A FTSE 100 surprise and why FTSE 250 is ‘still cheap’
With most of this earnings season’s results now published, one team of analysts thinks forecasts are too pessimistic. City writer Graeme Evans explains.
20th August 2025 13:50
by Graeme Evans from interactive investor
A review of the FTSE 100 results season has flagged scope for full-year surprises after a robust run of numbers failed to shake off the City’s post-Liberation Day caution.
Deutsche Bank’s Best of British report said 70% of companies delivered half-year results ahead of expectations, leading to a 5% beat versus City forecasts on aggregate.
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Earnings estimates have been revised slightly higher in the past month, but the City consensus still points to an earnings decline of 2% across this year.
This is still far below levels seen prior to President Donald Trump’s Liberation Day tariffs announcement, which Deutsche Bank believes is too cautious a stance given the recent easing of the trade war and solid GDP growth in the UK. It means there’s “room for further upside revisions in our view”.
The bank continues to forecast an earnings growth rate of almost 2% this year, driven by a mid-single digit beat to earnings expectations in the second half of the year.
UK politics and a further weakening in the US dollar pose a downside risk to its view.
Earnings excluding the energy sector were 5% higher year-on-year in the first half, driven by another strong contribution by financials and offset by weakness in basic materials.
Top performers included NatWest Group (LSE:NWG) as earnings across the financial sector produced an 8% median surprise. However, Deutsche Bank recorded a muted share price reaction on the reporting day, followed by a modest 2% upgrade to earnings forecasts for the full year.
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Real estate beat expectations by 5% on median but was penalised with a negative price reaction of 2%, signalling a worsening sentiment towards the sector.
Solid beats in consumer discretionary were met by a positive net price reaction of 2%, as well as the biggest upside in terms of earnings revisions over the following month of 4%.
Most companies left their guidance unchanged in the second quarter, although there were substantially more upgrades at 27% than the 8% of downgrades. Most upgrades were in financials, staples and industrials.
The bank added that the City’s earnings expectations for small and mid-cap companies were more constructive than for the FTSE 100, with the consensus currently at 8% earnings growth for this year.
About one-third of the FTSE 250 by market cap has reported so far, leading to a 5% year-on-year earnings increase in the first-half results. However, this is flattered by the strong results of Ocado Group (LSE:OCDO) and is 3% lower without the grocery warehouse technology business.
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The bank regards the FTSE 250 as “still relatively cheap”, whereas the forward price/earnings valuation multiple of the FTSE 100 is in line with the 10-year average at nearly 14 times.
The best performers in the FTSE 100 so far this year have been Fresnillo (LSE:FRES), Babcock International Group (LSE:BAB), Airtel Africa Ordinary Shares (LSE:AAF) and Rolls-Royce Holdings (LSE:RR.), with their gains ranging between 189% for the silver and gold miner to 93% for the engines giant.
The worst are WPP (LSE:WPP) and Bunzl (LSE:BNZL), down by 52% and 30% respectively.
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