Two banks, an oil major, the UK’s dominant telecoms player, and a global advertising giant are among the excitements on a packed UK corporate news calendar for Thursday.
Probably the most focus will be on high street lender Lloyds Banking Group PLC (LON:LLOY) after it posted bad debt provisions of £2.4bn in the second quarter and £1.4bn in the first.
In the second quarter the massive provision and a lower net interest margin led Lloyds to reports a statutory loss before tax of £602mln, though the UK’s number-one lender pointed to “early signs of recovery” in core markets, such as consumer spending and the housing market.
Along with rival Barclays numbers last week, analysts expect Lloyds will add a smaller bad loan provision in the third quarter, though with the UK recovery running out of steam and going back into lockdown, investment analyst Susannah Streeter at Hargreaves Lansdown says banks still need to set more cash aside to cover defaults, while low rates continue to hit income.
“These are trends which seem unlikely to disappear any time soon given the current resurgence of coronavirus cases, and the further economic damage which regional lockdowns are likely to cause. However, the bank’s early move into digital services has served it well, and has historically given it one of the lowest cost to income ratios in the industry – a competitive edge in bad times.
“The bank’s growing wealth & insurance business also provides diversification, and is less sensitive to low-interest rates than the core banking operation, which should help Lloyds weather the storm.”
Emerging markets lending barometer
Standard Chartered PLC (LON:STAN), which has a big focus on Asia and other emerging markets, cranked up its bad loan impairments by a relatively small US$611mln in the second quarter, taking its total credit provisions to US$1.6bn for the first half.
Income was down 4% in the second quarter after a strong start to the year, but StanChart has the lowest net interest margin among its rivals, which fell another 24 basis points in the second quarter to 1.28%.
UBS thinks the main focus for the third quarter will be on an expected “material” decline in net interest margins, a quiet quarter for defaults and financial market revenues.
Sure of Shell?
After BP PLC (LON:BP) posted slightly better than expected Q3 results on Tuesday, it will be Royal Dutch Shell PLC’s (LON:RDSB) turn on Thursday, with the oil major having seen its shares lag its London-listed rival’s this year.
Although it won’t be a stellar third-quarter report, UBS analysts still anticipate a ‘competitive’ financial performance.
“Shell’s underperformance in the year to date owes much less to financial performance and more to the dividend cut at 1Q and the absence of any context or visibility on outlook for the business at either 1Q or 2Q,” the analysts said.
“Instead we do hope for a stronger investment case for the share to be articulated by management rather than entirely wait until the strategy day scheduled for February 11.”
The UBS analysts expect a significant quarter-on-quarter in the Upstream arm as oil prices recover and in the absence of unusually large exploration write-offs, while in Downstream, oil products are seen being hampered by weak refining margins and the absence of windfall trading results reported in the second quarter but Shell has acknowledged significantly higher marketing margins.
BT past the worst?
BT Group PLC (LON:BT.A) will report fiscal half-year numbers on Thursday with its shares having bumped along at around an 11-year low since early summer, not even reports of possible private equity interest having made much of an impact.
COVID-19 has hurt BT in several ways, first-quarter results showed in July, as its business and residential customers were both affected and many have been offered bill credits, its Openreach arm stopping in-home engineering work from March to May, overseas roaming was reduced by travel restrictions, and the BT Sport business suffered from live sporting postponements.
For the second quarter, analysts are forecasting underlying earnings (EBITDA) of £1.8mln, similar to the first.
But analysts at Berenberg believe the City consensus “underestimates how quickly lockdown-specific drags should unwind” after BT Sport offered bill credits to customers in the first quarter due to event postponements and the group’s retail stores were closed during lockdown.
Investors will also be looking for progress on wholesale deals for Openreach as well as news on the pension deficit.
WPP on the billboards
WPP PLC (LON:WPP) releases its latest trading update, just a few weeks after boss Mark Read suggested the advertising and communications group was ready to go on a buying spree.
“It is time to start to look at how we grow,” he told the FT, so investors will want to hear more on these plans.
In terms of figures, net sales are expected to decline 13% in the group’s third quarter, according to analysts at Barclays.
The market will be curious to hear about cash flow, considering in August the advertising giant decided to pay an interim dividend in spite of racking up a £2.6bn half-year loss.
Read said at the time that WPP was on a stronger financial footing than it had been, with £4.7bn of liquidity thanks mainly to the sale of a majority stake in the consulting group Kantar, and a falling cost base.
Second wave bodes ill for Smith & Nephew
Also on Thursday, blue-chip orthopaedics group Smith & Nephew PLC (LON:SN) will release a trading update after it recently said third-quarter underlying revenue had slipped 4% year-on-year.
The hip and knee-replacement parts firm pointed out that this was a significant recovery following a decline of 29.3% for the second quarter.
Trading should continue to improve as global levels of elective surgery slowly returning to pre-pandemic figures, though in many countries a rising number of coronavirus hospitalisations seems likely to put paid to that.
“Any ‘second wave’ of the virus in the winter would likely stunt growth in elective procedures and so we expect the uncertainty to remain, particularly heading into the critical winter period in its key markets,” according to analysts at Shore Capital.
Significant events expected on Thursday, October 29:
Trading updates: Lloyds Banking Group PLC (LON:LLOY), Royal Dutch Shell PLC (LON:RDSA) (LON:RDSB), Standard Chartered PLC (LON:STAN), Smith & Nephew PLC (LON:SN), WPP PLC (LON:WPP), Indivior PLC (LON:INDV), Helios Tower PLC (LON:HTWS)
Interims: BT Group PLC (LON:BT.A), ANGLE PLC (LON:AGL)
Finals: Proactis PLC (LON:PHD)
AGMs: ITM Power PLC (LON:ITM), Rosslyn Data PLC (LON:RDT)
FTSE 100 ex-dividends: None
Economic data: Nationwide UK house prices; US weekly jobless claims; US preliminary Q3 GDP, US pending home sales