Standard Chartered shares soared on Thursday after the company reported Q1 earnings and wrapped up a fairly upbeat series of updates for the FTSE 100 banks. 

UK investors were saved the best banking update until last as Standard Chartered smashed earnings estimates sending shares 6% higher in early trade.

Underlying income was $5.2bn compared to $4.7bn analyst estimates and underlying profit before tax came in at $2.2bn vs $1.6bn expected.

Most of the FTSE 100 banks, Lloyds, Natwest, HSBC and Barclays, have beaten earnings estimates. But none to the extent of Standard Chartered.

“Standard Chartered has made a statement,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“This was as close to a clean sweep of first-quarter results as you can get. Pretty much every major line item was better than markets had expected, even after stripping out some of the one-off items that inflated results. Performance was driven by non-interest income, which accounts for over half of all revenue.

“This includes areas like wealth management, investment banking, and trading. Traditional banking operations performed more or less as expected.”

Concerns about the health of the Asian economy have dogged Standard Chartered, and today’s update will go a long way to put the doom-mongers back in their place. 

A big plus for investors is the lower-than-expected credit provisions. With the Chinese property crisis far from over, some may have feared STAN’s exposure to the sector could see further impairment. 

“As we’ve seen from peers, credit quality metrics remain resilient. This is especially important for Asian-focused banks like Standard and HSBC, which have both had to write down the value of Chinese assets in past quarters,” Britzman said.

“Commercial real estate exposure in China has also been a cause for concern, so investors will be pleased to see no real uptick in impairments taken here.

On Wednesday, Horizonte Minerals announced that continued negotiations with secured creditors and potential investors regarding restructuring for its Araguaia project in Brazil were yielding little in the way of hope for investors.

Senior lenders have agreed to extend waivers, deferring accrued interest payments until May 15th, as discussions explore options to recover value for creditors. Shareholders, unfortunately, are of little consequence in these discussions.

Scenarios under consideration include raising financing at the subsidiary level, disposing of the Araguaia project while maintaining its viability, liquidating assets, or leveraging Brazilian laws to maximise creditor recovery while minimising liabilities.

The outcome in any of these scenarios will be unfavourable for shareholders, and the company said it believes these options are unlikely to yield any value for equity investors.

If no further extension is granted by senior lenders, deferred interest will become immediately payable on May 16th. Failure to pay could result in the cancellation of undrawn funds, acceleration of outstanding debt, and potential enforcement of lender security over the group’s assets.

The pressure is mounting on Horizonte Minerals, and its fall from grace could be coming to a conclusion. If a deal is not secured soon, Horizonte Minerals may be the next London-listed firm to enter administration.

Horizonte’s Brazilian subsidiary has secured a 60-day injunction until May 15th, preventing debt enforcement to allow restructuring negotiations.

The company has working capital until mid-May, subject to creditor discussions, project expenditures, and potential cost-saving measures. The clock is ticking.

Horizonte Minerals’ demise is not only a real shame for investors but for the wider London markets. It had the potential to be a powerhouse producer and a text book success story for the junior natural resource sector.

Cornish Metals shares were firmly higher on Wednesday after the tin miner announced a solid economic assessment of its South Crofty tin mine in Cornwall.

Cornish Metals has reported a positive independent Preliminary Economic Assessment (PEA) for its South Crofty tin project confirming the project’s economic viability with an impressive after-tax Net Present Value (NPV) of US$201 million and an Internal Rate of Return (IRR) of 29.8%.

The South Crofty project is poised to become a low-cost and long-life tin mining operation with a current 14-year life of mine. It is expected to produce a high-grade, clean tin concentrate, positioning it as a significant tin producer in Europe. This is particularly promising given the growing demand for tin, a critical metal essential for the energy transition. Tin is also widely used in electronics.

