Must read: Barclays, NatWest, British American Tobacco, UK GDP

Barclays (Tues 10 Feb)

Richard Hunter, Head of Markets, interactive investor says, “The group has had a good run of late and the shares have risen by 73% over the last year. Much optimism has revolved around prospects for and performance of its three largest units. The Investment Bank, which is for the most part a US division, accounts for 43% of group revenues, Barclays UK 31% and the Barclays US Consumer Bank 13%.

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It is hoped that the recent strength of the banks’ reporting season in the US reads across to Barclays’ US Investment Bank, especially in the trading, M&A and IPO spaces. 

More broadly, the more recent strength of the US dollar against sterling is something of a double-edged sword in that this strength positively impacts revenue and profits, while having a negative effect on impairment charges and total operating expenses, especially Stateside.

At the third-quarter numbers in October, Barclays (LSE:BARC) maintained its stance on shareholder returns, with the announcement of a new £500 million share buyback programme, which it now expects to become a quarterly event. The group had previously guided that its shareholder returns would be skewed more towards buybacks rather than a progressive dividend policy and reiterated its ambitious aim of £10 billion of returns between 2024 and 2026.

Given the group’s financial strength and its geographical and business diversity, Barclays remains the preferred play in the UK banking sector by some distance.”

British American Tobacco (Thurs 12 Feb)

Richard Hunter, Head of Markets, interactive investor says, “Considering the ever-increasing list of headwinds, British American Tobacco (LSE:BATS) is making sustained progress. The constant threat of litigation, changing social habits and a raft of investors unwilling or unable to invest in tobacco shares on ethical grounds continue to blight the sector.

Set against these tides of turbulence, investors have been handsomely rewarded of late for their patience, and the shares have risen by 41% over the last year, although still some 17% shy of the record 2017 levels.

For BATS, these issues are in sharp focus. The group previously announced a provision of £6.2 billion to settle legal claims in Canada, which resulted in a sharp share price decline on the day and remains a drag on overall profitability. Whether this is the thin end of the wedge remains to be seen, and the ruling is in addition to the likes of Australia and Bangladesh, where regulatory headwinds and significant excise increases have hampered performance.

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Elsewhere, the sale of illicit vapour products in the US has already crimped profits in this major market, although BATS is hopeful that the early signs of Federal and State enforcement will mitigate this issue in due course. BATS’ leverage is also uncomfortably high, where the group plans to restore its preferred lower range this year.

As such, the need for a long-term replacement for traditional combustible products has left the tobacco majors needing to move from a standing start, and even after some years of development its “New Category” unit this has yet to make a meaningful contribution to profits. There has undoubtedly been some progress and at the latest count smokeless products accounted for 17.5% of overall revenues last year, with an ultimate target of 50% as the group aims to become a predominantly “smokeless” business by 2035.

In the meantime, the group remains a cash-generation machine and the recent announcement of a £1.3 billion share buyback programme pleased investors and underpinned the share price. This is in addition to the group’s progressive dividend policy, where the current yield of 5.3% is punchy by any standards and is adequately covered.”

NatWest (Fri 13 Feb)

Richard Hunter, Head of Markets, interactive investor says, “As far as investors are concerned, NatWest Group (LSE:NWG) is in a sweet spot. The government shackles have gone, the group has prodigious amounts of cash and acquisitions to boost growth further seem likely.

Indeed, it remains to be seen whether this new-found freedom will enable a more aggressive acquisition policy, with NatWest already having made what it described as two significant purchases in the form of Metro Bank’s mortgage book and Sainsbury’s Bank and reportedly having been rebuffed in an approach for Santander’s UK operation. Its significant cash generation will provide an interesting dilemma on whether to continue to bolster shareholder returns, make further acquisitions, invest heavily in the business particularly in regard to growing digitalisation, or perhaps a combination of all of these options.

The third-quarter numbers in October revealed revenue which was boosted by both loan growth and structural hedge income, as well as a £4.4 billion increase in lending activity which included £1.7 billion of mortgage activity within Retail Banking. Possibly the only blot on the landscape was a decline of £1.1 billion in deposits, although given that assets under management and administration rose by 8.1% to £56 billion, this is of limited concern. As a result, NatWest also raised its guidance for the full year outlook, with income now expected to hit £16.3 billion and the Return on Tangible Equity to be in excess of 18% from the previous 16.5% level.

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Investors have been very well rewarded in the recent past, where over the last year, a 63% hike in the share price is in addition to a 3.6% dividend yield. At the same time, investors will be hoping for a repeat, at the very least, of the £750 million share buyback programme announced at its half-year numbers in July. In the meantime, NatWest remains very well regarded with a positive market consensus, even if the group is not currently the outright pick of the sector.”

UK GDP (THURS 12 FEB)

Victoria Scholar, Head of Investment, interactive investor says, “UK investors will be keeping a watchful eye on Thursday’s preliminary Q4 GDP estimate. The economy is expected to eke out modest growth of 0.1% in the final three months of 2025 quarter-on-quarter.

November’s monthly GDP figure grew at a faster-than-expected rate of 0.3% partly thanks to Jaguar Land Rover restarting production after its blistering cyber-attack. And it is likely that economic activity picked up after the Budget once that cloud of uncertainty shifted to the rear-view mirror in December. Plus, there could have been an improvement in the services sector with consumers spending on things like food and beverages, retail, and hotels around the festive season.

In another signal of possible economic improvement, December’s manufacturing PMI rose to a 15-month high, while the services reading also grew for the eighth consecutive month. Looking further ahead however, there is likely to be weak growth momentum at the start of this year.

For the Bank of England, more focus will be placed on inflation and labour market data, and less on the GDP report, which is unlikely to move the dial drastically in terms of the outlook for its rate-setting decisions. But the tighter-than-expected vote split in its February interest rate decision suggests a cut in March could be on the cards.”