Banks will be a big theme in the coming week, with HSBC, Lloyds, Standard Chartered and NatWest all reporting third-quarter results, while supermajors BP and Shell will also bringing oil and new energy into focus.
That’s far from all the action for the big FTSE names, with BT, GlaxoSmithKline, Next, Smith & Nephew, Whitbread and WPP among others reporting.
On the other side of the pond, with just over a week until the US election date, it’s an even busier agenda for US earnings, including a Thursday that will jam-packed with the most of the FAANGs, with Alphabet, Amazon, Apple, Facebook, plus Spotify and Twitter earnings a big potential driver of Wall Street sentiment.
This comes amid scrutiny on big tech that was ramped up this month when the US Department of Justice opened an antitrust case against Google’s parent company.
Before that in the week not much quieter, with Microsoft on Tuesday along with Pfizer, Merck, AMD, 3M and Caterpillar, and Wednesday featuring Visa, Mastercard, PayPal, Boeing, General Electric, Baidu, eBay, Ford and Lyft, while Friday sees ExxonMobil, ConocoPhillips and Colgate-Palmolive reporting.
With so much resting on a few big names in the US and the election so close, it’s set to be “a volatile week” for stocks, said Neil Wilson at Markets.com, pointing to increased scrutiny on big tech as the US Department of Justice opened an antitrust case against Google’s parent company and with speculation the case could create headwinds for Apple’s services business too.
A better bunch of bankers?
A useful preview for the UK banking sector has already been provided by Barclays and the big US lenders.
The good news for the sector is provisions for bad debts have come down, with Barclays adding £608mln in the third quarter compared to £1.6bn in the second and £2.1bn in the first.
In the coming week, HSBC PLC (LON:HSBA) steps up on Tuesday, with Lloyds Banking Group PLC (LON:LLOY) and Standard Chartered PLC (LON:STAN) on Thursday and NatWest Group PLC (LON:NWB) finishing up the week.
Shares in the sector are at long-term lows, with HSBC’s last month falling in line with levels last seen back in 1994 as it was embroiled in new money-laundering allegations.
The Asia-focused lender said in August that it is accelerating restructuring plans, which include 35,000 job cuts, after reporting a 65% drop in first-half pre-tax profit.
After taking US$3bn of loan and asset impairments in the first quarter and US$3.8bn in the second, the consensus forecast in the City is for HSBC to unveil further provisions of around US$2bn for the third quarter.
This is estimated to lead to a pre-tax profit of US$2.1bn, compared to US$1.1bn in the second quarter and US$3.2bn in the first.
Looking to the much more UK-focused Lloyds, its provisions were £2.4bn in the second quarter and £1.4bn in the first.
In the second quarter this and a lower net interest margin led to a statutory loss before tax of £602mln, though the UK’s number-one lender pointed to “early signs of recovery” in core markets, such as consumer spending and the housing market.
Along with rival Barclays, analysts expect Lloyds will add a smaller bad loan provision, though with the UK recovery running out of steam and going back into lockdown, investment analyst Susannah Streeter at Hargreaves Lansdown says banks still need to set more cash aside to cover defaults, while low rates continue to hit income.
“These are trends which seem unlikely to disappear any time soon given the current resurgence of coronavirus cases, and the further economic damage which regional lockdowns are likely to cause. However, the bank’s early move into digital services has served it well, and has historically given it one of the lowest cost to income ratios in the industry – a competitive edge in bad times.
“The bank’s growing wealth & insurance business also provides diversification, and is less sensitive to low interest rates than the core banking operation, which should help Lloyds weather the storm.”
StanChart, which like HSBC has a big focus on Asia and other emerging market, cranked up its bad loan impairments by a relatively small US$611mln in the second quarter, taking its total credit provisions to US$1.6bn for the first half.
Income was down 4% in the second quarter after a strong start to the year, but StanChart has the lowest net interest margin among its rivals, which fell another 24 basis points in the second quarter to 1.28%.
UBS said the main focus will be on an expected “material” decline in net interest margins, a quiet quarter for defaults and financial market revenues.
NatWest will bringing up the week as usual, with similar issues in focus, though the UBS analysts said they expect “attention to be paid to potential actions around Ulster Bank, NatWest Markets and what value, if any, should be attached to excess capital in a market in which Brexit, COVID-19 and regulatory uncertainty are so pronounced”.
The former RBS took charges for loan impairments of almost £2.9bn in the second quarter, following impairments of £802mln in the first, which included charges related to the more uncertain economic outlook on top of £170mln already in place due to potential losses arising from Brexit.
