NetWest has increased its dividend by 9% despite profit and income falling in the half-year and quarter periods ending June 30th compared to a year ago. However, a second-quarter rebound provided a source of optimism.

Yesterday, we reported that Lloyds earnings are often a barometer for UK banking earnings as they tend to report first. NatWest’s results are almost a carbon copy of Lloyds.

Income was down on last year due to lower interest rates. NatWest reported a 7.7% drop in total income to £7.1bn, with the looming interest rate cuts weighing on the net interest margin, which fell to 2.07% in the first half compared to 2.23% in the same period a year ago.

Lower total income inevitably dragged profits lower, and operating profit before tax slipped 15% despite NatWest registering much lower impairment costs for bad debts than this time last year.

The poor metrics were to be expected. The peak in interest rates has been well-telegraphed, and nobody expected higher half-year income or profits going into the report. It was all about the quarterly results in which profit rose compared to the first quarter of the year.

There are some positives to take away from NatWest’s results. The group increased its interim dividend by 9% to 6p. NatWest has a historical yield of around 55, and investors will be pleased to see payouts growing.

Investors will also be please to see Q2 2024 performance way ahead of expectations providing reason to be optimistic going into the third quarter.

“As with Lloyds yesterday, it’s the quarter-on-quarter numbers that investors are paying attention to. Second-quarter results have pretty much beaten expectations on every key metric, from income to margins,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.

“It’s also good to see full-year guidance on net interest income finally get the upgrade investors had been hoping to see, and now supports the numbers analysts had been pencilling in. That’s positive news and helps underpin the stock price which has been on a heater this year.

“Unlike Lloyds yesterday, lower impairments weren’t the only reason for the profit beat, though that was a key factor with NatWest too. The UK economic outlook is improving, and borrowers are holding firm in the face of higher interest rates. NatWest is also seeing some improvement from margins on the deposit side and has managed to grow its net interest margin quarter-on-quarter.”

The announcement of the acquisition of £2.5 billion of Metro Bank mortgages following the acquisition of Sainsbury’s Bank finally demonstrates the group’s ambitions to grow at take on risk after years of treading water since the financial crisis and subsequent PPI litigation saga.

“We have made good progress against our strategic priorities, taking decisive action to grow and simplify our business and to manage our capital and costs more efficiently,” said NatWest Chief Executive, Paul Thwaite.

“There has been growth across all three of our businesses, we have attracted over 200,000 new customers and our acquisition from Sainsbury’s Bank is expected to add around one million customer accounts on completion. We have also agreed to acquire £2.5 billion of UK prime residential mortgages from Metro Bank plc, adding further scale to our Retail Banking business.

A bad week for the FTSE 100 got even worse on Thursday as a US tech selloff gathered momentum, dragging the global equity universe down with it on what is the busiest day for UK earnings in the current season.

The FTSE 100 had shown signs of resilience when the ‘Magnificent 7’ US tech began their fall from grace, but the sheer impact on major US indices from sharp declines in Tesla, Google, Meta and Nvidia overnight resulted in a decline of over 1% for the FTSE 100 in early trade, before the index recovered some of the losses to trade down 0.5% at the time of writing.

The recovery in UK stocks was aided by fairly robust results from heavyweights Unilever and British American Tobacco and the reality that the FTSE 100 has very little connection with US technology shares that have long been trading at rich valuations.

 “Shares in the US tech giants are facing a reset after an incredible run of outperformance over the past 18 months,” Mike Owens, Senior Sales Trader at Saxo.

“There are a cocktail of reasons affecting different parts of the market ranging from cost and profitability of AI investments, weakening consumer outlook, trade tariffs and sanctions on sales to China and the anticipation of a new rate cutting cycle from the Federal Reserve. Some of the equity sell off feels completely logical, investors cancrystallize tech stock profits and still lock in over 4% yield on government bonds rather than risk losing 5-6% a day on some of the favoured equity names.”

The recovery from the worst levels of the session was helped by a strong set of results from Unilever, which was among a plethora of UK stocks reporting results on Thursday. Unilever, British American Tobacco, Lloyds, AstraZeneca, Howden Joinery and Centrica all reported recent results with differing outcomes for their shares.

Unilever flew to the top of the leaderboard with a 6% gain after announcing increasing volumes in emerging markets and improving margins across the board.

“A big improvement on margins has put a rocket underneath Unilever’s shares, taking the stock to its highest level since November 2020. Key to its success has been shifting greater volumes of products, suggesting that consumer demand for big brands is bouncing back,” said Dan Coatsworth, investment analyst at AJ Bell.

“It’s a healthy sign when volume growth exceeds pricing growth, as it implies solid underlying demand for the products, rather than simply slapping an extra amount on the unit price to boost revenue.

