Barclays Q1 update is another steady-as-you-go report from a UK bank. With clouds forming over banks’ net interest margins and questions remaining about the global economy, Barclays investors will be pleased to see that the bank performed marginally better than expected in the first quarter.

Total income was £7bn, a smidge higher than the £6.9bn expected, leading to profits of £2.3bn, again better than expected.

Barclays shares were over 3% higher in early trade on Thursday as investors reacted to an update that gave them nothing to be overly concerned about pricing fuel to the bank’s rally that started in October 2023.

Barclays shares are up over 50% from their lows, making it one of the better-performing banks in terms of share price. 

Compared to Lloyds, which reported yesterday, Barclays is a much more international bank with a better-diversified business model. For example, Barclays has a substantial investment operation.

In the UK, Barclays’s net interest margin, at 3.09%, was much better than that reported by Lloyds yesterday, which will encourage investors. However guidance for the year ahead is less appealing and the risks of lower interest rates to Barclays profits are notable.

“Credit where it’s due, cost controls look to be making a difference for Barclays. First-quarter trading was better than expected, but the weaker net interest income guidance for 2024 will be a little disappointing,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“In its UK arm, results were very similar to what markets heard from Lloyds yesterday. Structural hedge income is booming as lower-yield instruments are being reinvested at higher rates. That’s helping to offset ongoing weakness from depositors in search of better rates and a mortgage market that’s not as profitable as a few years ago. Both those headwinds are expected to ease throughout the year, and with loan default levels actually ticking down at the group level, there’s enough here to whet investors’ appetites.

“Looking below the hood on defaults, Barclays has a big stake in both the UK and US card market which adds another angle. Over the pond, default levels surprised on the upside and are higher than back in the UK, with US consumers clearly feeling the pinch a tad more. This was one area that disappointed, but Barclays remains confident in its reserve levels and expects things to improve as the year progresses.”

After the acquisition of Argos, the supermarket decided to refocus on its bread-and-butter food business and bolster its position in the grocery market amid growing pressure from discounters.

The measures implemented by Sainsbury’s are working as intended, and grocery sales grew 9.4% in the 52 weeks to 2nd March 2024.

Total retail sales grew 6.8% to £30.6bn in the year, while general merchandise sales, which include Argos, grew only 1.2%.

“Sainsbury’s has delivered a strong set of results amid its large-scale strategy shift. Crucially, the 6.8% increase in retail sales has been driven by volume. This is a more resilient strategy than price, but can often be more difficult to achieve. The successes are very much showing up in the numbers, with underlying retail operating profits climbing over 4%,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

If we judge Sainsbury’s strategy to focus on food purely by growth in different business areas, it’s working. 

“Sainsbury’s has arguably been guilty in the past of having its fingers in too many pies, allowing lower cost rivals to muscle in on market share. However, after launching its “Food First ” strategy which has since evolved into “Next Level Sainsburys” earlier this year, a renewed focus was given to groceries, the Nectar loyalty card scheme and £1bn of cost savings,” said

“This morning’s results indicate these innovations are beginning to bear fruit as the supermarket chain reported record volume growth, with grocery sales up 9.4% and expected to increase in the year ahead.”

Sainsbury’s has successfully retained its premium customer base while fighting off the discounters, which is no mean feat. 

The Nectar card scheme has been a major contributor to this. Sainsbury’s says the card provides around £12 savings per £80 shop. This method of lowering prices has retained its premium customers, who opt for higher-priced ranges while offering prices on some lines that rival Lidl and Aldi. 

Some concerns about the financial services business may lead to lower profit in the unit next year, but this is insignificant compared to the overall group operating profit. 

Investors took the opportunity to book profits after a reasonable run from March lows, and shares were down 2% on Thursday. For Sainsbury’s to revisit 52-week highs, one would expect improvement in the general merchandise business.

Anglo American shares surged sharply higher on Thursday after BHP, the world’s largest mining company, made a $31bn approach for the company.

The move comes amid a recovery in commodities prices and improving sentiment towards China.