Oil be back?
In a preview, Swiss bank UBS, somewhat pointed out the obvious, described the third quarter as “a difficult period” – with the share price down 27.9% following its prior quarterly results and strategy reboot.
“This reflects the fact that the refreshed strategy did not land well with investors – we think this lies with the deliberate shrinking of upstream in favour of investing in a renewables operation unlikely to generate meaningful earnings or cashflows before 2025.
“Further, the negative narrative around the Upstream is unhelpful to the investment case when so much of the value of the business lies in the Upstream and will do for the next decade.”
Previously, BP lowered production guidance for the quarter but UBS noted that the company “will be essentially balanced from a cashflow perspective”.
Although it won’t be a stellar third quarter report, UBS analyst still anticipate a ‘competitive’ financial performance.
“Shell's underperformance in the year to date owes much less to financial performance and more to the dividend cut at 1Q and the absence of any context or visibility on outlook for the business at either 1Q or 2Q,” the analysts said.
“Instead we do hope for a stronger investment case for the share to be articulated by management rather than entirely wait until the strategy day scheduled for February 11.”
The analysts expect a significant quarter-on-quarter in the Upstream arm as oil prices recover and in the absence of unusually large exploration write-offs, while in Downstream, oil products are seen being hampered by weak refining margins and the absence of windfall trading results reported in the second quarter but Shell has acknowledged significantly higher marketing margins.
Whitbread books in for expected losses
The Premier Inn and Brewers Fayre parent previously reported sales had slowed by 77% for the half.
On that basis, first-half earnings (EBITDA) will fall to a £285mln loss from a £285mln profit in the same period a year ago, according to forecasts from UBS.
“The focus is likely to be on the start to 2H21, the restructuring program, pipeline delivery, competitor pressures and outlook for opportunistic bolt-ons,” UBS said in its preview.
Thank you; NEXT
The clothing retail bellwether tumbled to an interim loss but upped its full-year profit guidance as it benefited from much stronger online sales.
Investors will want to know how this trend has fared since August and whether boss Simon Wolfson remains confident of generating profits and cash, and cutting debt even considering the economic hardship consumers are facing this winter.
Central guidance for the year was last set for a 59% fall in profit to £300mln on sales down 12%.
“The mid-range retail market is highly competitive though and, as consumers often trade down when times are hard, there is a risk that a long recession could see more customers turn to chains offering cheaper products like Primark on the high street and Boohoo online,” analysts at Hargreaves Lansdown noted.
“However Next has lots of innovations up its sleeve, that bode well for future growth.”
Vaccines under the microscope for Glaxo guidance
At its half-year results the big pharma group kept its outlook for the current year of a 1-4% decline in core earnings per share (EPS) unchanged but this was contingent on a recovery in vaccination rates.
For the first half of 2020, the pandemic hit the number of vaccinations carried out by the group, leading to underlying EPS dropping 37% to 19.2p – even though statutory profits rose by 74% to £4.45bn due to gains on completion of the sales of certain consumer brands.
“We think recovery in US vaccination rates won't be sufficient,” analysts at UBS said, with their estimates for third-quarter 2020 adjusted EPS of 30p in line with the City consensus.
Investors will also be eager for news on the vaccine developed with Sanofi, which should enter the late stage of trials in December if the Phase 1/ 2 started last month is successful.
BT past the worst?
BT Group PLC (LON:BT.A) will report fiscal half-year numbers on Thursday with its shares having bumped along at around an 11-year low since early summer, not even reports of possible private equity interest having made much of an impact.
COVID has hurt BT in several way, first-quarter results showed in July, as its business and residential customers were both affected and many have been offered bill credits, its Openreach arm stopping in-home engineering work from March to May, overseas roaming was reduced by travel restrictions, and the BT Sport business suffered from live sporting postponements.
For the second quarter, analysts are forecasting EBITDA of £1.8mln, similar to the first.
But analysts at Berenberg believe the City consensus “underestimates how quickly lockdown-specific drags should unwind” after BT Sport offered bill credits to customers in the first quarter due to event postponements and the group’s retail stores were closed during lockdown.
Investors will also be looking for progress on wholesale deals for Openreach as well as news on the pension deficit.
WPP on the billboards
“It is time to start to look at how we grow,” he told the FT, so investors will want to hear more on these plans.
In terms of figures, net sales are expected to decline 13% in the group’s third quarter, according to analysts at Barclays.
The market will be curious to hear about cash flow, considering in August the advertising giant decided to pay an interim dividend in spite of racking up a £2.6bn half-year loss.
