Barclays beats expectations and InterContinental Hotels is on the road to recovery

For most of 2020, energy and banking stocks have been the last ones to be picked by investors for their sports team, being the sectors least expected to perform well on the pitch. So it was therefore quite a surprise to see investors in a particularly generous mood on Friday with these sectors driving the FTSE 100 higher, up 0.8% to 5,834.

“Better than expected results from Barclays triggered renewed interest in banking shares, most of which are trading on depressed levels so value investors will be particularly interested. The big oil producers were also in demand with Royal Dutch and BP rising by approximately 2.5% each.

“The final US Presidential election debate seemed to have little impact on the markets with the general consensus that Joe Biden came across better than Donald Trump. US pre-market indicative prices show the S&P 500 opening 0.25% ahead,” says Russ Mould, Investment Director at AJ Bell.

Barclays

Barclays’ presence in investment banking has long been a source of criticism with activist investor Edward Bramson pushing hard for the company to divest its business in this area.

“But the pandemic appears to be demonstrating the benefits of the more diversified approach championed by CEO Jes Staley as this part of the group has been boosted by an increase in trading volumes at a time when consumer banking is under real pressure.

“Combined with the picture on bad debts being just a little less bleak than the market thought and you have the recipe which helped the bank serve up a third quarter update materially ahead of expectations.

“While the company is still making provisions for losses on loans linked to covid as the UK heads into a pronounced downturn, the trajectory is more positive with the level of write-offs down on previous quarters.

“The capital buffer is also in pretty good shape which should help Barclays remain resilient as it faces several major headwinds. It’s a good job as these headwinds could hit gale force levels in the months ahead as unemployment mounts, interest rates remain at historical lows and the sector faces tough regulation.

“The Bank of England is due to review its effective ban on banks paying dividends at some point in the fourth quarter.

“However, given the levels of economic uncertainty and how central the banking system is to underpinning of the economy and society as a whole, the temptation may be to keep the moratorium on dividends in place for now.”

InterContinental Hotels

“Running a hotel has to be a miserable experience at the moment. Countless rooms are empty, foyers are quiet, receptionists are twiddling their thumbs and the hotel bar is lonelier than it’s ever been.

“Hotels are fully kitted out to do business – they’re just missing the usual level of customers which is having a disastrous impact on earnings. After all, hotels have a large number of fixed costs so a drop in revenue will result in an even greater decline in profit.

“Under the circumstances, InterContinental Hotels’ latest update contains reasons to be optimistic. Occupancy rates are improving from lows seen earlier this year and the decline in revenue per available room is nowhere near as bad as the previous quarter.

“Positive cash flow has improved the company’s liquidity position which is very important as it provides a stronger buffer to support the business should the pandemic linger well into 2021.

“Interestingly it continues to open new hotels, showing that management has got an eye on the long-term opportunity rather than sitting on their hands waiting for the crisis to disappear.

“InterContinental Hotels has benefitted from geographical diversification with results varying dramatically from country to country. This puts it in a better position to ride out the storm and the latest update may also spur French rival Accor to take a harder look at a merger.

“Rumours were circulating over the summer that Accor wanted to do a deal and now is a perfect time to combine forces and come out the other side with a very strong proposition.”

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.