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FTSE 100 lower, banks in focus as PacWest tumbles in the US
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Shell jumps as profit tops forecast and launches US$4bn buyback
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Mortgage approvals rise but lending grinds to a halt
11.34am: Trainline motors ahead after bumper earnings
Shares in Trainline motored 13% higher after swinging back to profit with an annual operating profit of £28mln compared with a £10mln loss in the previous 12-month period.
Net ticket sales increased 72% to £4.3bn for the fiscal year ending February 28 while revenue of £327mln, was up 74% year-on-year.
Trainline highlighted strong growth in Spain, with four-fold increase in net tickets sales, and growing brand awareness in Italy helping triple sales.
It expects net ticket sales growth in range of 13% to 22% in the new financial year with revenue growth in range of 13% to 22%.
Jody Ford, CEO of Trainline said: “Trainline is building great momentum, delivering a record operating performance this year, selling c200 million train tickets across Europe, and expecting further strong growth in the year ahead.”
Peel Hunt feels despite the headwinds of industrial action Trainline “is resolutely executing its strategy.”
It notes EBITDA topped guidance by 15% while EPS was 13% ahead of forecast.
The broker has upgraded 2024 and 2025 financial year EBITDA by 10% and 13% respectively and raised its price target to 440p from 358p. Peel Hunt reiterated a buy recommendation.
Heading the other way is the FTSE 100, firmly in the red, now down to 7,732.13, down 56.24 points, or 0.72%.
11.02am: Bill Ackman calls on US authorities to “wake up”
American billionaire investor and hedge fund manager Bill Ackman has called on the US authorities to “wake up” and implement a systemwide deposit guarantee regime now.
He argued First Republic Bank (NYSE:FRC) would not have failed if the FDIC temporarily guaranteed deposits while a new guarantee regime were created.
“Instead, we watch the dominoes fall at great systemic and economic cost,” he claimed.
Pointing out banking is a “confidence game,” Ackman continued, “at this rate, no regional bank can survive bad news or bad data as a stock price plunge inevitably follows.”
The regional banking system is at risk. SVB’s depositors’ bad weekend woke up uninsured depositors everywhere. The rapid rise in rates impaired assets and drained deposits. Zeroing out shareholders and bondholders massively increased the banks’ cost of capital. CRE losses loom.…
— Bill Ackman (@BillAckman) May 3, 2023
Noting comments from PacWest that it is “pursuing strategic alternatives’ means an FDIC “shutdown over the coming weekend.”
Ackman said there is no incentive to bid until Sunday after the failure explaining the GSIBs (globally systemically important banks) have an unfair competitive advantage “as too big to fail means only their uninsured depositors can sleep soundly.”
“Until the playing field is levelled, the regional banks are at grave risk.”
“Confidence in a financial institution is built over decades and destroyed in days,” he added.
“Until investors are rewarded for betting on a wobbling bank, there will be no bid, and the best sale is the last price,” he feared.
“We are running out of time to fix this problem,” he said and asked, “How many more unnecessary bank failures do we need to watch before the FDIC, US Treasury and our government wake up?”
10.43am: Mortgage approvals jump but overall lending grinds to a halt
Mortgage lending ground to a halt in March although the number of approvals rose from February, according to figures from the Bank of England.
The BoE said mortgage lending to individuals fell from a net flow of £0.7bn in February to net zero in March.
Excluding the pandemic this is the lowest level of net borrowing since June 2011 (£0.3 billion of net repayment).
But the BoE noted net mortgage approvals for house purchases rose significantly to 52,000 in March, from 44,100 in February, the highest
number since last October, although still lower than the 69,777 signed off a year earlier, in March 2022.
The ‘effective’ interest rate – the actual interest rate paid – on newly drawn mortgages increased by 17 basis points, to 4.41% in March.
Consumers borrowed an additional £1.6bn in consumer credit in March, on net, compared with £1.5bn borrowed during February while households withdrew £4.8bn from banks and building societies in March.
The figures also showed households withdrew £4.8bn from banks and building societies in March.
10.25am: Service sector accelerates in the UK
Growth in the UK’s services sector accelerated sharply in April, according to the latest survey data, helping to drive growth in the private sector overall amid a slump in manufacturing.
