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.

Whitbread is an exemplary case of a company heavily hit by the pandemic bouncing back stronger and producing higher profits than before COVID.

Whitbread revenue for the 2023FY was £2,625m – a 27% increase on 2020.

Higher revenue generation drove surging profits as statutory profit after tax rose to £279m vs £218m in 2020.

The group continues to invest in new sites and is ramping up the number of rooms available to customers. Whitbread has a pipeline of 7,400 new rooms in the UK and 7,000 in Germany.

Although the vast majority of Whitbread’s profit was generated in the UK, the group saw strength in their German unit as revenue jumped to £118m in FY23. FY22 revenue was £35m.

Whitbread shares were 6% higher at the time of writing.

“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.  

“The Food & Beverage performance was a drag on last year’s numbers but recent initiatives seem to have sewn the seeds of a recovery. Despite inflationary pressures across the cost base and growth in the estate, margins in the UK hotels division were well ahead of last year and only slightly below those seen in 2020. Whitbread has got off to a strong start in the current year and its confidence is reflected in the increase in pay outs to shareholders.”

Whitbread will increase its final dividend by 43% to 49.8p.

Following an exciting week of portfolio company updates last week, analysts at SP Angel say Tekcapital’s shares are 55% undervalued compared to their portfolio’s NAV.

SP Angel highlights market conditions and the impact on Tekcapital’s listed portfolio holdings, Innovative Eyewear and Belluscura. Considering the impact of market volatility on Tekcapital’s NAV, SP Angel has worked YTD VWAP prices into Innovative Eyewear and Belluscura NAV and says, “we could expect additional upside in the future.”

Privately held portfolio companies MicroSalt and Guident are valued on third-party valuations and recent funding from Tekcapital.

SP Angel calculates Tekcapital’s NAV to be 31.7p per share, including the recent £2m placing.

SP Angel analysts wrote in a note:

“TEK’s current share price is 15.45p, translating to a market cap of ~£25.5m, ~55% lower than the baseline NAV calculated above. We would also suggest that the current value potential of these portfolio companies, given the additional investment since the last third-party NAV valuation, has increased significantly.”

Tekcapital is set to report full-year results in May.

The FTSE 100 was broadly flat on Monday as investors prepared for the UK and US earnings seasons to ramp up in the coming days.

The FTSE 100 was trading down by just 2 points at 7,911 at the time of writing.

Analysts suggested today’s slow trade should be enjoyed as several risks persist that have the potential to spark volatility in stocks.

“All said and done, the global macro backdrop remains considerably more uncertain than normal and the tranquillity in equity markets should be enjoyed while it lasts,” said Rupert Thompson, Chief Economist at Kingswood

The first potential market-moving consideration is the increased flow of Q1 UK company trading and earnings updates.

FTSE 100 earnings highlights this week include Associated British Food, Whitbread, Reckitt Benckiser, Unilever, Barclays, Standard Chartered, and NatWest.

Barclays, Standard Chartered and NatWest results will be poured over for any signs of stress from the mini-banking crisis saga.

Major US tech companies will also report earnings this week, with Microsoft, Meta and Amazon set to release Q1 earnings.

“In the US, all eyes are on the big tech names which report earnings throughout the week. Tuesday sees Microsoft, Alphabet and Visa report numbers, with Meta Platforms on Wednesday, and Amazon and Mastercard on Thursday,” said Russ Mould, investment director at AJ Bell.

“Cost-cutting has been a key driver for many of their share prices in recent months, yet investors will want to know that underlying business is still healthy otherwise the recent rally in US tech names could grind to a halt.”

From an economic perspective, the first quarter was not as soft as initially thought, and this may support earnings and provide upside surprises. A number of companies have already warned profits would fall.

US GDP and the Fed

In addition to UK company earnings, markets will digest economic data points ahead of key central bank meetings in the coming weeks.

“In the US Q1 GDP, the employment cost index, core PCE, and consumer confidence are the highlights with us now in the Fed blackout period ahead of next week’s FOMC,” wrote Deutsche Bank Strategist Jim Reid.

“Meanwhile, we will see inflation and growth data in the Eurozone, and the BoJ’s decision in Japan on Friday.”

FTSE 100 risers

UK retail stocks were among the top performers, with JD Sports out in front, gaining 2% and Burberry adding 1.5%. Next was up 1.4%.

abrdn was 1.3% higher as the investment manager bounced off strong support just beneath 200p.

FTSE 100 fallers

Melrose was the top faller – down 3% – after completing the demerger of Dowlais Group last week. Fresnillo was 2% weaker, tracking the downside in gold and silver prices.

Thirty-nine of the FTSE 100’s constituents were down on Monday, with all but four down less than 1%.

What to look out for from upcoming Q1 2023 FTSE 100’s banks updates.

The FTSE 100’s banks are set to report Q1 2023 results in the coming days and weeks, with Standard Chartered kicking off on Wednesday.

FTSE 100 bank reporting dates:

• Standard Chartered (LON:STAN) – Wednesday 26th April
• Barclays (LON:BARC) – Thursday 27th April
• Natwest (LON:NWG) – Friday 28th April
• HSBC (LON:HSBA) – Tuesday 2nd May
• Lloyds (LON:LLOY) – Wednesday 3rd May

What to watch out for

Deposit inflows/outflows

Q1 banking earnings and commentary will be primarily dominated by the mini-crisis that started in the US with SVB and culminated with UBS’s takeover of Credit Suisse.

The inflows or outflows of deposits will gauge confidence in each UK bank during this period. As panic swept through the banking system over three weeks in March, depositors rushed to move their cash into institutions deemed ‘safer’ than others caught up in the crisis.

The impact on UK bank deposits isn’t expected to be as pronounced as for US and European banks, but any changes in deposits will be a fascinating insight into the perception of each institution.

The FTSE 100 banks are broadly considered high-quality institutions and outflows will be minimal. Indeed, the five FTSE 100 banks mentioned are more likely to have received inflows.

Net interest margin

A key profitability metric, net interest margin (NIM) for the period will dictate banks’ financial performance. Comparisons to the same period a year ago will show dramatically higher NIMs after a series of rate hikes throughout 2022. The Bank of England and the Federal Reserve both hiked rates in Q1, so one would expect an increase in Q1 2023 NIMs compared to Q4 2022.

Any comments on the outlook for NIM will be closely watched after many UK banks said they saw limited improvement in NIM for the 2023 full year compared to the last half of 2022.

Profits for

Bad debt provisions

The outlook for the global economy saw provisions for bad debts increase in the last round of quarterly updates from UK banks. There is an expectation these provisions will be maintained, or even increased.

Provisions will impact profit before tax, and if banks decide to bolster provisions, the benefits of higher NIM could be offset.

There has been a mild improvement in the economic outlook globally so any fresh provisions shouldn’t be overly dramatic.

A consensus of analyst estimates sees Barclays setting aside £563m and NatWest £250m.

Investment banking activity

Investment banking activity considerations are really only reserved for Standard Chartered, HSBC and Barclays, with limited or no contribution to earnings at NatWest or Lloyds.

The poor state of financial markets in Q1 led to a depressed environment for corporate activity, which would have made advisory fees hard to come by.

Equity and fixed-income activities are also likely to be lower than in the same period last year.