Updates from British American Tobacco and NatWest, and will investors back International Consolidated Airlines’ cash call?

Markets / British American Tobacco / NatWest

“July has been a second bad month in a row for investors in UK stocks with the FTSE 100 index now trading at lows last seen in late-May. The market has most certainly lost momentum and is slowly drifting down as many companies continue to struggle from the pandemic,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 did its best to fight back on Friday, climbing 0.5% to 6,022 yet that still puts the index down 2.4% on the month and 7.1% below the 5 June high following the market crash earlier this year.

“Tobacco, banks and media have been the worst performing FTSE 350 sectors in July. British American Tobacco’s first-half earnings per share number came in roughly 3% below expectations, yet the shares rebounded by 2.1% on Friday after investors were relieved there was no change to future earnings guidance.

“Banks have suffered from hefty provisions for bad debts amid expectations for the economy to go through a very bad spell. Today, NatWest has guided for its 2020 impairment charge to be in the range of £3.5 billion to £4.5 billion.

“Interestingly, it said customer deposits increased by £39.1 billion in the first-half period to £408.3 billion. This is probably as a result of lower spending and people taking steps to have back-up cash in case of emergencies or a change in their circumstances.

“NatWest’s shares advanced 2.1% though this must be seen in the context of a big sell-off earlier this week following gloomy updates from other listed banks.”

International Consolidated Airlines

“Who will back International Consolidated Airlines in its darkest hour? The airline sector is in desperate need of cash to help see it through a very difficult period and investors will be taking considerable risk by participating in its $2.75 billion (£2.5 billion) rights issue.

“While they will inevitably get heavily discounted shares to compensate for the risks, it will take a leap of faith to look past the company’s horrific first-half operating loss of €4 billion (£3.6 billion) and its guidance for when life will return to normal. The company thinks it will take at least two and a half years for passenger demand to recover to levels we saw before coronavirus.

“A cash injection will give the British Airways owner short-term breathing space, yet the pace of the airline sector recovery is out of its hands. It is dependent on the course of coronavirus and government decisions on travel restrictions, quarantines and lockdowns in case of new flare-ups.

“You also need to consider whether there will be an appetite to travel once the crisis eases. In particular, a lot of International Consolidated Airlines’ sales come from business travellers and there is a big question mark over how much flying this market will need to do, given how this year we’ve become accustomed to talking to people around the world by video calls.”

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

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.