The S&P Global/CIPS services PMI index rose to 55.9 points in April from 52.9 in March, the fastest rise in activity for 12 months, and higher than the flash estimate of 54.9.
“Service providers experienced the steepest upturn in new work for 13 months as resilient consumer spending combined with a turnaround in demand for business services to boost overall order books,” said Tim Moore, economics director at S&P Global Markets Intelligence.
The survey noted that stronger consumer spending was a factor boosting business activity during April, especially those operating in the travel, tourism and leisure sub-sectors while there were also reports citing a turnaround in demand for business services, despite pressure on budgets from intense cost inflation.
More than half of the survey panel (52%) expect an increase in business activity during the year ahead, while just 12% predict a decline.
The degree of optimism has increased in each month since last November, supported by resilient consumer spending and improving confidence regarding the global economic outlook.
10.14am: Shell still throwing off vast quantities of cash
Shell is standing 2.2% higher bucking the weaker market as strong results and a US$4bn buyback provide a boost.
A slight recovery in the oil price – for now – has also helped after the heavy falls of the past two days.
Derren Nathan, head of equity research at Hargreaves Lansdown noted: “Despite continuing pressure on the oil price, Shell is still throwing off vast quantities of cash,” although he suggested the the buyback “will no doubt be fresh calls to increase contributions to the public coffers.”
He pointed out Shell’s also continuing to invest heavily, with capex expected to land between US$23bn and US$27bn this year.
“Plans are afoot to reinvigorate the Pierce field in the North Sea which is now contributing to gas supplies after years of only producing oil,” he added.
“Shell’s position as an end-to-end energy supplier has so far enabled it to prosper even as the industry faces some severe challenges, he said.
“However, with the oil price facing sustained pressure, things could get tough as the year progresses,” Nathan cautioned.
9.42am: Virgin Money tumbles as bad debts rise near sixfold
Virgin Money’s profits fell by a quarter as a larger than expected jump in provisions for potential bad loans offset a boost to the UK lender’s revenue from rising interest rates.
Statutory pre-tax profits fell 25% to £236mln for the six months to March 31, beating analysts’ estimates of £226mln. Revenues rose 10% to £933mln, ahead of the consensus for £911mln.
But provisions for bad loans increased nearly sixfold to £144mln from £21mln in the same period in 2022, and above expectations of £129mln.
Virgin anticipates arrears to increase based on economic conditions and credit bureau data.
Shares fell 5.8% to 144.30p after being more than 10% lower in early exchanges.
The FTSE 100 is now 37 points at 7,751.
In Europe, the Cac 40 in Paris is 0.3% lower and the Dax in Frankfurt is 0.2% worse off.
9.23am: Next holds firm despite poor weather
Next remains in the green, now up 2%. Broker Jefferies thinks investors were positioned for a more negative update given the weather impacts reported by peers.
The broker noted comments from Associated British Foods and J Sainsbury PLC (LSE:SBRY) on the hit from the poor weather on Primark and Argos sales.
The broker kept its hold rating.
Richard Hunter, head of markets at interactive investor described the update as “brief but uninspiring.”
“The market consensus currently stands at a hold, albeit a strong one, but this dearth of any new positive catalysts is unlikely to put any positive pressure on the general view for now,” he felt.
8.55am: FTSE down but off lows
The Footsie has bounced off early lows but remains in negative territory, now down around 20 points at 7,769, after touching 7,739.11 earlier.
After the London close the US Federal Reserve hiked interest rates by 25 basis points and softened its language regarding future increases but Susannah Streeter at Hargreaves Lansdown said: “even indications that the hiking cycle may be at an end, hasn’t calmed worries about the effect of the rapid tightening of monetary policy on the US.”
“Casualties of high interest rates have already fallen in the banking sector, as portfolio losses have mounted, and depositors have taken fright.”
“Confidence is leaking fast from regional lender PacWest after it confirmed it is looking at ‘strategic options’, increasing concerns that the banking crisis could take another turn for the worse.”
“Investors are worried that it will be the next domino to fall as worries swirl about deposit flight and the lack of asset diversification among smaller lenders,” she said.
Shares in PacWest tumbled as much as 60% in after hours trading and are currently 52% lower.
