Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting.
European markets have opened on a stronger footing thanks to risk-on sentiment across global markets after the Federal Reserve suggested that the pace of rate increases could slowdown in the months ahead while lifting rates by 75 basis points. Fed chair Jay Powell’s comments lead to a surge in the Nasdaq which closed up by more than 4%. However after-hours Meta shares slumped on disappointing quarterly revenue numbers.
It is another mega day for corporates with earnings from FTSE 100 heavyweights Shell and Barclays, while tech behemoths Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) deliver their quarterly scorecards after the bell. Economic data is also centre stage stateside with investors paying close attention to key US GDP and PCE price data out today.
Keith Bowman, Investment Analyst at interactive investor, said: “Oil giant Shell (LSE:SHEL) has today posted record quarterly adjusted profit above City forecasts, helping it to boost its share buyback programme by a further $6 billion. Second quarter adjusted profit of $11.47 billion has more than doubled year-over-year and is up 26% compared to the first quarter ($9.13 billion). A quarterly dividend of 25 US cents per share is unchanged from the prior quarter but up 4% from Q2 2021, with group net debt of $46.4 billion down 29% from the year-ago quarter.
As for the share price, a gain of 30% year-to-date coming into these results is similar to the price of oil during 2022 and contrasts with a fall of 17% for the FTSE All-World index. In all, concerns about a global recession now overshadow the demand outlook for commodities generally including the price of oil. A UK government windfall tax has been implemented given energy costs hitting consumers hard, while tackling climate change issues remains a pressing need for both the industry and governments globally.
More favourably, higher oil and gas prices, propelled by the war in Ukraine, have boosted profits. The recovery in energy prices from the depths of the Covid crisis had already allowed Shell to reduce net debt and begin a renewed focus on shareholder returns. A forecast dividend yield of around 4% is still attractive, despite a relatively recent first cut in the payout since the Second World War. On balance and with the wider energy demand/supply outlook still supportive, analyst consensus opinion points towards a firm buy.
Diageo (LSE:DGE) reported full-year sales up 21.4% to £15.5 billion, beating analysts’ expectations while its operating profit rose by 18.2% to £4.4 billion. These results allowed the drinks giant to reaffirm its guidance for fiscal 2023 to 2025.
This is a strong set of annual results from the drinks conglomerate with Europe being a bright spot, boasting impressive sales growth of 30%. As a relatively small player in terms of global pie, Diageo is growing its market share, thanks to strong marketing and branding that is helping the conglomerate to target margin expansion. Diageo is focusing on the shift towards premium brands, encouraging consumers to drink higher quality instead of greater quantities. Its no or low alcohol segment is also a key growth area with brands like Gordon’s 0.0% and Tanqueray 0.0% proving to be successful as part of its positive drinking strategy called the ‘Spirit of Progress Society 2030’.
BT Group (LSE:BT.A) swung to modest revenue growth of 1% in the three months to June to £5.1 billion, thanks to improved pricing and trading in consumer and Openreach. Its normalised free cash flow fell by £162 million due to increased cash capital expenditure. BT kept its full-year 2023 guidance for revenue and EBITDA unchanged.
While BT acknowledged the economic uncertainty and challenges in its enterprise business, the British telecoms giant managed to return to positive sales growth (albeit modest) and kept its top and bottom-line outlook unchanged. Shares in BT have been mostly stuck in a range lately with 200p the next major resistance hurdle with a break above potentially paving the way for a bullish breakout while the next support level to watch on the downside is at 150p.
ITV (LSE:ITV) hit its growth target for first half total advertising revenue (TAR), which rose by 5%. Digital ad sales grew by 20% thanks to record levels of streaming on the ITV Hub. The broadcaster issued improved guidance for July with TAR expected to decline by 9%, which is better than previously anticipated. ITV studios and its media & entertainment divisions also performed better than expected in the first half. Nonetheless adjusted group EBITDA fell by 3% to £318 million.
This is a cheerier update from ITV than the one back in March when it announced ITVX, sending shares down by more than 25% on the day. Nonetheless ITV reaffirmed its commitment to ITVX, saying it is confident it will deliver attractive returns to shareholders. While its revenue figures and guidance look good, its bottom-line performance still posted a decline amid the uncertain macro backdrop. But the World Cup at the end of the year is expected to act as a tailwind in the final quarter of the year. ITV’s share price has struggled since the peak in June of last year, shedding almost half of its value, despite recent attempts to recover off the lows.
Metro Bank (LSE:MTRO) reported a first half pre-tax loss of £48 million, narrowing from a £110 million loss a year ago. Total underlying revenue grew by 31% to £236.2 million as the bank now expects to reach monthly breakeven during the first quarter of 2023.
While Metro Bank is not immune to the macroeconomic uncertainty with the war in Ukraine and the threat of recession, rising interest rates from the Bank of England have improved the earnings potential for the lender, helping the challenger bank to deliver a smaller loss and target breakeven early next year. 2022 has been a tough year for the shares so far with its share price dropping from triple to double digits, although they are starting to show tentative signs of recovery with today’s update providing a boost.
Centrica (LSE:CNA) reported six month adjusted operating profit of £1.34 billion, sharply rising from £262 million year-on-year. The energy supplier is reinstating its dividend, offering an interim payout of 1 pence per share.
The owner of British Gas has seen a huge surge in its profits on the back of the war in Ukraine which has prompted a rally for commodity prices including wholesale gas which hit record highs in Europe this year. As a result, Centrica is able to return cash to shareholders via the initiation of a dividend, with traders buying the company’s shares this morning. European gas prices have been soaring once again this week after Russia cut flows to Germany through the key Nord Stream 1 pipeline, with concerns that President Putin will continue to weaponise gas by restricting supply, which keep prices elevated.
In an otherwise challenging year for equities, commodity players have been the standout winners with the geopolitical turmoil providing a tailwind for the sector. Shares in Centrica have rallied to highs not seen since January 2020 before the start of the pandemic as the stock continues to go from strength to strength.
UK CAR PRODUCTION
UK car manufacturing declined by 19.2% in the first half year-on-year, representing the weakest six month performance since 2020 at the height of the pandemic and worse than 2009 during the global financial crisis. However encouragingly, car production increased by 5.6% in June, rising for the second consecutive month with zero emission vehicles outperforming up 44.2%, offset in part by a 19.9% decline in hybrid cars and a 60.2% drop in diesel vehicles.
UK car manufacturing has been struggling with the global chip shortage, problems with the global supply chain post pandemic, the closure of Honda’s plant in Swindon and teething in the transition period from petrol and diesel to electric vehicles. With the second straight increase in car production in June, there are however tentative signs that these headwinds, particularly the semiconductor problems could be starting to ease off. Electric vehicles should continue to outperform and act as a key growth engine for car manufacturing going forward.
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