The FTSE 100 underperformed European peers in the early hours of trade on Tuesday but made a steady recovery after starting the session deep in the red.

Although investors are gearing up for a busy week of central bank action, a string of corporate updates yielding mixed results on Tuesday was the driving influence on shares on Tuesday

BP reported increased underlying replacement profit, Diageo sales and volumes sank, and Standard Chartered smashed analyst earnings estimates.

“With earnings season in full swing, there are several FTSE 100 names making big moves this morning on the back of their figures,” said Steve Clayton, head of equity funds, Hargreaves Lansdown.

“The headlines are that Diageo, Croda International and Sage Group are all heading south this morning after reporting results that left traders worrying about weak momentum in these stocks’ underlying revenues. On the leaderboard though, BP is up after hiking its quarterly dividend by 10%, whilst Standard Chartered released forecast-beating results and announced a further buy-back of stock.

The result was a 0.2% decline for the FTSE 100 at the time of writing.

Diageo

Diageo was the FTSE 100’s biggest detractor in terms of points on Tuesday, with the drinks giant slumping over 6% after confirming a net sales decline in the first half.

“A catastrophic session from Diageo served to drag down the FTSE 100 index,” said Russ Mould, investment director at AJ Bell.

Operating profits were higher during the period, but this did little to address concerns about the top line. Overall organic volumes were down 4% during the period.

“Diageo has gone from bad to worse,” Russ Mould said.

“It has reported an operating profit decline in four out of its five operating regions, two of them in substantial double-digit territory. The company can dress up the numbers all it wants, but it’s clear that something major has to change.

“Debra Crew will be fighting to keep her job as chief executive. If the board doesn’t do something, one can expect activist investors to circle Diageo and push for new leadership.”

Standard Chartered

There was a lot to like about Standard Chartered’s half-year report. Operating income was up 11% in the first half, and underlying profit before tax rose 21%. Shareholders are being rewarded with a bumper $1.5bn share buyback, which helped shares rise over 6% on Tuesday.

“We generated double-digit income growth, with positive momentum continuing into the second quarter, and with continued discipline in managing our expenses,” said Bill Winter, CEO of Standard Chartered.

“This led to a 20% growth in underlying profit before tax. Reflecting confidence in our performance and robust capital position, we are upgrading our guidance for income growth, which we now expect to be above 7% in 2024, and we are announcing our largest ever share buyback of $1.5bn.”

Diageo shares were sharply lower on Tuesday after the alcohol giant confirmed a poor year for sales in its preliminary results for the year ended 30th June.

Diageo has reported a 1.4% decline in net sales to $20.3 billion for the full-year period as sales in Latin America and the Caribbean region tanked. Poor sales translated to a 4% drop in organic volumes.

Despite these challenges, the company managed to boost its reported operating profit by 8.2%, with the operating profit margin expanding by 262 basis points. However, this did little to encourage investors and shares were down 8.5% at the time of writing on Tuesday.

The most significant factor contributing to Diageo’s struggles was a sharp 21.1% decline in sales within the Latin America and Caribbean (LAC) region. This precipitous drop in LAC overshadowed positive performance in other markets, resulting in an overall organic net sales decline of 0.6%. The company’s volume decreased by 3.5%, outweighing a 2.9 percentage point improvement in price and mix.

Excluding the LAC region, Diageo’s performance paints a different picture. Organic net sales outside LAC grew by 1.8%, driven by a robust 3.9 percentage point improvement in price and mix. This growth was partially offset by a 2.1% volume decline. Notably, while North America experienced a 2.5% decrease in organic net sales, this was more than compensated for by growth in Africa, Asia Pacific, and Europe.

“In what is perhaps a reality check from the pandemic boom for Diageo, they have posted their first yearly sales decline since 2020, which is in fact worse than analysts initially feared. A fancy bottle of whiskey for locked down consumers with a little extra cash in their pocket was the perfect treat at the time but now it seems that increased competition and price consciousness have hit Diageo’s bottom line,” said Adam Vettese, Market Analyst at eToro.

“The firm issued a profit warning due to inventory issues in the key Latin America region as well as loss of market share in the US. It is fair to say that times are tougher now, with consumers facing more pressure on their own finances and as such luxury drinks are one of the first casualties of the household budget. This is particularly so in regions such as Latin America, where income is generally lower and there are cheaper, local alternatives on offer.”