The falls were slightly embarrassing for Fed chair Jerome Powell who in his press conference following the Fed’s decision claimed the US banking system was “sound and resilient.”
Back in London and BAE Systems PLC slipped 1.7% in early trading despite telling investors trading has remained in line with expectations with continued good operational performance.
Charles Woodburn, BAE Systems Chief Executive, said: “Order flow on new programmes, renewals and progress on our opportunity pipeline remains strong. In particular, the AUKUS announcement in March is significant for the company in the medium and long-term and we look forward to supporting our customers in this far reaching programme.”
BAE expects sales growth of 3% to 5% in the current financial year with underlying EPS forecast to rise 5% to 7%.
“Overall programme execution has been good across all sectors in the year to date,” the company said.
8.36am: UK’s competition watchdog to probe AI industry
The UK’s Competition and Markets Authority is to probe the AI industry it announced today.
The CMA said: “This initial review will help create an early understanding of the market for foundation models and how their use could evolve; what opportunities and risks these could bring; and what competition and consumer protection principles will best guide the development of these markets going forward.”
The probe follows concerns that the new technology could lead to job losses across the globe.
Earlier, this week IBM said it was holding off new hires as it looked to see if they could be replaced by AI technology.
Last week, the CMA courted controversy after blocking Microsfot’s planned acquisition of Call of Cuty maker, Activision Blizzard.
8.15am: FTSE 100 lower but Shell and Next move higher
The FTSE 100 opened lower on Thursday as ongoing nerves in the banking world and the implications of rate moves by central banks continue to be digested.
Added to the mix are a further hefty batch of corporate news with Shell PLC (LSE:SHEL, NYSE:SHEL) and Next PLC (LSE:NXT) updating investors on trading.
At 8.15am London’s lead index stood at 7,755.02, down 33.35 points, or 0.43% while the FTSE 250 declined to 19,303.31, down 62.29 points, or 0.32%.
In the US, the Federal Reserve increased interest rates by 25 basis points as expected buy softened its language hinting this might be the last hike in the cycle.
Attention now switches to Europe where the ECB is likely to follow suit later today.
But US banking shares slipped in late trading and after the market close regional bank PacWest said it was in talks regarding a sale. Shares are 52% lower in after hours trading.
The renewed jitters dragged UK banks slightly lower in early exchanges with Lloyds, NatWest and Barclays all the wrong side of the line.
Better news for investors in Shell PLC (LSE:SHEL, NYSE:SHEL) which jumped 3.0% in early trading as first quarter profit topped forecast and it launched a US$4bn buyback.
Joshua Warner, Market Analyst at City Index said: “That’s a strong beat from Shell,” pointing out earnings came in “around US$1.5bn higher than expected, and will be welcomed considering analysts had expected profits would fall as oil prices have eased in 2023.”
“That surprise was largely down to a stellar performance from its integrated gas division, although profits came in above forecasts across the board,” he explained.
Next PLC (LSE:NXT) was another in the green, rising 1%, after it maintained guidance for profit and sales for the financial year as sales in the financial first quarter, despite falling, were better than previous guidance.
Liberum reiterated a buy rating and said: “We remain optimistic on NEXT’s prospects for profitable growth going forward as the transition from retail stores to online is nearly over and it has access to multiple new avenues for growth.”
It said Next is “a clear winner with multiple macro and micro drivers.”
Vodafone PLC rose 0.5% after the Financial Times reported that reported the telco and CK Hutchison are close to agreeing a £15bn combination of their UK telecoms businesses that would create the country’s biggest mobile operator, with 28mln customers.
But Virgin Money UK PLC (LSE:VMUK) tumbled 8% after statutory pre-tax profit fell 25% in the six months to £236mln from £315mln a year before.
7.48am: Vodafone and CK Hutchison close to unveiling UK mobile tie-up – FT
Shares in Vodafone PLC will be in focus in early trading after the Financial Times reported the telco and CK Hutchison are close to agreeing a £15bn combination of their UK telecoms businesses that would create the country’s biggest mobile operator, with 28mn customers.
Citing three people close to the matter, the FT said tThe deal is expected to be unveiled this month following the appointment of insider Margherita Della Valle as Vodafone chief executive.
The deal is set to value the equity of the combined group at about £9bn, some of the people added.
