Barclays profit before tax rose 16% in the first quarter compared to a year ago with both their UK and international businesses generating higher income.

However, unlike previous quarters, it was Barclays consumer-facing business doing the heavy lifting while corporate and investment banking activity was largely flat.

Barclays UK saw income rise 19% to £1.96bn. Higher interest rates helped net interest income rise 21% to £1,618m with a net interest margin (NIM) of 3.18%.

Barclays International increased £5,282m in Q1 2023 from £4,824m in the same period. Corporate and Investment Banking (CIB) was flat but their consumer business saw significant growth.

“Barclays has posted a very solid first quarter, comfortably beating market consensus on profit amidst a turbulent time for the broader banking sector,” said Matt Britzman, equity analyst at Hargreaves Lansdown.

Britz continued to note Barclays, like Standard Chartered yesterday, has appeared to avoid much of the negativity related to the US banking crisis.

“It’s still early doors for the major UK banks reporting cycle, but signs look promising that issues over the pond aren’t leaking into the wider ecosystem. Credit card defaults in the UK remain below pre-pandemic levels, highlighting the UK consumers’ resilience despite mounting costs.”

Barclays shares were 3.9% higher at the time of writing on Thursday.

The FTSE 100 was in the red on Wednesday as doubts about the US economy proved to be a catalyst for investors to take money off the table.

London’s leading index was down 0.47% at the time of writing. The S&P 500 had closed down heavily last night but started Wednesday’s session higher.

“Realisation is dawning that more ominous clouds are gathering over the US economy, causing fresh nervousness for investors,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“Despite some better-than-expected results from the first of the big tech crowd to report, the darkening picture of consumer confidence has increased concerns about lower spending ahead.”

Although economists and market analysts increasingly predict a US recession, many feel it will be a brief, shallow contraction.

There is also a school of thought any recession will be a manageable contraction – and could spark the next leg higher in stocks.

The leading cause of any recession later this year will be inflation and associated higher borrowing costs. However, a recession would naturally bring inflation down, and central banks have ample room to reduce rates. This long-awaited pivot to rate cuts will likely be positive for equity markets.

FTSE 100 gainers

Encouraging trading activity in recent weeks sent Persimmon shares over 6% higher on Wednesday and were the FTSE 100’s top riser at the time of writing. Q1 2023 results were pretty poor for the housebuilder, but with shares down over 50% from 2021’s highs, one could argue the bad news is already baked into the cake.

Taylor Wimpey and Barratt Developments were over 3% higher in sympathy with Persimmon.

Standard Chartered rose 2.6% as Q1 2023 profits jumped 25%.

FTSE 100 fallers

CRH shares were 3.7% lower despite improved first quarter trading. However, confirmation the company would proceed with shifting its primary listing to the US saw investors sell their shares in the group.

The company said; “the Board had come to the conclusion that it is in the best interests of our business and our shareholders to pursue a US primary listing, together with US equity index inclusion as soon as possible.”

Standard Chartered showed little signs of the banking turmoil in Q1 as profit before tax soared 25% to $1.7bn, and deposits remained stable.

The Asia-focused bank said they had seen no impact on customer deposits which stood at $462bn at the end of the quarter.

Standard Chartered shares were 1.9% at the time of writing on Wednesday. Standard Chartered shares are down 1.2% year-to-date.

“We have delivered another strong set of results in the first quarter of 2023, with income up 13 per cent year-on-year and underlying profit before tax up 25 per cent. Business performance continues to improve across our markets and products and has been achieved in what continues to be an uncertain environment,” said Bill Winters, Group Chief Executive.

“We remain highly liquid and strongly capitalised with a CET1 ratio towards the top of our target range. We remain optimistic about our continued strong performance and expect 2023 income to grow around 10 per cent, the top end of our range, and remain confident in delivering all of our financial targets, including our return on tangible equity targets.”

Standard Chartered did not only shake off any adverse impacts of banking stress in the first quarter, but they also felt confident enough to commit to returning $5bn to shareholders by the end of 2024.

“Standard Chartered is already running a $1 billion buyback and expected to pay out $1.2 billion in dividends across this year and next, but chief executive Bill Winters is now targeting total cash returns to the bank’s shareholders in excess of $5 billion by the end of 2024 – that is around a fifth of the company’s current market capitalisation,” said AJ Bell investment director Russ Mould.

Standard Chartered earns the lion’s share of their income in Asia, and China’s ongoing recovery significantly influenced their profitability. Profits in the region grew 63% in Q1.

Adding to growth in Asia, lower provisions for bad debts in Q1 2023 than in Q1 2022 helped drive higher profit.

Analyst Brendan Long at brokers WH Ireland was impressed with the news that NEO Energy has farmed-in to a 50% stake in the Jersey Oil & Gas (LON:JOG) Greater Buchan Area interest.

So much so that he has now assessed that the £87m group’s shares, currently trading up at 247p, have a ‘fair value’ estimate of 684p a share.

On the GBA news, the group’s shares more than doubled in price in the first week of this month, from 153p to 332p at one stage.

They closed last night at 241p after easing back on profit-taking but could now look ready to move even higher again.

The ‘game changer’

For JOG the ‘farm-out’ to NEO could unlock the development solution and monetisation resources in excess of 100m barrels of oil equivalent.

Long has estimated that with first oil from Buchan expected in 2026, the group can be expected to soon be gushing cash.

He reckons that JOG will generate $96.9m in post-tax cash flow from operations in the first 18 months from first oil at Buchan – it is a ‘game changer’ that should set the group on its second phase of its growth and value -accretion journey.