Project economics highlights:

• US$201 million after-tax NPV_8% and 29.8% IRR at base case tin price of US$31,000 /tonne
• US$235 million after-tax NPV_8% and 32.8% IRR at the current US$32,625 /tonne LME tin price
• Capital payback period of 3 years after-tax
• Total after-tax cash flow of approximately US$626 million from start of production, peaking at US$82 million in the second year of production
• Average annual earnings before interest, taxes, depreciation and amortisation (“EBITDA”) of US$83 million and 62.1% EBITDA margin in years 2 through 6

 Cornish Metals shares were 15% higher at the time of writing.

“Congratulations to Cornish Metals’ technical team on completion of this Preliminary Economic Assessment of the South Crofty tin project,” said Ken Armstrong, Interim CEO and Director of Cornish Metals.

“This PEA is an important milestone for Cornish Metals and our goal of bringing responsible tin mining back to Cornwall and the United Kingdom. South Crofty is a strategic asset as tin is recognised as a critical metal by the United Kingdom and other national governments, while there is currently no primary tin production in Europe or North America.”

Next is often referred to as a bellwether of the UK high street. Its brand is embedded in the national psyche and associated with high-quality yet affordable clothing and homeware.

This brand appeal has seen it through challenges such as the shift to online shopping – when it was arguably a little slow to adopt online channels – and the recent pandemic. Many of its peers have gone into administration while Next repositioned its business and maintained sales growth.

Today’s Q1 trading update is another example of Next’s prowess. Sales rose 5.7% in the quarter, slightly above guidance, as online sales surged 8%, but retail remained dead flat.

“Next’s first-quarter results came in slightly above group expectations, beating its full-price sales guidance by 0.7 percentage points. These sales were driven by an 8.8% growth in its Online channel, with Retail remaining flat,” said Guy Lawson-Johns, equity analyst, Hargreaves Lansdown.

“Online revenues continue to drive outperformance. Next’s significant work to enhance its online service is paying dividends. Improved stock availability and seamless operational execution are driving performance beyond anticipated levels.”

Stalling retail sales growth may be why shares are down slightly today. Next shares, however, are up 11% year to date.

There may also be a smidgen of disappointment that sales growth wasn’t better. Notwithstanding the economic challenges Next is operating in, investors have become accustomed to strong results, which have become the norm over the past two years. 

“They have been cautious about raising the full-year outlook due to a particularly warm Q2 last year and as a result anticipate a potential dip upcoming in comparison,” said Adam Vettese, analyst at eToro.

The FTSE 100 broke its streak of record closing highs on Tuesday, and flat trade on Wednesday suggests it’s unlikely to set a fresh intraday high in today’s session.

The pause for breath can be attributed to a multitude of factors, including softer UK house price data hitting housebuilders, the Federal Reserve deciding on rates later today, weaker UK manufacturing data and simply good old-fashioned profit-taking. 

“Having broken its run of record closes on Tuesday, the FTSE 100 ticked higher on Wednesday morning despite selling on Wall Street overnight,” said AJ Bell investment director Russ Mould.

Interest rate concerns could well grip markets again later today as the Federal Reserve meets to decide on rates and provide its commentary on the economy. Markets have pushed the pricing of the first rate cuts back until much later in 2024, and the Federal Reserve isn’t expected to make any changes to rates today. 

The focus will almost entirely be on the commentary. Markets have gradually priced fewer and fewer interest cuts this year. Last year, as many as seven rate cuts were forecast for 2024. Now, only one is expected, and two as an absolute maximum.

Should the Fed say anything tonight that suggests interest rate cuts are being pushed out further than already priced for, history tells us to expect a broad market reaction felt in equities.

Housebuilders were among stocks suffering on Wednesday after new data revealed UK house prices had fallen for a second month amid poor weather and the ongoing pressures of higher mortgage rates and overpriced housing. The house price data comes just a couple of days after major lenders said they would increase mortgage rates in the face of interest rate uncertainty. 

Persimmon was 1% weaker while Taylor Wimpey gave up 0.5%.

Next

Next’s trading updates have been drawing a crowd recently, and its Q1 trading statement will have done nothing to send people home early but also did little to inspire demands for an encore.