The new company would have roughly £6bn of debt, taking its enterprise value to about £15bn, the report said.
It would set the stage for a protracted political and competition fight as the deal would mark a historic consolidation of the UK market to three mobile operators — something that regulators have previously blocked.
7.42am: Next holds guidance, sales remain subdued
Next PLC (LSE:NXT) held guidance for sales and profits for the full year as it reported sales had fallen by less than forecast.
The high street retailer said in the thirteen weeks to 29 April full price sales were down 0.7% versus last year, moderately ahead of the guidance for this period, which was to be down 2%.
As a result, the Leicester-based firm maintained sales and profit guidance for the full year, with pre-tax profit forecast to be £795mln and earnings per share 501.9p.
Online sales fell 1.6% in the period while retail sales dipped 0.6%. Including finance interest income growth of 7.4% left the overall figure 0.7% lower.
Despite the stronger sales performance Next said it believes “it is too early in the year to alter our overall sales expectations for either the half or full year. “
To maintain the first half forecast, “we have moderated our sales forecast for the second quarter, which is now planned to be -5% down on last year (previous guidance was -4%).”
It described this adjustment as “reasonable,” as some of the first quarter’s success, particularly in holiday clothing sales leading up to Easter, might have been pulled forward from the second quarter.
7.34am: Shell launches US$4bn buyback
Shell PLC (LSE:SHEL, NYSE:SHEL) launched a new US$4bn buyback as profits in the first quarter topped City expectations despite dropping from the previous quarter.
The oil giant reported adjusted earnings in the three months to March of US$9.65bn, down 2% from US$9.81bn in the previous quarter, but 5.3% higher than US$9.13bn in the same quarter in 2022. Adjusted EPS of USD1.39 climbed from USD1.20 a year prior.
The FTSE 100-listed firm said the US$4 billion buyback is expected to be completed by the second quarter 2023 results announcement.
Adjusted earnings in Integrated Gas rose to US$4.92bn compared to US$4.09bn a year ago while in the Upstream business earnings fell to US$2.80bn from US$3.45bn a year prior.
In Upstream, earnings were 18% lower than the previous quarter reflecting lower realised prices (decrease of US$597mln), unfavourable deferred tax movements (decrease of US$370mln), partly offset by higher volumes and lower operating expenses.
Cash flow from operating activities for the first quarter 2023 was US$14.2 billion, and included a working capital outflow of US$0.8 billion, and tax payments of US$3.1 billion.
The working capital outflow mainly reflected the reversal of temporary deposits from joint ventures received in the fourth quarter 2022, and other accounts receivable and payable movements, partly offset by initial margins inflows, and lower prices and inventories.
The firm also increased the dividend to USD0.2875 from 0USD0.25.
7.00am: FTSE seen lower, PacWest tumbles 52% after hours, seeks sale
Good morning. The FTSE 100 is expected to open lower on Thursday after another US regional bank put itself up for sale sparking renewed falls in share trading in after hours trading.
Spread betting companies are calling London’s lead index up by around 20 points.
PacWest said it had been approached by potential partners and investors and was reviewing strategic options as the California-based lender became the latest bank to seek a financial lifeline following the collapse of three of its rivals.
Shares in the bank were trading 53% lower in after hours trading pulling others such as Western Alliance Bancorporation 22% lower as well.
Nothing to see here I’m sure. pic.twitter.com/92J6iMeN5p
— Brian Sullivan (@SullyCNBC) May 3, 2023
US bank shares had earlier eased in late trading following the decision by the US Federal Reserve to raise interest rates by 25 basis points and contained a change in language indicating this could be the last rise at least for now.
“In the statement from March we had a sentence that said: ‘the committee anticipates that some additional policy firming may be appropriate’. That sentence is not in the statement any more, we took that out,” Federal Reserve chair Jerome Powell said.
US markets ended lower with the Dow Jones Industrial Average ending down 0.8%, the S&P 500 down 0.7% and the Nasdaq Composite down 0.5%.
The dollar fell in response sending sterling sharply higher.
Now attention switches to Europe where the European Central Bank is expected to slow down its pace of interest rate hikes to a 25 basis point hike – the same as the Fed.
Back in London and the early focus will be results from oil major Shell.
