Lloyds shares were firmly lower on Wednesday amid lower profits and concerns the bank would face several challenges in the second half of the year.

Although first-half 2023 profit before tax rose 23% compared to the same period last year due to higher interest rates, Lloyds experienced a sharp drop in Q2 2023 profit compared to Q1.

Q2 profit before tax fell 29% to £1.6bn from £2.26bn in Q1.

Lloyd’s fall in profits resulted from a £700m impairment charge to their retail loan book as the bank prepares for an increase in bad debts such as mortgage defaults.

Lloyds’ net income was pretty consistent in Q2 2023 compared to Q1 at £4.5bn. However, it was slightly lower than previously and will not inspire investors.

“Much will be made of Lloyds Banking Group’s 23% jump in first-half profit amid the backdrop of a cost-of-living crisis and increased pressure from regulators to share the benefits of interest rate hikes with savers,” said Danni Hewson, head of financial analysis at AJ Bell.

“The net interest margin, the difference between what a bank earns in interest from loans and what it pays out, is slightly higher than analysts had forecast for the quarter, though down on where it had been in the three months previously.”

“There are storm clouds gathering as the country’s biggest mortgage lender has to consider how many of its customers are likely to struggle as they face a jump from ultra-low fixed rates to the unexpected ‘new normal’.”

Lloyds shares were down 3.2% at the time of writing.

Rolls Royce shares were sharply higher in early trade on Wednesday after the group said they see a much better-than-expected first half.

Rolls Royce said operating profit would be £660m-£680m compared to analyst consensus estimates of £328m. The aerospace company’s free cash flow will also smash estimates coming in at around £340m-£360m. The consensus was for just £50m free cash flow.

“Rolls Royce is highlighting the early success of its transformation programme, which is driving productivity improvements. Civil Aerospace has swung back into profit, reflecting a stronger aftermarket outcome, while defence sector earnings are also sharply improved, with demand stronger and a more even pattern of deliveries this year compared to last,” said Steve Clayton, head of equity funds, Hargreaves Lansdown.

“Rolls Royce is boosting full year guidance for operating profits and cash flows by around 50%, one of the largest improvements seen so far in the current reporting season. The company is benefiting from a recovery in flying hours by the airline industry, which is pushing more aircraft into the workshops for engine overhauls.”

Rolls Royce shares were over 20% higher at the time of writing.

The strong first half has given Rolls Royce the confidence to upgrade their outlook for the rest of the year and now see underlying operating profit in the region of £1.2bn-£1.4bn, up from prior forecasts of £0.8bn-£1.0bn.

The upgrade in profit outlook is testament to Rolls Royce’s turnaround plan, which shows early signs of success.

Tufan Erginbilgic, Rolls Royce CEO, commented:

“Our multi-year transformation programme has started well with progress already evident in our strong initial results and increased full year guidance for 2023. There is much more to do to deliver better performance and to transform Rolls-Royce into a high performing, competitive, resilient, and growing business.”

Lawrence Stroll’s Aston Martin Lagonda Global Holdings (LON:AML) has today announced better than expected half-time results.

The £2.5bn capitalised luxury car maker reported that in the six months to end June its total wholesale volumes were up 10% at £2.95bn (£2.67m), while its revenues were 25% increased at £677.4m (£541.7m), with its pre-tax loss halved at £142.2m (£285.4m).

The first half improvement was driven by the much higher volumes and stronger pricing, together with its DBX707 and V12 Vantage Roadster showing impressively.

The group, which is enjoying its 110^th anniversary this year, ended the period with a cash balance of £400m, boosted by the Geely £95m subscription, together with a £60m revolving credit facility, giving it an overall liquidity of £460m. Net debt was £846m (£766m).

In Q3 deliveries are scheduled to begin for its 499 DBS 770 Ultimate, which was a total sell-out of the January 2023 launched model.

The Aston Martin DB12, the new generation front engine sports car classed as the world’s first Super Tourer, was launched in late May and which is sold out for the rest of the year will see customer deliveries starting in Q3.

Executive Chairman Lawrence Stroll stated that:

“Although we may only be halfway through the year, 2023 has already proven to be a remarkable year in which Aston Martin has shone brighter than ever.

We are now driving new levels of operational excellence to support our growth and deliver on our targets which focus on increasing value for each car we sell, aligned with the characteristics of a true ultra-luxury company.”

The group remains well on track to achieve its medium-term financial targets of c.£2bn revenue and c.£500m adjusted EBITDA by 2024/25. 

The company has stated that it expects to substantially achieve these financial targets in 2024 and, with continued strong momentum, is likely to exceed them in 2025.

Consistent with its target to become free cash flow positive from 2024, the company also expects to further deleverage its balance sheet, targeting a net leverage ratio of c.1.5x in 2024/25.

For the second half of this current year, the group expects to achieve a similar level of adjusted EBITDA in Q3 2023 as Q2 2023, with a significant increase in adjusted EBITDA in Q4 2023, primarily due to the timing and related contribution of new product launches.

It also expects to deliver significant growth in profitability.

The shares opened up 3% at 360.80p.

Just as developments in China drove declines in the FTSE 100 yesterday, on Tuesday, London’s leading index bounced back on reports that Chinese authorities were finally preparing to move to stimulate the economy.

China’s recovery from the pandemic has stalled, and market participants have been hoping for action to spur growth.

“After a poor start to the week as investors grew tired of waiting for the next stimulus initiative from China to boost its economy, Asia stocks rallied on Tuesday as investors got some of the news they wanted,” said Danni Hewson, head of financial analysis at AJ Bell.

“Reports suggested Beijing will provide more support, albeit details remain thin on the ground at present. It was enough to lift the Hang Seng by 4% and send investors scrambling to own shares in real estate, basic materials, technology and financial sectors.

“Good news from China always makes its way to the UK market in a flash, with commodity producers riding high including a 4% gain from Anglo American and Rio Tinto.”

Antofagasta was the FTSE 100 topr riser adding over 5% at the time of writing. Should China successfully stimulate the economy, demand for Antofagasta’s copper will be bolstered.

The FTSE 100 was 0.17% higher at 7,691 at the time of writing.

Investors will be looking forward to rate decisions from Federal Reserve and ECB later this week and the prospect of dovish tones from two central banks enjoying lower inflation rates.

Unilever

After releasing a respectable set of first-half results, Unilever was having its best session for months. Falling volumes were more than offset by rising prices, and revenue for the first half rose 2.7% to €30.4bn. The consumer group’s beauty and wellbeing unit was the standout performer, with growth of 8.6%.

“Decent headline sales growth across the business and an improvement in operating profit, operating margin and free cash flow helped to drive a 5% spike in Unilever’s share price at the market open. That was one of its strongest sessions on the stock market in a long time, helped by quarterly sales beating estimates,” Danni Hewson said.

“But dig deeper and there are several reasons not to get carried away.

“First, group sales growth has come entirely from putting up prices, not shifting more units of products. The sign of a good business is one that can grow prices and volumes. Unilever’s group volumes actually declined in both the first and second quarter periods.

“Second, chief executive Hein Schumacher is still new in the role and it’s easy to get excited when a new leader delivers messages of optimism.”