Group sales grew at a better-than-expected 5.7%, but flat retail sales kept any enthusiasm in check.

“Next seems to be the gift that keeps on giving as they deliver an increase in sales for Q1 that has come in ahead of expectations,” said Adam Vettese, analyst at eToro.

“They have been cautious about raising the full-year outlook due to a particularly warm Q2 last year and as a result anticipate a potential dip upcoming in comparison.”

“Whilst the macro outlook has certainly improved, there may be some risk factors for retailers, as some uncertainty lingers, but it is still fair to say that Next is a pick of the sector. Despite a slight dip in the share price this morning which could well be a bit of profit taking, there is still scope for the price to push on this year.”

Next shares were flat at the time of writing.

Smith+Nephew

Smith+Nephew was the FTSE 100’s top riser after announcing Q1 sales increased 2.9% to $1,386 million with strength in Sports Medicine & ENT and Orthopaedics.

Smith+Nephew maintained full-year guidance helping shares rise 3%.

Next Tuesday this £176m capitalised estate agency group will be holding its AGM covering its 2023 results, which were gently better than those of 2022.

The Foxtons Group (LON:FOXT), which is London’s leading estate agency and largest lettings agency brand, with a portfolio of over 28,000 tenancies, saw revenues of £147.1m (£140.3m) for the year, with adjusted pre-tax profits of £13.8m (£13.1m) but lower earnings of 2.8p (3.0p) and a maintained dividend of 0.9p per share.

Recent Q1 Trading Update

Two weeks ago, the group gave out a Q1 Trading Update for 2024, showing a 9% advance in revenues at £35.7m for the three months to end March.

CEO Guy Gittins stated that:

“This has been a strong start to the year with our revenue growth demonstrating the real momentum we have built across the business. Last year we regained our number 1 position in London and delivered significant growth in our market share of property instructions across both Lettings and Sales. The business is now focussed on converting these listings to transactions as we deliver results for our clients.

Sales revenue was up 17%, reflecting improved market conditions and Foxtons’ continued growth in market share as the operational improvements we made last year took effect. We entered the second quarter with the highest value under-offer Sales pipeline since the 2016 Brexit vote, giving us optimism for the rest of the year.

We have made great strides in the past two years, with the business’ foundations rebuilt and the Foxtons Operating Platform significantly strengthened. We are well placed to continue to unlock value within our business, drive growth, and ultimately deliver against our medium-term adjusted operating profit target.”

The Group’s Strategy Going Foward

The strategy of the group is to accelerate growth and deliver £25m to £30m of adjusted operating profit in the medium-term, by focusing on non-cyclical and recurring revenues from Lettings and Financial Services refinance activities, supplemented by market share growth in Sales.

Broker’s View – Price Objective 88p

Analyst Greg Poulton at Singer Capital Markets rates the group’s shares as a Buy, with a Price Objective of 88p.

He is now estimating current year revenues of £158.3m, £17.0m profits, 4.0p earnings and a 1.10p dividend per share.

Over the next two years to end 2026 he sees revenues rising to £179.6m, £25.2m profits, 5.9p earnings and a 1.50p per share dividend.

My View – Looking For 80p A Share

The market in the group’s shares is interested to know just how its brokers and Rothschilds will be faring in attempting to get FOXT a much better rating than at present – with suggestions that the whole group is up for sale to the right bidder.

Could we be getting any update on their joint progress to date?

Probably not – but it would be good to excite some more interest in the group’s shares, which are currently trading at around 58p.

If a potential predator is being sought and lined up in due course, it would be reasonable to look for a bidder having to offer at least 80p a share, some £240m in value.

Another day and another fresh intraday high for the FTSE 100. The wind is certainly in the sails of London’s leading index, with HSBC and Whitbread providing the uplift on Tuesday.

The FTSE 100 hit highs of 8,199 before retreating to trade at 8,176 at the time of writing.

“The spigot has been opened since it attained its new record high and the FTSE 100 continued to flow higher on Tuesday amid a raft of corporate announcements,” said Russ Mould, investment director at AJ Bell.