The Group’s interests

Jersey Oil & Gas is a UK exploration and production company which is focused on building an upstream oil and gas business in the North Sea.

It holds a significant acreage position within the Central North Sea referred to as the Greater Buchan Area, which includes operatorship and 100% working interests in blocks that contain the Buchan oil field and J2 oil discovery and an 100% working interest in the P2170 Licence Blocks 20/5b & 21/1d, that contain the Verbier oil discovery and other exploration prospects.

NEO Energy

NEO is a full-cycle energy company.

It is a major UK North Sea operator producing approximately 90,000 barrels of oil equivalent per day and is backed by HitecVision, a leading private equity investor focused on Europe’s offshore energy industry with $8bn of assets under management.

HitecVision is headquartered in Stavanger, Norway, with other offices in Oslo, London and Milan.

Since 1994, the HitecVision team have invested in, acquired or established more than 200 companies, including more than ten E&P companies, such as Vår Energi, the second-largest independent E&P company in Norway.

JOG’s CEO Andrew Benitz recently stated that:

“We are delighted to announce this transaction with NEO Energy, a well-funded industry heavyweight and the fifth largest producer in the UKCS. 

The farm-out marks a major value creation moment for JOG, a significant de-risking of the GBA development programme, from both an operational and funding perspective, and provides the springboard from which to grow the long-term value of the business. 

We are looking forward to working collaboratively with NEO Energy to select the optimal development solution for the GBA and taking the project through to sanction and on into future production.”

The NEO deal

Jersey is divesting 50% of the Greater Buchan Area to NEO Energy.

In return, Jersey will receive a carry for its 50% share of the estimated $25m cost to take the Buchan field through to FDP approval, it will receive $2m in cash on completion of the transaction then $9.4m in cash upon finalisation of the Greater Buchan Area development solution, another $12.5m in cash on FDP approval, $5m in cash on each FDP approval in respect of the J2 and Verbier discoveries and finally it will achieve a 12.5% carry of the Buchan field development costs.

Analyst Opinion

At finnCap their analyst Jonathan Wright considers that this transaction represents a strong validation for the GBA project from a significant North Sea operator.

He reckons that the ‘farm-out’ alone is worth over 400p a share to JOG.

Under his conservative assumptions on the group’s prospects, he notes that there is a significant upside potential for its shares. He has stated a risked valuation of 660p a share.

Analyst Brendan Long at WH Ireland believes that the timing of this deal is excellent for all parties, heading into a prolonged period of robust oil prices.

He considers that this development is by far the most important achievement in the company’s history and has completely reset the group’s development.

Analyst Daniel Slater at Zeus Capital following this deal reckons that he has a very positive outlook on the group’s prospects and upon his company’s total unrisked net asset value has a massive 952p price objective.

Conclusion – undervalued at this price

Now at just 247p this group’s shares, which touched 340p last October before halving in price at the end of last month, are now showing some real upside potential.

Persimmon shares were higher on Wednesday morning after the housebuilder said they had experienced ‘signs of encouragement’ in recent weeks after an abysmal start to the year.

Persimmon’s completions were down 42% in the first quarter compared to last year, and the current forward sales position fell 30% to £1.7bn. There was 18% less cash than at this time last year.

“Our performance in the first quarter was as we expected and reflects the challenging trading conditions in Q4 2022 and consequent lower forward order book as we entered the year,” said Dean Finch, Persimmon Group Chief Executive.

However, Finch continued to explain bright spots in activity in the most recent period.

“Trading over recent weeks has offered some signs of encouragement with visitor numbers up, cancellation levels normalising and sales rates continuing the steady improvement evident since the start of the year.”

The company sees an uncertain outlook but is guiding for 8,000 to 9,000 completions in FY2023 – if the current trajectory is kept to. Persimmon completed on 11,282 homes in 2022.

Persimmon shares were trading up 3.7% at 1,282p at the time of writing.

The FTSE 100 was slightly weaker on Tuesday as US regional banks provided a reminder that the banking mini-crisis had a material impact on several US institutions.

“Investors certainly lost their appetite for banking stocks, with NatWest falling 2.2%, Lloyds down 1.8% and Barclays slipping 1.2%. Together with weakness in economically sensitive mining and packaging sectors, the FTSE 100 fell 0.5% to 7,875,” said Russ Mould, investment director at AJ Bell.

First Republic Bank was down 20% in the US pre-market after the bank said they had lost $100bn in deposits this year. UK banks are due to report results over the next week with Standard Chartered kicking off tomorrow.

Associated British Foods

AB Foods shares were weaker after a 3% reduction in group-adjusted EBITDA. The outlook for their key Primark unit raised concerns about profit in the year as the health of the consumer deteriorates.

“Despite the impressive headline figures showing strong revenue growth, what really matters to investors is guidance for the future. On this front, there is enough cautious news to drive Associated British Foods’ share price down,” said Russ Mould, investment director at AJ Bell.

“Management is worried about the impact of high inflation and higher interest rates on the consumer and so it is guiding for slower growth at Primark. It also says margins aren’t going to improve near-term, which will disappoint many people”

AB Foods shares were down 3% at the time of writing.

Whitbread

Whitbread was the FTSE 100’s top riser following a very respectable jump in revenue and profit in FY23.

“There’s plenty of cheer in Whitbread’s results today. Revenue growth of over 50% has seen Whitbread surpass pre-pandemic levels at both the top and bottom line,” said Derren Nathan, Head of Equity Research at Hargreaves Lansdown.

“Its strong brand in UK midscale hotels sees it consistently outperform the wider market and hoover up market share, while still maintaining price discipline.”

Whitbread shares were 5.5% higher at the time of writing.