The FTSE 100 was broadly flat on Friday as a busy week for company earnings drew to a close.

London’s leading index was down just 2 points at the time of writing as Standard Chartered topped the index with a 7% gain after beating Q4 profit estimates.

A bumper session for US stocks overnight helped the FTSE 100 start the session on the front foot before the rally diminished as the session progressed.

Better-than-expected results from chipmaker Nvidia helped propel US stocks higher as markets cheered the continuation of the AI boom, which has supported equities over the past year.

“Indices around the world are hitting record highs as the latest test for investor sentiment came and went in the form of Nvidia’s results,” said AJ Bell investment director Russ Mould.

“These managed to outmatch the market’s already elevated expectations, suggesting the AI theme is very real. However, how healthy it is for a single stock to have such a big bearing on global markets is questionable.”

Whether it is healthy or not appears to be of little consequence for investors in US stocks in the short term as the S&P 500 hit fresh record highs overnight.

With European and Japanese equity indices hitting record highs yesterday, the FTSE 100’s recent performance will disappoint UK equity investors.

The defensive nature of the index, which is also heavily weighted towards commodities, has prevented the FTSE 100 from retesting record highs and down is 2.8% over the past year compared to a 26.8% gain for the S&P 500. The Japanese Nikkei is 44% higher.

However, the FTSE 100 provides a greater dividend than overseas indices, and its composition may lead to outperformance in the future.

The FTSE 100 is heavily weighted towards China, and disappointing updates from miners and HSBC this week highlight the challenges the index has faced over the past year as China struggles to build momentum.

The eventual recovery in the Chinese economy could prove to be the catalyst for the FTSE 100 to close the gap between US and European stocks.

Interest rates

Financial markets struggle to focus on more than one thing at once, and with corporate updates front and centre this week, economics and monetary policy have taken a back speak.

Expect the focus to shift back to interest rates in the coming trading sessions as the corporate calendar slows and traders once more question when major central banks will first cut rates.

With data supporting the argument major economies can withstand higher interest rates, expectations of the first-rate cuts by the Federal Reserve and BoE are being pushed further and further out. This hasn’t impacted stocks thus far, but it doesn’t mean it won’t.

“Latest figures show that the US market remains tight, which further muddies the picture for the Federal Reserve. Those banking on swift rate cuts are likely going to be disappointed,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

Hornby shares soared on Friday after the Scalextric and Airfix owner announced Frasers Group had increased its stake in the company.

Frasers Group has acquired 1,107,575 Hornby shares to take their stake in the group to 8.9%.

Hornby shares have suffered in recent years as it struggles to attract younger generations to its collectibles offering. However, the challenges Hornby faces and the resultant performance of shares have made the company an opportunity too attractive for Frasers Group to overlook.

Hornby shares were 40% higher at the time of writing.

“Frasers has shunted its way up Hornby’s shareholder register, as it pounces on yet another retail name that’s been going through hard times,” said AJ Bell investment director Russ Mould.

“While Hornby’s shares have struggled for years, they’ve recently started to perk up and the appearance of Frasers on the shareholder register has given them another boost.”

Mould continued to explain that investors shouldn’t get ahead of themselves expecting a full takeover approach by Frasers Group.

“Don’t expect Frasers to launch a takeover bid for the group. Its style is to only acquire when something is on the verge of going bust as it prefers to pay pennies to buy something outright. Instead, Frasers is more likely to seek strategic conversations about helping Hornby to improve its distribution and logistics while at the same time realising it might be able to make a few quid by investing in its shares,” Mould said.

“At first glance, it’s not the most logical tie-up for Frasers which is best known for sporting equipment and athleisure. Train sets and tracksuits are about as far removed as you can get. Yet Frasers has shown willingness to explore different ways to get consumers to part with their cash. After all, it went from sporting equipment into sofas and computer games which is not a natural path to take.

“The real connection between Frasers and Hornby is the former’s GAME shops which have progressed from consoles and computer games to now also selling board games, trading cards and toys. Hornby’s products sit on GAME’s shelves and Frasers clearly spots an opportunity to do more.”