“The index took its cue from gains on Wall Street with the next key test of the relative optimism displayed by the market coming tomorrow with the latest meeting of the US Federal Reserve.

“While the Fed is expected to maintain the status quo on interest rates, commentary on its current thinking on the trajectory of rates in the remainder of the year will likely have a significant impact on markets.”

A strong start to the session was amplified by upbeat earnings from Whitbread and HSBC. HSBC gained 4.3%, adding a significant number of points to the index, after announcing Q1 earnings that beat analyst estimates.

HSBC

HSBC has fallen in behind most other FTSE 100 banks that have reported Q1 earnings by marginally beating income and profit estimates.

In addition to earnings, investors gained insight into the bank’s progress in delivering a strategy to move away from non-core assets. The sale of their Canadian assets is complete, but the bank recorded $1.1bn write-down on its Argentinian business as it prepares it for sale. 

A fairly solid set of Q1 results was overshadowed by the news that the HSBC CEO was planning to retire, raising questions about the direction of the company in the coming years. That said, investors clearly weren’t too upset with the news, given the reaction in shares today.

“HSBC has thrown a spanner in the works. News that CEO Noel Quin plans to retire came as a surprise. Change at the top usually causes a wobble, more so when it’s unexpected, and this does raise some questions about how the strategy will evolve from here. The HSBC portfolio is going through a reshuffle, and Quin’s far from completing his mission to get costs under control,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

Whitbread

Whitbread was the FTSE 100’s top gainer as investors cheered a record year for profit before tax in 2024FY and signalled great focus on its hotels in business in the future.

Revenue jumped 13%, and profit before tax rose to 36% to £561m as the German Premier Inn business stormed ahead from a low base amid soggy food sales in the UK.

“Whitbread’s served up a set of record beating results for the 12 months ending 29 February 2024. Premier Inn UK has continued to outperform the rest of the market and management are seizing the opportunity to convert 112 restaurants into 3,500 new room extensions,” said Derren Nathan, head of equity research, Hargreaves Lansdown.

“This appears to be a shrewd way to optimise the current real estate footprint and a capital efficient method to help reach the 2029 target of an estate of at least 97,000 rooms. 

“The comps are getting harder for Whitbread though. Food & Beverage is struggling so far this year, with sales 2% behind last year and it’s some of these weaker performing branded restaurants, which include the likes of Beefeater and Brewers fayre, that Whitbread has put forward for conversion.”

Prudential

Prudential was firmly at the bottom of the index on the news of poor sales in China.

“Shares in Asia-focused insurer Prudential were under pressure after a decidedly mixed first-quarter update. While there was evidence of a recovery in some key markets, its mainland Chinese venture CITC Prudential Life saw a significant year-on-year decline in sales,” Russ Mould said.

Prudential shares were down 5% at the time of writing.

Last week, we suggested that the index was more likely to recover towards 5,200 than continue the recent slide, so the minor recovery in the past few days has been largely in line with expectations.

There were some minor concerns last week on bad GDP data, and of course we had sizable moves lower from heavyweights such as Nvidia and Meta.

However the wider market held last week’s lows and buyers moved back in with enough scale to lift the markets once more. With strong trends of this nature the buying and selling rarely turns off like a tap, instead if it turns it turns with the pace and grace of an oil tanker. We have seen heavy buying interest for the past few months and the recent minor sell-off is likely to appear as just too attractive an opportunity to miss for many of these buyers.

The longer term bearish arguments do continue to mount up: Inflation resurfacing, higher personal debt, slower GDP growth, inverted yield curve, sluggish personal spending, but so far these significant red flags have not been enough to dent the wider bullish sentiment.

As a result we maintain last week’s view that 5,200 remains on track. In order to turn negative, last week’s lows will need to be broken, and even then more evidence that the underlying economy was struggling would be needed to suggest that the longer term buying interest was finally running out of steam, else this could just be seen as yet another buying opportunity. Leaving a positive outlook for the index overall next week, with moves under 4950 needed to turn more negative.