BAE Systems has justified its sharp rally this year with a ‘strong’ pipeline of orders and is set to benefit from increased defence spending by many countries as global tensions remain elevated.

BAE shares were down 1.7% at the time of writing on Thursday but are up 16% year to date.

The company noted orders for F-35s and Tempest higher jets, naval guns, and intelligence and security services.

“There were no big surprises from BAE Systems in today’s update. Many governments are expected to continue raising their defence budgets amid escalating global tensions, and BAE’s diverse geographic reach means it’s set to benefit by capturing this extra spending,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

“That’s reflected in bumper order intakes so far this year which are once again expected to exceed full-year sales. These orders are typically long-cycle too, spread over several years, so it gives BAE multi-year revenue visibility. An enviable asset to have in uncertain times.

“That’s led BAE to reaffirm all of its full-year guidance. Underlying earnings per share growth is expected to outpace sales growth this year, helped by a buyback programme that’s moving full steam ahead.”

Next has once again produced a robust set of quarterly trading figures that reflect the underlying economic backdrop but show Next’s strategy has navigated them through leaner times.

Next Total Product full price sales declined 1.2% in the 13 weeks to 29 April. Online sales were down 1.6% and retail slipped just 0.6%.

Next maintained their full-year profit before tax guidance at £795m, saying they thought it too early to moderate guidance:

“Although our first quarter performance moderately exceeded our sales guidance, we believe it is too early in the year to alter our overall sales expectations for either the half or full year.”

Next’s performance is at odds with economic conditions, and the retailer is undoubtedly outperforming many of their peers.

“This is another solid update from the bellwether of the UK High Street. Sales have fallen by less than expected, and although Next hasn’t increased its full year guidance, this seems to be borne more out of prudence than anything else,” said Wealth Club’s Charlie Huggins.

“The current retail environment is sorting the wheat from the chaff. On the one hand you have the likes of Superdry, Boohoo and Asos which are really struggling, not to mention countless other retailers that have gone bankrupt. At the other end of the spectrum are the likes of Next and Primark, which appear to be getting stronger.”

UK stocks made a tentative move to the upside on Wednesday as markets prepared for the next instalment of Federal Reserve action and hints of the future trajectory for US interest rates.

The FTSE 100 was trading 0.23% higher at 7,790 at the time of writing.

Economists expect the Federal Reserve to hike rates 0.25% to bring US benchmark rates to 5%-5.25%. While a rate hike is expected, comments by Fed Chair Powell’s news conference will be poured over for hints of whether the Federal Reserve will hike rates again in the near-term.

“The FTSE 100 made a strong start on Wednesday ahead of the latest news on US interest rates,” said AJ Bell investment director Russ Mould. 

“The Fed is widely expected to deliver what could be its final rate hike in this cycle of 25 basis points so barring any big shock on that score, the focus will fall on the comments which accompany the decision.

“Confirmation that rates will be put on hold after today, while largely anticipated in the market, could nonetheless give sentiment a bit of a boost. The reverse, on the other hand, could really knock confidence.”

FTSE 100 risers

Pearson shares were 8% higher as the education publishing group continued to whipsaw after reporting results last week.

Afternoon trade on Wednesday saw a plethora of FTSE 100 companies edge higher after yesterday’s sharp sell-off. Vodafone, Burberry, Coca-Cola HBC and Melrose were among the top risers.

Halma was 1.5% higher as the tech group broke to the year’s highest levels.

FTSE 100 fallers

Lloyds was the worst performer on Wednesday as investors appeared less than satisfied with their Q1 results. Although Lloyds profit jumped on higher interest rates, Lloyds left their guidance unchanged for the rest of the year.

The suggestion we may be past the most favourable conditions for Lloyds operations sent shares down 5%.

Haleon was among the top fallers after Pfizer’s Finance Director suggested Pfizer would start offloading their stake in Haleon in the coming months. Pfizer has a 32% stake in Haleon.

Steve Clayton, Head of Equity Funds at Hargreaves Lansdown, explains the impact this would have on Haleon shares: “It would be a slow process, aiming not to depress the Haleon price, but that’s still a lot of stock for the market to absorb. Shakespeare will come to mind for many “if it were done when ‘tis done, then ‘twere well it were done quickly”

“These stock “overhangs” can depress share prices in the short term, but it seems unlikely anyone will not buy a pack of Advil or Tums because Pfizer are thinking of selling a non-core investment.”

Advanced materials company Versarien has conducted a further placing and provided additional updates on their turnaround strategy.

Neither were taken particularly well by the market, and Versarien shares were down around 40% at the time of writing.

Varsarien raised £531,624 by way of a placing of 42,529,900 new ordinary shares at 1.25p. Versarien closed at 2.06p.

“As previously announced, the Company requires further funding to support its activities and the Board welcomes the investor interest in this Placing.  We continue to focus on completing our strategic reorganisation and commercial roadmap and look forward to sharing this with shareholders in due course,” said Chris Leigh, Chief Financial Officer of Versarien.

Versarien had raised £318,000 only in March, suggesting the company is facing ongoing funding pressures.

The company said a turnaround strategy was underway which aims to preserve the company’s intellectual property and lower running costs to help preserve cash.

However, the strategic update provided little in the way of clear actions the company was taking. Versarien said they would share the ‘new strategic roadmap and financial plan’ with investors in the coming weeks.

Lloyds shares were marginally down on Wednesday morning after reporting Q1 2023 results. There will be questions about how much of the drop was a direct consequence of their Q1 2023 update or the impact of fears about US banking volatility which reignited overnight.

Lloyds shares were down around 0.9% at the time of writing. NatWest and Barclays were both trading in negative territory.

Higher interest rates have helped increase FTSE 100 banks’ profitability in Q1 – Lloyds was no exception. Underlying net interest income rose 20% in the first quarter, and net interest margins hit 3.22%.

Net interest margins were steady compared to Q4 2022 but significantly higher than Q1 2022. There may be concerns around future profitability after Lloyds said they expect full-year net interest margins would be above 3.05%. This would represent a decline from Q1’s 3.22%.

A small win for investors would be the amount set aside for bad debts. Lloyds set aside just £243m in the first quarter, down from £465m last quarter.

Lower impairment charges for the provision of bad debts were a factor in robust underlying profit growth. Lloyds underlying profit for the period rose 30% to £2.2bn in Q1, up from £1.7bn in the same period a year ago.

“Lloyds continues the trend of major UK banks outperforming analyst consensus as impairment charges set aside for loan defaults were lower than feared,” said Matt Britzman, equity analyst at Hargreaves Lansdown.

Britzman continued to explain how Lloyds results are a good reflection of underlying economic activity.

“Lloyds is a good barometer for the overall health of the UK consumer and its smaller businesses, and they’re proving remarkably resilient in the face of mounting cost pressures. Some pockets of the loan portfolio saw an increase in arrears, but overall, levels remain at or below pre-pandemic levels across the board,” Britzman said.

“For Lloyds, interest income takes the main stage despite a push to diversify income streams. Net interest margin was steady over the quarter, which was a relatively good result.”

AJ Bell analysts suggested that while performance in Q1 was more than acceptable, the competitive landscape for Lloyds and other UK banks may become challenging later in the year.

“It is hard not to ignore the £2.2 billion reduction in customer deposits during the first quarter of 2023. Part of this was down to a more competitive market for deposits – higher rates mean consumers are shopping around more to get a better deal on their money, and that means banks are having to work harder to lure them in,” said AJ Bell investment director Russ Mould.