Despite the challenges, Diageo maintained or grew its market share in over 75% of its measured markets, including the crucial US market. The company also demonstrated financial resilience, with net cash flow from operating activities increasing by $0.5 billion to $4.1 billion and free cash flow rising by $0.4 billion to $2.6 billion.

In a show of confidence, Diageo increased its recommended full-year dividend by 5% to 103.48 cents per share.

Energy giant BP has increased its quarterly dividend by 10% and committed to additional share buybacks in the second half of the year.

Shareholder distributions will be in focus after profit growth grew marginally and cash generation jumped compared to the last quarter. BP has announced an underlying replacement cost (RC) profit of $2.8 billion for the second quarter of 2024, a slight increase from $2.7 billion in the previous quarter.

Stronger downstream fuel margins and lower taxation bolstered the company’s profitability amid lower oil prices. Although BP had areas of strength, gains were partially offset by significantly lower realised refining margins and an average gas marketing and trading result.

BP, like many other oil majors, has been through a period of adjustment as energy prices normalised after a prolonged elevation due to Russia’s invasion of Ukraine.

In the gas and low-carbon energy segment, BP reported an underlying RC profit before interest and tax of $1.4 billion. This represents a decrease from the previous quarter’s $1.7 billion, primarily due to average gas marketing and trading results. The absence of foreign exchange losses from the Egyptian pound devaluation and lower exploration write-offs partially mitigated this decline.

Oil production and operations maintained steady performance, with an underlying RC profit before interest and tax of $3.1 billion. Higher realisations were balanced by increased exploration write-offs, resulting in a figure identical to the previous quarter.

The customers and products segment saw mixed results. While the customers division improved by $0.4 billion due to stronger fuels margins and improved convenience store performance, the products division declined by $0.6 billion. This drop was attributed to significantly lower refining margins, particularly in middle distillates, and narrower North American heavy crude oil differentials.

Despite the underlying profit, BP reported a $0.1 billion loss for the quarter on a net basis. This was due to inventory holding losses and significant adjusting items, including a $1.5 billion charge related to asset impairments and onerous contract provisions. The ongoing review of the Gelsenkirchen refinery contributed to these adjustments.

“We generated strong operating cash flow* in the quarter, which helped reduce net debt* to $22.6 billion,” said Kate Thomson, BP’s CFO.

“Our decision to increase our dividend by 10%, and extend our buyback programme commitment to 4Q 2024, reflects the confidence we have in our performance and outlook for cash generation. We are maintaining a disciplined financial frame and remain committed to growing value and returns for bp.”

UK equity bulls were out in force on Monday as markets geared up for a busy week of central bank action, with the Bank of England and Federal Reserve both deciding on interest rates this week.

The two are expected to keep rates on hold, although there is plenty of scope for a surprise interest rate cut, and markets are positioning for such an event. In any case, even if there isn’t a rate cut this week, the accompanying commentaries to the rates decisions are likley to hint very heavily at a rate cut.

Interest rate optimism helped the FTSE 100 rise on Monday. At the time of writing, the index was trading 0.85% higher at 8,355.

“UK markets open higher after avoiding too much backlash from last week’s tech selloff over the pond,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

“Thursday’s Bank of England meeting could be the start of the journey to lower rates for the UK. Markets are unsure, pricing in around a 55% chance of a cut. If we do get cuts, sectors that have been under pressure in a higher-rate world, like infrastructure and real estate, could be due for a bump.”

Oil majors were in good form as energy prices rose, with Shell and BP adding a significant number of points to the index.

“Energy producers gave the FTSE 100 a welcome boost at the start of the new trading week,” said Dan Coatsworth, investment analyst at AJ Bell.

“Shell and BP were among the biggest contributors to the index’s performance as oil prices nudged higher to $81.21 per barrel. Oil prices had been on a downward trend since early July, so finding price stability has offered some reassurance.

“Shell and BP will update the market this week, and both have already got bad news out of the way with recent earnings previews that detailed multi-billion-dollar write-downs.”

Entain and Reckitt Benckiser

Although the index was firmly higher on Monday, there were two major drags on the index in Reckitt Benckiser and Entain.

“Shares in Reckitt are down around 9% this morning after news that a key rival in the US baby formula market has been fined $495mn by a US jury,” Matt Britzman said.

