UK earnings season is in full swing, and dramatic moves in individual stocks largely evened each out as the FTSE 100 dropped marginally on Tuesday.

The FTSE 100 was down 0.2% at the time of writing, having started the session in positive territory. Tuesday was the first opportunity for UK equity traders to react to First Republic’s demise over the weekend, but after only minor declines in the US yesterday, the fallout seemed contained.

JP Morgan agreed to acquire First Republic’s assets after US authorities stepped in to avoid a disorderly collapse of the bank.

“JP Morgan boss Jamie Dimon was quick to dismiss any comparison with 2008 – despite the regulator-brokered deal representing the second largest collapse in banking history,” said AJ Bell investment director Russ Mould.

Mould continued, “For now, the system has been able to absorb the shock of the collapse of Signature Bank, Silicon Valley Bank and now First Republic. If another domino was to fall, then the relative calm seen in the market could soon break.”

With minimal market volatility in the wake of First Republic’s takeover, attention quickly shifted to tomorrow’s Federal Reserve interest rate decision.

The Federal Reserve are in a predicament. First Republic’s failure and SVB’s collapse in March are being seen as a direct consequence of higher interest rates. Yet, the US central bank still has to tackle persistently high inflation rates and will likely raise rates further.

FTSE 100 movers

Pearson was the standout faller, down 9%, after reporting a relatively robust set of results on Friday. Pearson was up 4.8% on Friday, but those gains were more than eradicated by heavy selling after the bank holiday weekend.

On Tuesday, housebuilders were surging higher on signs of improvement in the UK housing market. Nationwide said house prices surprisingly rose by 0.5% in April, helping Persimmon, Taylor Wimpey, Barratt Developments, and Berkeley Group Holdings all higher.

Persimmon shares had jumped over 7% earlier in the session before falling back to trade 5% higher at the time of writing.

“UK housebuilders have been signalling some green shoots recently, and house price growth picking up in April is just the tonic for a sector which has looked decidedly sickly for some time now,” said AJ Bell’s Russ Mould.

BP

BP shares were deep in the red on Tuesday after the oil giant revealed lower profits as oil prices fell. BP’s replacement cost profit fell to $5bn in Q1 2023, down from $6.2bn in the same period a year ago.

BP shares were down around 5% despite outlining a fresh wave of share buybacks.

HSBC

After reporting a bumper set of Q1 results, HSBC was storming ahead on Tuesday. Profit before tax tripled as the global bank reaped the rewards of higher interest rates and the reversal of impairment charges.

“HSBC has seen profits soar, and investors should be reasonably happy with the restored quarterly dividend and $2bn buyback that looks likely to be completed over the next quarter,” said Matt Britzman, equity analyst at Hargreaves Lansdown.

“Whether this is enough to quell the voices of those adamant that splitting HSBC up is the best course of action for investors remains to be seen, but certainly, one gripe had been the lack of returns given the strong capital position.”

These calls may be quietened momentarily as HSBC reinstated their quarterly dividend and announced a $2bn share buyback.

HSBC shares were 5% higher at the time of writing.

On Tuesday, BP shares were firmly in the red as the oil major reported a fall in profits as average hydrocarbon prices fell.

BP Q1 2023 replacement cost profits fell to $5bn, down from $6.2bn in Q1 2022 when oil prices skyrocketed after the Russian invasion of Ukraine.

Despite falling profits, BP remained a highly cash-generative business and announced a further $1.75 share buyback and another quarterly dividend of 6.61 cents.

Nonetheless, the deterioration in profitability saw BP shares fall over 5% on Tuesday as investors reacted negatively to the prospect BP will have a more challenging year than last year.

“The market has not taken kindly to the fall in profits, and the rest of the year could still present some challenges. However, the valuation is not overly demanding, and BP continues to invest in the future of both fossil fuels but also beyond. It remains to be seen if the greener side of the business can generate the same level of returns,” said Derren Nathan, head of equity research at Hargreaves Lansdown.

Windfall tax calls

Although profits are beginning to falter, BP is facing renewed calls for additional windfall tax after campaigners called their $5bn ‘heinous’.