Standard Chartered wrapped up FTSE 100 bank Q4 updates in fine form on Friday with a profit beat that sent shares sharply higher.

UK banks have had mixed reactions to updates this week, with the balance of profits, outlook, and shareholder returns driving immediate share price moves.

Standard Chartered shares over 8% at the time of writing on Friday as the company excelled on all three.

STAN’s Q4 underlying profit before tax was $1.1bn, up 74% compared to the same period last year as impairments fell and net interest income rose 6%.

Share buybacks and increased dividends have been a theme across UK banks results over the past week and Standard Chartered did not disappoint.

The group will pay a 27 cent final dividend meaning full year dividends are up 50% on last year. In addition, shareholders will benefit from a fresh $1bn share buyback.

The icing on the cake for Standard Chartered investors was a very positive outlook. The company said it was targeting an operating income increase of 5%-7% from 2024 to 2026 and saw this at the top end of the 5%-7% range in 2024.

“Standard Chartered’s fourth quarter results benefited from lower impairments like many of its peers. Profit before tax beat expectations largely due to a release of impairments back to profit from one of its divisions. Strip that out and underlying performance was a little weaker than expected, but the focus will be on guidance,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“The outlook for 2024 is a smidge lower than analysts had priced in but the medium-term guidance out to 2026 shows promising signs. Volume growth, cost cuts and a benefit from the structural hedge are expected to help deliver a return on tangible equity of 12% in 2026 (10% 2023). If delivered, that should provide a material tailwind to the current valuation.

“The China story remains in focus. Standard took another write-down of its investment in the domestic Chinese bank, Bohai, over the quarter – taking the total to $850mn for the year. The stark performance difference between onshore and offshore business in China highlights the challenging domestic environment.”

Predator Oil & Gas shares sank this week following disappointing results from its onshore Moroccan gas assets, which piles pressure on the company to deliver results in the next testing phase.

Morocco is considered Predator’s foremost project by many, and the formation damage setback during phase 1 of testing was a blow to investors looking forward to production this year. The commencement of phase 1 had already been delayed due to administrative constraints.

Predator Oil & Gas shares are down 42% over the past week.

Near-term success in Morocco has the potential to be a company maker. However, any further delays or setbacks risk eroding the opportunity for long-term shareholder value creation.

In November, Predator said they were in the ‘fortunate’ position to be fully funded to complete works in Trinidad and Morocco after the company raised £7m at 11p by way of an accelerated book build in the middle of last year.

“Given that the Company is well-financed to deliver all of its current near-term firm strategic objectives for its substantially de-risked oil and gas portfolio, any dilution of project equity would need to be a compelling value proposition for shareholders,” the company said in November.

This suggests the funds are readily available for phase 2 of the efforts to establish gas flow in Morocco.

That said, investors should expect delays in any natural resource development programme. In addition, they should be prepared for fluctuating capital requirements.

Executive Chairman Paul Griffiths said this week there was discretionary cash available for the sandjet programme while conceding they need gas to flow as a result of the programme.

The comments would infer there is an awful lot of pressure on the next phase to be successful. There is a sense the company had always seen the phase 2 sandjet programme as the most important phase. Yet, the risks attached to it not being successful were evident this week as PRD shares plunged on phase 1 disappointment.

Predator has not provided details on the potential scenarios if the sandjet programme does not go to plan. It is unclear whether additional funds will be required to pursue another phase in Morocco or extend the sandjet programme beyond that already budgeted.

Last year, Predator alluded to both Trinidad and Morocco being close to production. Trinidad may provide a fallback if Morocco faces further delays and costs spiral. Still, it will be a bitter pill to swallow, especially if additional cash is needed in Morocco before Trinidad starts production.

The FTSE 100 made promising steps forward on Thursday after several upbeat earnings releases by constituent companies helped compound a general wave of optimism sparked by Nvidia’s better-than-expected earnings release last night.

A strong session in Asia also helped boost mood.

There was a lot riding on Nvidia’s earnings release with a global equity market rally relying on the AI boom to support sentiment. The chipmaker delivered, beating estimates and helping Europe to a strong start on Thursday. Nvidia was trading over 10% higher in the US.

