Lloyds navigates one final PPI hurdle, and Anglo American reaps benefit of a soaring palladium price

“Following a strong showing on Wall Street last night, UK stocks press ahead on Thursday with a 0.1% gain in the FTSE 100 to 7,463. A positive market reaction to results from Lloyds and Anglo American certainly gave a lift to the banking and mining sectors, two of the most important industries for the UK stock market index,” says Russ Mould, Investment Director at AJ Bell.

“European shares didn’t fare as well with the DAX falling 0.2% and Madrid’s IBEX 35 dropping 0.6%. Asian markets were mixed including a 0.3% rise in the Nikkei 225 thanks to a decline in the yen which helps exporters, and a 0.2% drop in the Hang Seng.

“Brent crude took a small step back, down 0.3% to $58.92 per barrel while gold nudged ahead with a 1.3% rise to $1,609 per ounce."

Lloyds

“Lloyds appears to be nursing a bigger hangover from the PPI scandal than its rivals. The claims deadline passed in August but full year profit was still hit by the big one-off charges taken last year.

“At least there were no extra provisions in the final three months of 2019 and while the news of a drop in profit might cause a few headaches for shareholders, there are some elements of today’s numbers which can help ease the pain.

“Concerns about the balance sheet, which had been mounting in recent weeks, appear to have been allayed for now and the bank has committed to capital generation targets which should underpin the dividend and may even allow the resumption of share buybacks suspended last year.

“Given its sensitivity to interest rates, management may be praying yesterday’s unexpectedly strong inflation number gives the Bank of England pause for thought over a potential rate cut. The conversation could soon turn to interest rate hikes which would be good for the banking sector’s earnings.

“Given the suspension in the buyback, and the resulting reduction in returns for shareholders, Lloyds appears to have acknowledged the need to share the pain around with CEO Antonio Horta-Osorio taking a pay cut and the group bonus pool trimmed.”

Anglo American

“The benefits of a soaring palladium price are laid out in Anglo American’s results where its platinum group metals (PGMs) earnings have nearly doubled in the past year. Strong iron ore prices have also contributed to an overall boost in group earnings.

“Those positives aside, Anglo American is still a business under considerable pressure from many different angles. For example, there are still more improvements to be made on safety given that four of its employees died last year.

“Like many of its mining peers, Anglo is under pressure from climate change activists to stop mining thermal coal. The company recently hinted that it will exit this commodity in the next few years. This will be welcomed both by environmentalists and shareholders given how the commodity price has been a lot weaker in the past year and it has suffered large impairments on coal in the latest results.

“It also needs to get the Sirius Minerals acquisition over the line. That will depend on getting the necessary support from Sirius’ major shareholders including Jupiter Asset Management which owns 7.8% of the potash miner.

“This acquisition is very sensitive as thousands of investors stand to lose a large chunk of their money given how Sirius’ share price has plummeted in recent years and Anglo’s offer is only a fraction of what the stock traded at just a few years ago.

“It is also sensitive because a large number of people were hoping to be employed by Sirius and its plans to create the UK’s largest mining project in a very long time.

“Should Anglo fail to get the necessary support to buy Sirius, the latter’s shareholders could lose all their money and there is a high probability that the potash mine won’t be built at all.”

These articles are for information purposes only and are not a personal recommendation or advice.