“Mead Johnson, a Reckitt subsidiary, is under threat of similar litigation. Reckitt has put the business on the chopping block as part of a recently announced strategy shift, which seems like a smart move. Reckitt has maintained stalwart support for innocence, but while Mead Johnson remains part of the group, developments in these cases will continue to have a significant impact on Reckitt’s performance.”

Entain was down 9.5% after announcing trading conditions for its BetMGM joint venture. Although US-focused betting services revenue grew, it signalled an increase in the competitive environment.

Adsure Services announced a bumper increase in EBITDA and profit before tax for the full-year period ended 31st March after the internal audit and business assurance firm grew revenues and took action to control costs.

However, the most interesting element of today’s announcement for many investors may not be the 72% increase in profit before tax, but the update the company gave on the development of a Generative AI Large Language Model designed to enhance efficiencies for government-funded organisations.

Commenting on the AQUIS-listed company’s push to improve its technical capabilities in an effort to create operational efficiencies for its clients, Kevin Limn, CEO of Adsure Services, said:

“As part of our drive to improve efficiencies across the business, we have deployed an Innovate UK grant to develop proprietary Generative AI Large Language Model (LLM) technology specifically designed to enhance outcomes for our customers across government-funded organisations, including housing associations, healthcare services, emergency services, local governments and education institutions.”

Through its operating subsidiary, TIAA Ltd, Adsure Services provides government-funded organisations with a broad range of auditing and assurance services covering cyber security, HR, carbon emissions, IT systems, security management, and anti-crime.

Although Adsure is yet to release specific details about how the company will utilise an Innovate UK grant to help launch a Large Language Model, the successful implementation of such a service is likley to provide an additional source of growth for the company in the exciting world of Generative AI.

Indeed, in the full-year results released today, Adsure outlined a growth strategy with three core streams: ‘Organic growth in core markets, Accessing new markets for its existing range of services and Creating new technologies to revolutionise business assurance.’

Shareholders will eagerly await updates on the progress of the new technology.

Strong EBITDA and Profit before Tax growth

Beyond the group’s artificial intelligence developments, Adsure Services produced very respectable levels of growth in 2024FY. Revenue grew to £9.1m in the year to 31st March while profit before tax soared 72%.

“I’m delighted to report another year of growth for Adsure Services and TIAA Ltd,” said Vicky Davies, CFO of Adsure Services.

“Revenue for 2024 grew 3.4% to £9.3m (2023FY: £8.99m) and profit before taxation increased 72% to £471k (2023FY: £274k). Demonstrating action in cost control, our EBITDA margin improved to 9.4% (2023FY:7.31%).

“We have started the year strongly and will maintain our prudent approach to managing costs.”

The company has proposed a final dividend of 0.99p which will be paid later this year to add to the maiden interim dividend of 0.49p paid in April.

Despite only listing in London at the end of last year, the combination of the interim and final dividend infers a 5% dividend yield for the company.

Adsure generates recurring revenues from long-term contracts, which evidently provides the company with the confidence to pay dividends while pursuing a broad growth strategy.

“Our outlook is promising, and we have excellent visibility over our revenue in the years to come due to the long-term nature of our contracts, which deliver us recurring revenues,” Kevin Limn said.

We had been nervous for a few weeks over the possibility of a profit taking snap emerging. So the recent minor sell-off has come as no major surprise.

We can see how price action has “only” dropped down to the lower end of the existing bullish trend channels. So little technical damage has been done on this move, so far.

In order to turn more nervous we would need to see price further into the older bullish trading range, blue region, currently under 5450. Buyers have already been tempted in, on the recent selling, on the hopes that the “buy on dips” strategy that has proved so profitable for so many months now will be good for at least one more leg higher.

However there are some very early signs that this buying may be more retail based buying, and less institutional, raising concerns around the Hindenburg Omen we highlighted a few weeks ago.

So for the week ahead this follow through buying may come through with enough scale on the key names that it could lift the wider market back above 5,600. But concerns remain for Q3 ahead and into Q4 as the record breaking run of the inverted US yielded curve continues and we have so much geopolitical uncertainty around the US election and possible international flash points in Ukraine/Russia, Israel/Gaza/Lebanon, China/Taiwan but that until/unless we see price action consolidate under the 5,400 area we remain in a strong bullish trend.