“Crisis has been averted after Nvidia smashed expectations with its latest results. Markets were braced for potential disappointment given how its shares were weak in the run-up to the numbers, but a large beat on both earnings and sales has put a new rocket under the stock,” said Russ Mould, investment director at AJ Bell.

“Nvidia last year implied the artificial intelligence boom was a significant moment in tech history and chief executive Jensen Huang now says we are at a tipping point for accelerated computing and generative AI.

“Nvidia’s better than expected results last night could help to keep investor sentiment high and that positivity has spread to other parts of the market.”

The FTSE 100 was 0.3% higher as broad European equity indices broke to fresh record highs on Thursday. Japan’s Nikkei also touched record highs overnight.

“It’s a record-breaking day for stocks and shares after two major indices hit new highs. Japan’s Nikkei 225 and Europe’s Stoxx 600 pushed ahead to new record levels,” said Russ Mould.

Rolls Royce

Rolls Royce was the FTSE 100’s standout performer with a 10% gain after the company said operating profits doubled in 2023. The company also set out positive guidance for the year ahead which, if met, would support the engine maker’s current valuation.

“From burning platform to booming platform. After a year of convincing the market of the merits of his turnaround plan and using colourful words to describe Rolls-Royce’s predicament, 2024 was time for Tufan Erginbilgiç to start delivering. Its latest full-year results represent a good start,” Russ Mould said.

Not only is Roll Royce’s turnaround resulting in higher profits, it opens the doors to the company resuming dividend payments in the coming periods.

“Now profit is on a very different trajectory with the firm set to build on 2023’s success with higher guidance for this year. This is not surprising as we are seeing no let-up in demand in civil aviation as well as defence spending, both areas in which Rolls-Royce has a strong foothold. If this comes to fruition, then it won’t be long before the dividend is back also,” said Adam Vettese, Market Analyst at eToro.

Anglo American gained 4% as underlying EBITDA fell 31% but averted the worst-case scenario in the midst of a slowdown in China.

Lloyds was also among the top risers after reversing early losses following the release of mixed full year results. Underlying profit rose but the company set aside £450m for motor financing provision as the FCA conducts an investigation.

1Spatial shares rose on Thursday after the group announced a contract win that provides commercial validation of 1Spatial’s 1Streetworks software.

1Spatial has signed a 12-month contract with UK Power Networks to use its 1Streetworks software, following a successful trial period. The software aims to revolutionise streetwork planning by fully automating the production of traffic management plans, diversion routing, and asset inventory lists.

1Spatial shares were 9% higher at the time of writing.

1Streetworks was tested by UK Power Networks across 300 roadworks sites in Surrey when connecting small power connections for customers. The software reduced the time spent on labor-intensive streetworks design from hours to minutes, cutting connection times by 25% on average. Crucially, this acceleration was achieved while continuing to meet all safety and accuracy regulations.

The contract comes off the back of rising demand, with 2.5 million low-speed road works currently undertaken each year in the UK, expected to reach 4 million in coming years. The total addressable market for 1Streetworks in the UK is approximately £400 million.

The 12-month deal delivers a minimum of £340,000 SaaS revenue for 1Spatial. With UK Power Networks managing 190,000km of cables supplying 19 million people, investors will be hopeful the potential revenue from the agreement grows if the rollout is successful.

“We are delighted that our innovative 1Streetworks application has delivered such fantastic results for UK Power Networks and its customers,” said Claire Milverton, CEO of 1Spatial.

“This has been a key milestone for the company and a culmination of many years of work and investment. The commercial validation brought by this contract is crucial in driving adoption across the wider industry.”

Rolls Royce shares took off on Thursday as the engine maker confirmed a solid year of progress in 2023 and set out attractive 2024 guidance.

With a 222% gain, Rolls Royce was the FTSE 100’s best-performing stock in 2023 by a country mile. In the 2024 year-to-date, the company has gained another 20% including today’s 8% rise.