Starting from a low base, investor sentiment toward Chinese equities is warming, and stocks with exposure to the world’s second-largest economy are also enjoying the benefits. 

However, the implications for London’s market run a lot deeper. Anglo American may be the next in a long line of companies leaving London either by switching their listing or being taken over. BHP itself was once a London-listed company before shifting its primary listing to Sydney.

’The buyout offer from BHP, the world’s largest publicly listed miner, for Anglo American, won’t just shake up the mining industry, but will send a fresh chill through the City of London,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“There are concerns that if the deal goes through it could be the tip of the iceberg and more giants could leave the exchange. It comes hot on the heels of speculation that Shell might up sticks and leave for New York, rumours that Ocado may be considering leaving for the Big Apple, and follows the crushing disappointment of home-grown chip designer Arm choosing the Nasdaq over the FTSE 100.”

Anglo American was one of the UK Investor Magazine’s Top 15 Stocks Picks for 2024. After the 12% rise today, Anglo American is now up 26% in 2024, making it one of our best performers today date.

There’s no stopping the FTSE 100’s ascent this week as the index looked set to break to another fresh record high.

The FTSE 100 was 0.4% higher at 8,077 at the time of writing on Wednesday, as upbeat earnings helped lift the index while the risk premium associated with geopolitical tensions dimished.

“The FTSE 100 continues to enjoy a robust showing, this time led by resources stocks and a well-received update from Reckitt,” said AJ Bell investment director Russ Mould.

“Markets seem to have put a wobble inspired by Middle East tensions and interest rate worries behind them for now, with Friday’s core PCE reading of US inflation the next key test. If this suggests inflationary pressures are looking entrenched it could lead to a further scaling back of rate cut expectations across the pond.”

Although interest rate concerns are never far away, they are taking a back seat this week as investors focus on corporate earnings.

“The large volume of company results this week gives investors a lot more to focus on than purely macro events, which is leading to the extra levels of market vitality,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

Reckitt Benckiser

Reckitt Benckiser was the FTSE 100’s top gainers after the consumer products group said they saw positive volumes in early 2024 and prices helped like-for-like sale growth.

It’s been a tough few years for Reckitts and shares rose over 4% as investors cheered the long-awaited recovery.

Lloyds

Lloyds shares were higher at the time of writing after starting the session in the red following the release of Q1 earnings. Profits and income were lower due to lowered interest rate expectations, and the outlook for 2024 didn’t inspire much enthusiasm.

“There wasn’t much for shareholders to celebrate from Lloyds’ first quarter numbers. The company fell down on the key metric of net interest margin on which every bank is judged, with the difference between what it generates from loans and pays out for deposits shrinking,” Russ Mould said.

“The company has seen competition in the mortgage market bring down its returns and savers move deposits into higher interest accounts – meaning it is paying out more to customers.

Mould echoed our sentiments around Lloyds going into earnings that the favourable period of higher interest rates is over for Lloyds and the group will face a tougher environment in 2024:

“Lloyds’ brief moment in the sun, when rates moved sharply higher and it was able to generate higher margins, seems to have come to an end. This period has not translated into any meaningful gains for a share price which has basically gone nowhere after making a partial recovery from pandemic losses. Costs are going up thanks to planned restructuring and a change in the charging approach for the Bank of England levy on the sector.”

Tesla shares were 10% higher in the US premarket after the EV maker released earnings in which revenue missed despite broad price cuts.

Musk outlined a strategy to take on increased competition by integrating next-gen technology into ranges targeted at the mass market.

Plans to accelerate the launch of robotaxis and autonomous vehicles were an integral element of Musk’s strategy as the billionaire set out his plans for the group to bolster its AI credentials.

The 10% jump in Tesla shares raised some eyebrows, given the general slowdown in sales, but the move was part of a general uptick in US stocks overnight, with a number of upbeat releases helping lift the mood.

