The coming week will see results and updates from more heavy hitters in the banking, oil, insurance and media sectors, with HSBC, BP, Aviva and ITV among the more famous name on the roster.
The macro front will also have some key events including the Bank of England’s interest rate decision on Thursday as well as the all-important US non-farm payroll data on Friday.
HSBC eyes loan impairments
HSBC PLC’s (LON:HSBA) half-year results on Monday come after a week of updates from its Footsie peers, with perhaps Standard Chartered providing the closest comparable.
Also heavily focused on China and Hong Kong, with the added complications that has brought in recent months, StanChart cranked up its bad loan impairments by US$611mln in the second quarter to take its total credit provisions to US$1.6bn for the first half of 2020.
In the first quarter, global giant HSBC took the largest charge of the Footsie quintet, with a US$2.4bn increase in provisions for potential credit losses to a total of US$3bn, which can after February’s final results revealed a US$7.3bn goodwill impairment taken for the fourth quarter due to lower assumptions about the world’s long-term economic growth.
The charges included a significant single item “related to a corporate exposure in Singapore”, which analysts suggested possibly related to oil trader Hin Leong.
The bad loan provisions meant HSBC’s first-quarter profits crashed 48% to US$3.2bn even though income remained solid.
StanChart has the lowest net interest margin so far in the second quarter, falling another 24 basis points in the second quarter to 1.28%.
Analysts at Deutsche Bank said they are expecting HSBC to report similar negative impacts to NIM from rates, “which are not currently factored into consensus in our view and could lead to significant downgrades”.
After the round of bank results so far, market analyst Michael Hewson at CMC Markets said: “it seems quite clear from this week’s numbers that the rise in these loan loss provisions is a worrying sign given how aggressive the banks are being in setting aside contingency”.
BP dividend in focus
BP held firm at 10.5 US cents in the first quarter and if the FTSE 100 group sticks to that level for the whole year it would be the single biggest dividend payer in the FTSE 100, at around £6.7bn, said Russ Mould, investment director at AJ Bell.
“That number leaves BP’s shares on a forward dividend yield of more than 10%, which some argue may be in “too good to be true” territory,” he said, due to the cost of restructuring the group and net debt that rose to US$51bn at the end of the first quarter.
The results come a month and a half after new boss Bernard Looney told investors to prepare for write-offs of US$13-17.5bn because of the “enduring impact” of the coronavirus pandemic on the global economy, and two months since he revealed 10,000 job cuts.
Looney said most of the redundancies, representing 15% of its workforce, will be completed by the end of the year, though he warned “we will likely have to go even further”.
With the Irishman trying to reposition BP into a ‘net zero’ company by 2050, investors and analysts will look for comments alongside the results and ahead of a big strategy presentation in the autumn.
The write-offs mean the second-quarter numbers are likely to lead to a loss at the bottom line, though this will be the third time in four quarters, so plus ça change.
Did Diageo keep the fizz in its profits?
The maker of Smirnoff vodka, Johnnie Walker whisky and Guinness stout saw a big fall in on-trade sales, namely bars and restaurants, balanced by an uptick in the shops channel.
A fifth of its revenue comes from the Asia Pacific region, which has seen a lift in restrictions earlier than in Europe or the US with a slow recovery.
Most of the damage is likely to have been done in Europe which accounts for 24% of sales, Hargreaves Lansdown noted, and is more exposed to bars and restaurants.
“Any declines in revenue are likely to have a disproportionate impact on profits,” said analyst Sophie Lund-Yates.
“Diageo has some large fixed costs for its breweries and distilleries, meaning even a small fall in sales can leave a large mark on margins.”
Spanish quarantine may cloud the skies for easyJet
A trading update from easyJet PLC (LON:EZJ) on Tuesday may find itself dominated by questions around the recent resumption of UK quarantine restrictions on arrivals from Spain, one of the most popular destinations for holidaymakers in the summer months.
The airline has written to the UK government alongside Heathrow airport, British Airways and other travel firms begging policymakers to take a more nuanced approach to quarantine, however, such overtures are currently being rebuffed by ministers.
With this in mind, and the looming threat of a second wave of infections across the world, the company’s outlook is likely to remain the most critical factor, as well as its cash balance and how long it can stay afloat if its planes find themselves grounded again amid a surge of new coronavirus cases.
Insurers list off half-year figures
The week will see a litany of interim results from the insurance sector, ranging from the large life insurers to the medium sized generalists.
Analysts are still expecting modest dividend growth in the current year amid signs the company’s asset management and institutional annuities arms have continued to grow, however, the recent decline in the share price may indicate investors are concerned about the group’s outlook in the medium term.
There may also be eyes on the company’s debt pile, which given the lower capital reserves could put the dividend at risk and its ability to grow the business, the company’s housebuilding operation may also cause concern amid a slowdown due to social distancing and questions about demand.
On Thursday, Aviva PLC (LON:AV.) will deliver its interims following the promotion of industry veteran Amanda Blanc to CEO last month.
The company has seen its new sales and solvency ratio hit by the pandemic, however, it still managed a solid first quarter of trading with new life business increased 28% and general insurance sales up 3%, the second quarter has understandably seen more of a decline.
With the second quarter understandably being more difficult, investors are likely to eye more clarity on the extent of the impact as well as the company’s outlook for the rest of the year as second waves of the virus emerge around the world.
William Hill looks ahead as sport re-emerges from lockdown
Interim results from William Hill PLC (LON:WMH) on Wednesday are unlikely to make good reading once investors have digested the impact of the shuttering of betting shops during the UK’s lockdown as well as the stoppage of organised sport in the period.