“BP’s latest set of bumper quarterly results will do nothing to extinguish further calls for the oil major to pay even greater levels of windfall tax,” said AJ Bell investment director Russ Mould.

“BP did its best to signal how much it is already paying out in extra levies already, but this is unlikely to lead to any great deal of pity when the company is generating sufficient extra cash flow to sanction further share buybacks approaching $2 billion.

“It says something that this total, and the accompanying forward guidance around dividends and buybacks, was disappointing to shareholders and a likely reason behind a fall in the share price despite reporting better-than-expected profit. It also hints at the longer-term challenge facing BP as the company looks to balance investing in the energy transition while still doling out plenty of cash to keep investors happy.

HSBC’s Q1 2023 profits tripled to $12.9bn as the reversal of impairments, the SVB UK acquisition, and higher interest rates helped lift earnings.

HSBC shares were 5.2% higher at the time of writing.

Higher interest rates helped revenue surge to $20.2bn – a 64% increase compared to Q1 2022. HSBC said they enjoyed higher net interest margins (NIM) across the entirety of their global business as group NIM rose 50 bps year-on-year to 1.69%.

This is a substantial increase in the top line and represents material progress at the global bank so much so HSBC has reinstated their quarterly dividend of 10 cents and will conduct a $2bn share buyback.

“HSBC has seen profits soar, and investors should be reasonably happy with the restored quarterly dividend and $2bn buyback that looks likely to be completed over the next quarter,” said Matt Britzman, equity analyst at Hargreaves Lansdown.

The bumper increase in net interest income was further compounded by non-trading additions to profit before tax. The acquisition of SVB UK has added an instant $1.5bn to HSBC’s profit before tax, and the reversal of a $2.1bn impairment of their French retail unit rounded off a superb quarter in terms of profitability.

Britzman continued to explain the impact of SVB UK and strategic progress with divesting weaker business units.

“There’s a fair amount to unpick in these results, with a few elements flattering performance figures. Higher rates in France mean the sale of HSBC’s French retail business is looking less likely, and impairment charges relating to the sale have been reversed for now. That provided a boost to profit, but this isn’t the best news in the long run,” Britzman said.

“Getting rid of underperforming businesses to increase focus on higher growth areas like Asia is key to the strategy. It’s positive to hear the Canadian sale is progressing, that’ll provide a capital boost to what’s already a strong balance sheet and should add further options to either expand in higher growth areas or appease investors with further distributions.”

SVB UK

The provisional gain of $1.5bn on the acquisition of Silicon Valley Bank UK Limited will please investors as the risk of taking on troubled assets seems to have been a big win for the bank, which has further grown its long-term asset base through the deal.

“This deal may prove something of a steal for HSBC,” said AJ Bell investment director Russ Mould.

Tekcapital shares were on the move on Tuesday after the tech company released an updated on portfolio company MicroSalt.

MicroSalt has developed a patented low-sodium salt that provides the same taste as normal salt but with 50% less sodium. High-sodium intake exacerbates cardiovascular disease and MicroSalt’s products have the potential to help millions of people globally.

On Tuesday, Tekcapital announced MicroSalt has secured a new partnership with a major US supermarket chain which could see MicroSalt branded products in up to 7,000 stores across the states. The agreement will kick off with 800 stores by Q4 2023.

Tekcapital shares were 1.5% higher after the announcement.

“We are proud to work with this leading retail chain in their efforts to offer low-sodium solutions to their customers through their private branded products. According to the World Health Organization, excess sodium consumption is a leading contributor to cardiovascular disease, and partnerships like this are a great way to make a positive difference in global health.” Said Rick Guiney, CEO of MicroSalt.

MicroSalt IPO

Today’s announcement would mean an additional 7,000 major US outlets would be added to MicroSalt’s already established distribution deal with Kroger, which numbers thousands of stores.

The agreement also comes as the company prepares for a London listing after appointing Zeus Capital as their AIM NOMAD late last year.

Tekcapital have recently raised £1m specifically ‘to build commercial inventory of MicroSalt Limited due to significant forthcoming orders’.

Tekcapital owns 97% of the share capital of MicroSalt Ltd. and 78% of MicroSalt Inc., its U.S. subsidiary.