“Tesla was one such positive story, after the market responded well to news it’s planning to accelerate the launch of its new models. This will put the brakes on planned cost cutting, but is a way to hopefully boost volumes,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

“In the increasingly competitive space of EVs, Tesla’s must-have status is one element it has above the others. In a way, it’s modus operandi isn’t too dissimilar to what Apple did for smartphones.

“While revenue missed the mark compared to analyst expectations, investors have been encouraged to hear of Musk’s plans to make bold decisions. Sentiment is likely to remain slightly subdued until we have further clarity on how the group plans to combat falling demand and price competition, on a more permanent basis.”

After near-constant disappointment for Reckitt Benckiser investors since the pandemic, they finally have something to cheer about.

Like-for-for like sales grew 1.5% in the first quarter as a mix of higher sales prices and steady volumes culminated in a robust period for the group.

Prices did most of the heavy lifting, rising 2% while volumes fell 0.5% – an improvement on last year. Reckitt was upbeat about the performance of its ‘power brands’ Lysol, Dettol, Durex and Finish with all showing positive volumes.

The hygiene unit was the standout performer in the quarter with like-for-like sales jumping 7.1% and volumes increasing 2.9%. Hygiene is Reckitt’s largest unit by revenue and strength here offset weakness in nutrition where volumes sank 9.4%.

Reckitt Benckiser shares were over 5% higher at the time of writing but are still substantially below all-time highs.

“To say Reckitt Benckiser has had a tough year would be a significant understatement with the price plummeting almost a third since February off the back of poor Q4 results and litigation facing their baby formula brand. With that said, many shareholders may well have been bracing for impact this morning but in fact the results offer a timely reprieve,” said Adam Vettese, analyst at investment platform eToro.

“Even when consumers are tightening their belts, Reckitt’s array of consumer staples in well-known brands are still well in demand with consumers even upgrading to premium versions as smaller luxuries take the place of bigger, more extravagant purchases. Sales jumped despite price increases showing strong brand loyalty to the likes of Finish, Dettol and Nurofen and the increase is coming not only from price but volume also.”

Vettese also pointed to share buybacks helping improve investors’ mood:

“More buybacks are on the way in July and provided legal issues do not bring too much more trouble to the door, investors could see value at the current levels with the price 38% away from its 2024 high which was only at the end of February.”

Lloyds shares were marginally lower on Wednesday after the bank said profits fell in line with expectations but reaffirmed guidance for 2024.

When we previewed Lloyds earnings last week, we questioned whether the higher rates ‘party’ was over for Lloyds, and it appears it is. 

Net interest margin (NIM), the key profitability metric dictated by interest rates, fell to 2.95% after being well above 3% for most of 2023. Although Lloyds NIM has fallen sharply, the group expects it to remain steady around the current level for most of this year.

“Management still expects the full-year NIM will be greater than 290 basis points, even though interest rates may be set to fall later this year,” said Garry White, Chief Investment Commentator at wealth manager Charles Stanley.

The drop in NIM dragged on income, which fell 9% to £4.2bn, and statutory profit after tax fell to £1.2bn in the first quarter. However, the slowdown has been well-telegraphed and is largely priced into Lloyds shares, which dipped 1.5% in mid-morning trade on Wednesday.

“Lloyds is doing exactly what it needs to do. Don’t focus on the year-over-year numbers too much. Yes, the drops look substantial from this time last year but that’s been expected for some time, the environment is simply not as favourable as it once was,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“That said, Lloyds is showing why the UK banking sector is an attractive place to be right now. Consumers remain resilient to cost pressures and default trends look stable, at or below pre-pandemic levels. At the same time, the economic outlook is improving, and impairment charges came in lower than analysts had expected.”

Investors hoping to gain clarity on the motor finance fine would have been disappointed to learn they will have to wait until later in the year to learn more about the extent of the cost to Lloyds. 

“There is yet to be an update on the regulatory probe into past motor finance commission arrangements, with the bank already setting aside £450m against any potential liabilities,” Garry White said.

“The Financial Conduct Authority will update on 24 September and investors keenly await the outcome as the potential fines and compensation could be higher.”

The scale of the fines isn’t likely to be as large as previous provisions for wrongdoing, but the uncertainty will weigh on sentiment.