However, there is likely to be much more interest in the company’s outlook now that organised sports start to get going again, particularly the Premier League and horse racing.
Investors are also likely to eye any news on how the company intends to use the £224mln it raised in June as William Hill looks to cut down on its debt pile.
It will also be hoped that the bookie can maintain its forecast to generate positive cash flow in the second half of the year, however, the renewed surge in coronavirus cases in the US could prove a snag for its North America operations.
Is ITV keeping up with Netflix?
In the middle of the lockdown, advertising demand in April nearly halved and the Studios’ productions were put on pause, although online viewing surged as people were cooped up in their homes.
Online advertising and revenue streams such as Britbox are key elements, according to Hargreaves Lansdown, in the FTSE 100 firm’s strategy to become ‘more than TV’ and a more diversified business, so it’s an important quarter for ITV to show if it is working.
Investors will be curious to see if the uplift in new subscribers in the second quarter has been similar to the one of Netflix, which saw earnings lifted by millions of new customers.
No surprises for Serco
The FTSE 250-listed firm forecast revenue growth of 23% alongside an underlying trading profit of £75mln-£80mln, 50% higher than a year ago, driven primarily by the company’s overseas businesses and its acquisition of the Naval Systems Business Unit of Alion in North America last August.
The pandemic posed challenges but Serco saw limited financial impact as losses in some of its segments were offset by additional work elsewhere, while order intake came in at around £1.8bn.
According to Berenberg, the stock is “unique asset that is wholly exposed to government contracts with an international reach”, plus £200mln of coronavirus-related work combined with the mobilisation of some large contracts are expected to yield organic revenue growth of 10% in the whole year.
The dawn of the venerable month of August, when some of the best people are born, brings as ever a new round of key economic data and Thursday also brings a Bank of England policy decision.
At the last meeting, the BoE’s monetary policy committee voted unanimously to maintain interest rates at their new low of 0.1% and keep going with its £200bn gilt-buying programme.
The BoE is the only major central bank where there are substantial divisions about what to do, said analyst Marshall Gittler at BDSwiss, with governor Andrew Bailey seeing the “need to keep the balance sheet contained”.
Against them stand more dovish members who warn about the weak inflation outlook and who would “err on the side of easing somewhat too much”.
With the views of the rest of the MPC less clear but, “tilted toward the dovish side”, Gittler says: “The market wants to know which way they will go. In particular, the focus is on the possibility of negative interest rates.
“If they decide that negative rates are indeed possible in the UK and would be effective, it would make sense for them to signal that decision as early as possible to give banks time to make any necessary adjustments,” Gittler said, with August’s policy report perhaps a suitable way to make the announcement, or they could drop a hint at the Fed’s virtual “Jackson Hole” meeting later in August.
Finishing the week will be the traditional big bang of US non-farm payrolls (NFP) numbers, the July numbers will be of particular interest as this was when coronavirus cases began to rise again and rising joblessness was seen once again.
After losing 22mln jobs between February and April as lockdowns forced businesses to close and lay off workers, before reopening through May and June allowed nearly 8mln of those jobs to come back, the US economy is still an almighty jobs deficit, said economists at ING.
“We are more cautious than the market though and look for a figure closer to 750,000 versus the current consensus of 1.5mln.
“We wouldn’t rule out a negative number for August given the recent developments.”
Dotted about the week will be purchasing managers index (PMI) surveys, starting with manufacturing on Monday, services on Wednesday and construction on Thursday.
Significant announcements expected for week ending 7 August:
Monday 3 August:
Economic data: UK manufacturing PMI, US manufacturing PMI
Tuesday 4 August:
Interims: BP PLC (LON:BP.), Direct Line Insurance Group PLC (LON:DLG), Centamin PLC (LON:CEY), IWG PLC (LON:IWG), Meggitt PLC (LON:MGGT), Spectris PLC (LON:SXS), Keller Group PLC (LON:KLR), Calisen PLC (LON:CLSN), Brave Bison Group PLC (LON:BBSN), Rotork PLC (LON:ROR)
Wednesday 5 August:
Interims: Legal & General Group PLC (LON:LGEN), William Hill PLC (LON:WMH), Coca-Cola HBC AG (LON:CCH), Ferrexpo PLC (LON:FXPO), Hastings Group Holdings PLC (LON:HSTG), PageGroup PLC (LON:PAGE), Morgan Sindall Group PLC (LON:MGNS), Hill & Smith Holdings PLC (LON:HILS), RHI Magnesita NV (LON:RHIM), Bank Pekao SA (LON:BPKD), IP Group Plc (LON:IPO), SEGRO PLC (LON:SGRO)
Economic data: UK services PMI, UK new car sales, US ADP employment data, US services PMI
Thursday 6 August:
Interims: Aviva PLC (LON:AV.), ITV PLC (LON:ITV), Serco Group PLC (LON:SRP), Hammerson PLC (LON:HMSO), Savills PLC (LON:SVS), Spirent Communications PLC (LON:SPT), Mondi PLC (LON:MNDI), Evraz PLC (LON:EVR), AIB Group PLC (LON:AIBG), Phoenix Group Holdings PLC (LON:PHNX), Aggreko PLC (LON:AGK), ConvaTec Group PLC (LON:CTEC), Glencore PLC (LON:GLEN), Synthomer PLC (LON:SYNT), Tritax Big Box REIT PLC (LON:BBOX)
Economic data: Bank of England rates decision, UK construction PMI, US jobless claims
Friday 7 August:
Economic data: US non-farm payrolls