Barclays tripped up by bad debts, Smith & Nephew continues to face Covid demand hit

“Having started on Monday wide awake and made some bumper gains it feels like the FTSE 100 has hit the snooze button for the rest of the week,” says AJ Bell Investment Director Russ Mould.

“The latest day of destiny for investor sentiment feels like it is coming on Monday when Boris Johnson is set to reveal the pace at which coronavirus restrictions will be eased in England.

“Other asset classes continue to surge, with the extreme cold in the US disrupting oil production and driving up prices of the black stuff beyond pre-Covid levels, while bitcoin continues to surge having taken out the $50,000 level.”

Barclays

“On the face of it you might have expected a round of applause for Barclays fourth quarter results which were significantly better than forecast and came with the extra cherry of a reinstated dividend, bolstered by a share buyback.

“Instead the company got the cold shoulder from the market as attention was drawn by large provisions on Covid-related bad debt and a warning of a continuing impact through the course of 2021.

“Alongside the issues around loans which have gone sour, Barclays is also, conversely, suffering a hit to margins due to the trend for the people with the necessary means to pay down debt and avoid big purchases on credit during lockdown

“There may also have been some disappointment at the pretty nominal nature of the dividend – though anyone who thought payouts were going straight back to pre-pandemic levels in a hurry wasn’t paying attention.

“While allowing banks to pay dividends for the year just gone, the regulator has stipulated that any dividends for 2021 have to be accrued rather than doled out, at least until it’s had a chance to reassess the position the economy and financial situation is in over the summer. In other words there’s no absolute guarantee the usual first-half dividend will be paid.

“The boardrooms of Barclays’ rivals may be feeling a bit more nervous this morning as they prepare to unveil their own fourth quarter numbers as it feels like the first big name out the door has set a fairly high bar and still received a knock back from investors.”

Smith & Nephew

“Because of the focus Covid-19 has placed on the health care sector it would be easy to assume the pandemic had acted for a positive driver for earnings across the board.

“However, as today’s results from Smith & Nephew reveal that is not necessarily the case. This is because the coronavirus response has swamped other areas of patient care, particularly the elective surgeries which require Smith & Nephew’s replacement prosthetic hips and knees.

“The company may have outlined a priority to get back to top line growth in 2021 but for all the grand talk, this is entirely out of the company’s hands and really depends on the course of the pandemic.

“It will also be difficult for the market to judge, when the recovery comes, if it is being artificially inflated by delayed procedures or represents the true underlying picture.

“Costs are something within Smith & Nephew’s compass but lower volumes can only partially be offset by cost control measures. Ultimately it could take time for Smith & Nephew to fully get back on its feet.”

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.