This morning Plant Health Care (LON:PHC) has released its results for the year to end December 2022 showing a 40% leap in sales to $11.8m while its pre-tax losses were steady at $4.6m.

The company has decided to evaluate over the coming weeks a range of financing options for the company, including how it might access non-dilutive and strategic capital to support its fast-expanding growth ambitions.

In reaction to that news the global agricultural markets biological products group’s shares have fallen 24% to 8.75p, which in my view now offers investors an immediate opportunity to jump aboard the future progress that this group will enjoy.

Food security continues to become a growing concern, with global events driving the world’s ever-increasing need for more access to vital crops. Sustainable agriculture lies at the heart of meeting this need, and this group’s biological products will play a fundamental role in providing better-quality crops that can deliver higher yields.

Farmers face many challenges, including the impacts of climate change, such as drought and the need to work more sustainably. Plant Health Care products provide an environmentally suitable solution to increase regular yields through our pipeline of products for farmers and food/crop suppliers across various markets.

Still in its early stages of development the company’s proprietary products, which are derived from natural proteins, help to protect crops from diseases and stress leading to increased crop yield, quality and financial return for growers globally.  

Its products

The rise to the top of the global agenda of climate change, food security and sustainability is driving increased demand for the company’s products.

In the last trading year the company recorded strong commercial sales growth of Harpinαβ – the recombinant protein which acts as a powerful bio-stimulant that is used to improve the quality, nutrient use, tolerance to abiotic stress and yield of crops. 

The group is gradually gaining success with its PREtec technology, with it its product Saori now launched for use in Brazil for the prevention and treatment of soybean diseases. 

Later this year the company is expecting to commercially launch its PHC279 and PHC949 products for use on major crops.

It is now expanding its global reach for its various products and working with major national distributors in doing so.

It is already well represented in North America, South America, Mexico and the EMEAA.

Analyst Opinion – Broker says Buy and ups Target Price to 37p

Analyst John-Marc Bunce at Cenkos Securities rates the group’s shares as a Buy, while upgrading his Target Price from 33p to 37p a share.

He estimates that the current year will see sales increase another 35% to $15.9m with the group’s losses almost at breakeven at just $0.3m negative.

For the year to end December 2024 Bunce goes for $22.0m revenues, $2.7m profits and earnings of 0.8c per share.

Looking into 2025 he predicts $30.1m turnover and a massive $8.4m profits, worth3.4c per share in earnings.

Conclusion – buy them now

On the basis of the group’s broker’s figures the shares, now 8.75p, appear to be a cracking ‘penny stock’ investment in a fast-developing global products company.

The FTSE 100 was outperforming European indices on Friday as a raft of encouraging updates from London-listed companies helped lift the index.

The FTSE 100 was 0.3% higher at the time of writing as the French CAC and Spanish IBEX traded in the red. The German DAX was marginally higher.

Positive updates from Prudential, Pearson and Smurfit Kappa took the stocks to the top of the FTSE 100 performance table and helped lift the overall index.

Poor US GDP data and talk of stagflation failed to take the wind out of UK equities and a strong start to the US session boosted stocks in afternoon trade.

Yesterday, US GDP came in lower than expected – but markets will be looking forward to next week’s Federal Reserve interest rate decision for the next major macroeconomic catalyst.

Inflation remains elevated and warrants further hikes. However, higher borrowing costs could put additional pressure on an economy showing signs of slowing.

NatWest

NatWest started Friday deep in the red after failing to increase guidance for the rest of 2023 and showed some signs of stress during banking turbulence in March. NatWest is the only FTSE 100 bank so far to reveal a fall in customer deposits since the start of the year.

“A drop in customer deposits, while nothing like on the scale seen at other crisis-ridden banks, has helped put the wind up investors in NatWest,” said AJ Bell investment director Russ Mould.

“The gap between the amount NatWest charges for loans compared to what it pays out for deposits, also known as the net interest margin, is also tighter than many had hoped.

“This runs counter to Barclays’ own first quarter numbers which showed higher base interest rates were feeding into a strong net interest margin.”

NatWest shares were down 3% at the time of writing but had been significantly lower earlier in the session. Barclays and Lloyds were both down around 1% in sympathy with NatWest’s drop. Lloyds are due to report next week.