commodity price uncertainty and with high capital expenditure, likely to lower free cash flow for seven years, the analysts said. 

Anglo was also the object of opprobrium directed in an open letter from Odey Asset Management this week, with the hedge fund saying the mining giant should up its bid for the North Yorkshire tiddler and warning that there is “a risk of both the deal failing at its current level, and of an interloper at a later stage”.

Cyber BAE

BAE Systems PLC’s (LON:BA.) finals on Thursday are all about the order book and its cyber & intelligence business.

The defence, security and aerospace contractor has been redoubling efforts in the US following President Trump’s boost to military spending.

BAE finished its first half last year with a record order backlog for the country which grew by US$1bn.

Meanwhile, the cyber & intelligence division is a small contributor to profits for now but could be “an important lever” for future growth, says Hargreaves Lansdown, as it helps commercial and government clients with everything from fraud prevention to defending against serious cyber-attacks.

The market hopes to see more contracts in the pipeline and no extra costs on top of the recent restructuring charge of £25mln.

Coronavirus in focus for Hays

Interim results from recruitment firm Hays PLC (LON:HAS) on Thursday are unlikely to be greeted with much optimism after the group warned that a cocktail of the UK election, French strikes and Australian bushfires had hit fee income in the final quarter of 2019.

The picture is unlikely to improve going forward amid the ongoing coronavirus outbreak, which has the potential to hit the firm’s hiring activity in Asia as quarantine measures cause businesses to put the brake on expansion plans.

Hays warned in January that operating profit for the first half of 2020 is expected to be £100mln, down from £124.1mln, however, investors will be watching closely to see if the epidemic has weakened its forecasts further.

Significant announcements expected for Thursday February 20:

FinalsLloyds Banking Group PLC (LON:LLOY), Anglo American plc (LON:AAL), BAE Systems PLC (LON:BA.), KAZ Minerals PLC (LON:KAZ), Moneysupermarket.com Group PLC (LON:MONY), Morgan Sindall PLC (LON:MGNS), Rathbone Bros. PLC (LON:RAT), Smith & Nephew PLC (LON:SN.)

InterimsHays PLC (LON:HAS), McBride PLC (LON:MCB)

FTSE 100 ex-dividendsCarnival PLC (LON:CCL), GlaxoSmithKline PLC (LON:GSK), Imperial Brands PLC (LON:IMB), Unilever PLC (LON:ULVR)

Economic data: UK retail sales; US weekly jobless claims; Philly Fed manufacturing index

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