Today’s full-year results justify strong gains in Rolls Royce shares and even provide scope for further gains. Underlying operating profit rose to £1.59bn in 2023 from £652m in 2022 and free cash flow surged to £1.29bn.

“What’s not to like in this Rolls-Royce update? Profit has doubled, cash flow is up and costs and net debt have come down. CEO Tufan Erginlilgic seems to have carried out the turnaround of the century, given shares are now trading at a six-year high and are 10 times higher than their Covid low,” said Adam Vettese, Market Analyst at eToro.

The fundamentals support future earnings growth, and there is nothing in this release that derails Rolls Royce’s ascendancy. This doesn’t mean unexpected external events have the potential to upset Rolls Royce’s growth trajectory.

Rolls Royce is being supported in part by a consumer choosing to allocate their discretionary spending to travel during the cost of living crisis and airlines bolstering their fleets to meet demand.

The company said they were targeting £1.7bn-£2.0bn Operating Profit in 2024 and Free Cash Flow of £1.7bn-£1.9bn.

“Heading into the new year, the group continues to benefit from sector-wide tailwinds like a huge backlog of plane orders and pent-up consumer demand for travel, meaning there’s set to be more of the group’s market-leading engines on wings,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.

“Given that a large chunk of its revenue comes from servicing those engines, with business based on how long those engines spend in the air, investors should be pleased to see so-called engine flying hours (EFH) rise to 88% of 2019 levels last year. That figure’s set to soar to new heights this year, with the group expecting EFH to hit 100-110% of 2019 levels.”

Rolls Royce CEO Tufan Erginbilgic’s turnaround strategy must be applauded. He took the controls at Rolls Royce in early 2023 amid geopolitical tensions and economic head-winds, and has set Rolls Royce on a clear path to shareholder returns.

“Our transformation has delivered a record performance in 2023, driven by commercial optimisation, cost efficiencies and progress on our strategic initiatives. This step-change has been achieved across all our divisions, despite a volatile environment with geopoliticaluncertainty, supply chain challenges and inflationary pressures,” said Rolls Royce CEO Tufan Erginbilgic.

Lloyds shares were weaker in early trade Thursday despite announcing a fresh £2bn share buyback and Q4 profit before tax coming in higher than analyst estimates.

However, early disappointment diminished as a fairly sizeable share buyback provided the desired effect on Lloyds shares on Thursday. Lloyds performed well during the last quarter with Q4 profit before tax coming in at £1.8bn compared to a £1.7bn analyst consensus.

While underlying performance was strong, bad memories of provisions related to wrongdoing dominated the Lloyds share price in early trade Thursday as the company set aside £450m in provisions for a motor financing probe by the FCA.

“Lloyds delivered a decent set of results and a confident medium-term outlook. Striping out the £450mn provision, set aside as a buffer for any incoming charges from the FCA review into motor financing, and profit before tax was a decent beat. That was driven almost entirely by a release of credit impairments back into the profit line with better economic assumptions and a single-name creditor paying back a hefty chunk of debt,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“On the FCA review, the £450mn provision was less than some had feared but there will be question marks around how Lloyds has come to that figure. Lloyds has been honest in saying the outcome of the review is largely unknown. What we do know is that Lloyds is one of the more exposed banks should the FCA deem there was misconduct and customer loss.”

Concerns about future provisions and the potential amount Lloyds will be liable for may be a factor weighing on Lloyd’s share price today. Lloyds shares were down 2% before reversing losses to trade 2% higher at the time of writing.

It is not too long ago that each quarterly update from Lloyds and other UK banks was poured over for how much they were forced to set aside for PPI claims.

After the financial crisis, the PPI saga rocked UK banking valuations and the sector has never fully recovered. The sector trades below the FTSE 100 average PE Ratio and individual banks are valued well beneath book value.

Although today’s £450m provision was less than it could have been, investors will fear further provisions in the coming quarters and this seems to be offsetting any positivity around buybacks or higher profits.

Notwithstanding provisions for motoring financing, Lloyds had a relatively good quarter. Net interest margins met guidance as underlying net interest income rose 5% to £13.8 billion.