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“The FTSE 100 falls 0.3% early on after weak trading on Wall Street overnight” says AJ Bell Investment Director Russ Mould.
Lloyds Banking
“Investors gave UK bank Lloyds the benefit of the doubt despite the fact it posted 2017 pre-tax profit short of expectations. Profit was up 24% to £5.3bn but below consensus forecasts for £5.9bn thanks to further provisions to cover PPI claims. The final deadline for claims is August 2019, so the company is moving towards the point at which it can leave the debacle behind it, but the total bill already stands at more than £18bn.
“Underlying performance was more impressive with lower costs and higher income boosting profit by 8% to £8.5bn after stripping out exceptional items. Net interest margin, used to measure banks’ profitability, also came in slightly ahead of previous guidance.
“Lloyds has gradually regained its income credentials after the shock of the financial crisis and the company hiked the full year dividend 20% and announced plans to buy back £1bn of its own stock. The decision to pursue a buyback as a means of returning excess capital to shareholders rather than a special dividend, the vehicle it used this time last year, is interesting and could suggest the bank sees its shares as being undervalued.”
Barratt Developments
“The extremely helpful conditions for the housebuilding sector remain in evidence as the UK’s largest housebuilder Barratt Developments announces a record first half performance. High single-digit gains in profit and revenue underpin plans to return £350m in two separate special dividends in November 2018 and November 2019. The market reacted with some frustration to a lack of margin guidance in a January trading update, so investors will be reassured to see a modest increase in the adjusted gross margin in these results.
“However, the unadjusted gross margin, reflecting legacy costs on commercial properties, fell. Investors should keep a close eye on levels of profitability as the market currently seems to be pricing in continuing expansion in margins.”
AA
“A massive cut in the dividend and an effective profit warning has floored shares in roadside assistance provider AA. The change was announced as part of a strategy update which revealed plans for significant investment in the business.
“Like many companies which join the market after exiting private equity ownership AA was carrying a lot of debt after its float in June 2014. This was seen as manageable given strong cash generation but while the company has been busily paying down its borrowings, it still has a substantial amount of net debt. This has left the stock exposed as it faced management upheaval and growth concerns. The shares are now down two thirds on the 250p issue price from the IPO.
“Management note earnings would have to drop to £200m to risk breach banking covenants, while this is materially lower than the reduced guidance of £335m to £345m for the January 2019 financial year, if the restructuring is more difficult, expensive or time-consuming than expected then this apparently comfortable position could end up looking more precarious.”
These articles are for information purposes only and are not a personal recommendation or advice.