As if Covid was not impactive enough, last year this company was hit for six by a bout of strikes within the industry of its main clients. 

This Friday morning will see the business reveal just how badly it fared – but it could also declare just how it will be fighting back this year, as it looks to strongly recover its earnings. 

The Business 

The Bridgend, Wales-based Facilities by ADF (LON:ADF) provides premium-quality serviced vehicle hire for TV and Film productions. 

It specialises in support for high-end TV and major feature films for the highly competitive video-on-demand market led by the major streaming giants, such as Netflix, Apple, Disney +, HBO Max, Marvel, NBC Universal, and Amazon. 

The £40m capitalised group’s expert team has many years of experience throughout the UK and Europe, enabling it to offer a reliable and professional service, from artiste trailers to departmental vehicles.  

The business is a 24-hour, 7-days-a-week operation with a fleet of over 600 super quality location vehicles, capable of servicing 25 large productions at any one time.  

The company’s fleet is made up of mobile make-up, costume and artiste trailers, production offices, mobile bathrooms, diners, school rooms, and technical vehicles.  

It also supplies mobile and key location facilities for television and film productions. 

With operational bases in London, Glasgow, Cardiff, Manchester, Birmingham and at Pinewood Studios in Slough, which are organised into dedicated departments including account management, logistics, transport, factory, workshops, HR and accounts. 

The Strikes And ADF Mitigating Actions 

After a record first half of 2023, the group was hit hard by the onset of the USA Writers (Writers Guild of America) and Actors (Screen Actors Guild – American Federation of Television and Radio Artists) strikes, with several large productions that ADF was working on stopped filming immediately, impacting revenue levels in the second half of the year. 

In response the group took several mitigating actions to maximise profitability in the second half year, including securing shorter duration domestic productions, and cutting the use of more expensive agency drivers, thereby enabling the group to price its services more competitively and win a larger share of available business. 

Overall, ADF supported 84 high-profile productions in FY23 with an average revenue per production of £302,000 (£381,000).  

Notable productions included The Crown season 6, Slow Horses, Star Wars Andor, The Gentlemen, Rivals and The Diplomat. 

At the end of February, the company issued a statement noting that following the end of the Strikes in November 2023, and the continued growth in demand for ADF’s services as evidenced by the current order book, the company expects the financial performance of H1-FY24 to be significantly ahead of the H2-FY23. 

The group will provide further guidance when it announces its full year FY23 results later this week. 

CEO Marsden Proctor stated that: 

“Our performance in FY23 demonstrates the Group’s resilience with a strong first half countered by the first joint strike of Hollywood actors and writers in over 60 years.  

The effects of the strikes will continue to be felt through the first half of the current year, but we will carefully manage our cost base during the period.  

The long-term market dynamics remain very much in ADF’s favour with continued high levels of investment in the UK HETV industry and the Board is confident that we will return to pre-strike order levels and beyond as conditions normalise.” 

Analyst View 

Andrew Renton at Cavendish Capital Markets has estimates out for the year to end December 2023 for higher revenues of £34.8m (£31.4m), but with adjusted pre-tax profits collapsing to £1.1m (£4.8m), slashing earnings down to 1.3p (5.8p) – but an air of confidence of recovery this year is indicated by expectations of a maintained but uncovered 1.4p (1.4p) dividend per share. 

For the current year Renton is going for a leap in sales to £47.0m, taking profits up to £5.0m, with 5.8p earnings and a healthy 1.9p dividend per share. 

He has a 76p per share Target Price. 

My View 

Those strikes were like a body blow to ADF, but it appears that the company is standing a lot straighter now after the wincing agony. 

Looking forward this group could well show an excellent recovery this year, leading into even more positive results in 2025. 

Its shares, which were up to 81p two years ago, have subsequently been down to 37.26p in response to the strikes. 

Ahead of Friday’s results announcement, they are looking stronger at 49p, at which level investors taking a positive view of the group’s recovery potential could well see an early advance in price towards the broker’s objective.