AstraZeneca

AstraZeneca released a fairly respectable set of results that investors will be disappointed didn’t cause more of a positive reaction in the stock. Shares were down 2.2% despite the group increasing both revenue and profit guidance for the year after sales jumped in the first half.

“AstraZeneca is once again proving quite literally that they have just the medicine for investors with another impressive update, said Adam Vettese, Market Analyst at eToro.

“Sales continued to boom for the firm’s suite of cancer drugs with that division now a huge $5.3 billion per year juggernaut making up over 40% of sales. Total revenue guidance has been raised and is now expected to be in the mid teens. Astra is reaping the benefits of a priority focus on a strong pipeline of upcoming drugs and this continues to be the case going forward.”

Investor favourite Lloyds announced a run-of-the-mill half-year report that, despite beating analyst estimates, did little to inspire hopes of additional growth with interest cuts on the horizon.

Centrica was the top faller, sinking 8%, as the company revealed earnings were normalising after a period of bumper profits assisted by higher fossil fuel prices.

Shrinking gross margins and flat EPS growth sent Howden Joinery shares down by 3%.

The drop in AstraZeneca shares on Thursday was more a consequence of a wider market selloff than disappointed with the pharmaceutical giant’s half year report.

The groups revenue surged 18% over the period on a constant exchange rate basis with the oncology, respiratory & immunology unit’s sales surging 22%.

A beat of analysts’ expectations for the period and a measured increase in the dividend will encourage investors. Core operating margins contracted slightly due to the seasonality of some drugs, but shouldn’t be a major concern. There was a notable spend on R&D during the period, which is to be expected given AstraZeneca have set themselves an $80bn annual revenue target.

Further compounding an all-around solid report for Astra, management increased revenue guidance to the mid-teens on a percentage basis from low double digits and increased Core EPS guidance accordingly.

“AstraZeneca’s vital signs are in good shape after the pharmaceutical giant’s mid-year update. The immediate pulse check on financials is encouraging,” said Derren Nathan equity research, Hargreaves Lansdown.

“Strong sales performances of note included cancer and cardiometabolic treatments giving management to raise the interim dividend by 7.5% to $1.00 per share as well as guidance for the current year.

“But perhaps a more important biomarker of Astra’s journey towards its target of $80bn in total revenues by 2030 is its ongoing R&D success where it’s spending nearly $3bn per quarter.

“There are no guarantees of further clinical success or blockbuster drug launches but AstraZeneca has a deep portfolio and an excellent track record of both operational and clinical success.  The shares have had a good run that’s been matched by a sharper focus, as well as some interesting acquisition activity in novel therapeutic areas such as more targeted cancer treatment and rare endocrine (hormonal) diseases.”

Although the Bank of England has yet to cut rates, the impact of peaking interest rates is evident in Lloyds half-year results released on Thursday.

Lloyds is usually the first UK bank to report earnings and tends to be a way marker for investors in terms what to expect from other major UK banks as they report.

Judging by Lloyds’ report released on Thursday, the sector had a reasonable start to 2024, but there is going to be little to get overly excited about.

Increased competition for deposits and mortgages, coupled with the expectations of lower rate weighed on Lloyds earnings and profit before tax slipped to £2.4 billion for the first half 2024 compared to £2.9 billion for the same period last year.

Underlying net interest income dropped 10% £6.3 billion as the key measure of profitability, net interest margin, held up at 2.94%. Lloyds forecast net interest margin of above 290 basis points for the year.

“Net interest margins declined marginally on weaker lending margins driven by competition as well as deposit mix shifts,” said Niklas Kammer, banking expert and Equity Analyst.

“We are yet to see what deposit mix shifts peers will show in the quarter, but the dynamics were well within what we have seen over the recent quarters already.”

The results were, however, slightly ahead of analyst expectations and the losses in Lloyds shares were contained to 3% at the time of writing.

“Lloyd’s affirmation of 2024 and 2026 guidance after a strong set of Q2 results where they beat estimates highlights success in deepening customer relationships. Our experts believe this is driven by galvanising customers through their app and digital channels to deepen average products per customer,” said Max Georgiou, Analyst at Third Bridge.

“Maintaining momentum post H1 earnings will be key, competition for mortgages is heating up with sub  4% mortgages becoming available, Lloyds need to try and drive loyalty through service offerings to try and protect areas such as NIM.”

The group confirmed guidance for the year in what was a steady-as-you-go update from Lloyds, albeit one that had a marginally negative impact on shares.

“In the first six months of 2024, the Group delivered robust financial results with solid income performance and cost discipline alongside strong capital generation,” said Charlie Nunn, Lloyds Chief Executive.

“Indeed, our progress to date enables us to reaffirm 2024 guidance and remain confident in achieving our 2026 strategic objectives and guidance.”