Read said at the time that WPP was on a stronger financial footing than it had been, with £4.7bn of liquidity thanks mainly to the sale of a majority stake in the consulting group Kantar, and a falling cost base.
Second wave bodes ill for Smith & Nephew
The hip- and knee-replacement group pointed out that this was a significant recovery following a decline of 29.3% for the second quarter.
Trading should continue to improve as global levels of elective surgery slowly returning to pre-pandemic figures, though in many countries a rising number of coronavirus hospitalisations seems likely to put paid to that.
“Any 'second wave' of the virus in the winter would likely stunt growth in elective procedures and so we expect the uncertainty to remain, particularly heading into the critical winter period in its key markets,” say analysts at Shore Capital.
FAANGS in spotlight ahead of Halloween:
Across the pond, sentiments will be driven by a number of the giant tech stocks that have led much of the rally through 2020.
Apple’s results on Thursday will no doubt be a key feature, there’s generally positivity around the iPhone maker albeit the market is expecting (with wide consensus) a drop in quarterly earnings.
“The shares may not have quite recaptured the closing all-time high of $134.18 achieved on 1 September (straight after the 4-for-1 stock split) but they are still up by more than 60% in 2020, so expectations are running hot for Apple,” UK stockbroker AJ Bell said in a note.
As COVID-19 has driven more and more retail transactions online its no surprise that the world’s largest e-commerce business is going from strength to strength.
Most recently quarterly trading, reported in July, revealed an 89.5% rise in operating profit which amounted to US$5.8bn on revenue of US$88.9bn, which was marked 40% higher. Amazon generated some US$13.1bn of free cash flow.
At that time, it guided for US$87bn to US$93bn of net sales for the next quarter.
Investors will see just how strongly Amazon fared though the ‘new normal’ on Thursday and will keenly eye at the online seller’s outlook for the holiday period ahead.
Like its cohort of ‘Big Tech’ peers, Google parent Alphabet continues to be a major beneficiary amidst the increased digitalisation of the workplace and social space as a result of the COVID-19 pandemic – albeit, it has somewhat lagged the likes of Amazon and Facebook.
In July, Alphabet managed to meet Wall Street expectations for its second quarter with a net income of US$6.96bn, down from US$9.95bn a year ago, while revenues fell to US$31.6bn from US$31.7bn.
The number followed a dip in advertising revenues, which dropped by US$2.6bn year-on-year, although sales from its Google Cloud and YouTube businesses grew 43% to US$3bn and 6% to US$3.8bn respectively.
Scrutiny over policy and privacy, meanwhile, remain consistent discussion points around the search engine business – the most recent and possibly significant of late came earlier this month as Google’s search business was hit with an anti-trust lawsuit.
Google has been accused of abusing its market position and maintaining an illegal monopoly over internet searches by the US Department of Justice. Sources in the Justice Department quoted by the Wall Street Journal said that the lawsuit will also challenge how Google’s search engine is embedded on mobile phones running the Android operating system.
The US move follows a step-up in actions against the major tech firms by the European Union and comes a year after the DoJ and Federal Trade Commission started an investigation into the combined power of Google, Amazon.com, Apple and Facebook.
The EU has already fined Google more than US$9bn in three different actions related to blocking access to advertisers and Android.
There will naturally be plenty of attention on such matters as Alphabet announces its quarterly results on Thursday.
Policy, privacy, advertising and political influence are naturally still hot topics around the social network, especially in the days and weeks running up to the Presidential Election on November 3.
Significant announcements expected for week ending October 30:
Monday October 26:
Economic data: CBI industrial trends report; US new homes sales; Chicago Fed national activity index
Tuesday October 27:
Economic data: US durable goods orders; US house prices
Wednesday October 28:
Economic data: UK BRC shop prices index; CBI distributive trades index
Thursday October 29:
Trading updates: Smith & Nephew PLC (LON:SN), WPP PLC (LON:WPP), Lloyds Banking Group PLC (LON:LLOY), Royal Dutch Shell PLC (LON:RDSA) (LON:RDSB), Standard Chartered PLC (LON:STAN), Indivior PLC (LON:INDV), Helios Tower PLC (LON:HTWS)
Finals: Proactis PLC (LON:PHD)
FTSE 100 ex-dividends: None
Economic data: Nationwide UK house prices; US weekly jobless claims; US preliminary Q3 GDP, US pending home sales
Friday October 30:
Economic data: UK consumer credit mortgage lending; US personal income and consumption; US Chicago PMI; US final University of Michigan consumer sentiment index