Must read: Barratt Redrow, Tesco, US banks

Barratt Redrow Q3 - Wednesday 15 April 

Richard Hunter, Head of Markets, interactive investor says, “Along with its peers, Barratt Redrow (LSE:BTRW) suffered an extended period of uncertainty from buyers ahead of the Budget, although once this hurdle was overcome, many customers then decided to complete before the end of the calendar year.

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Even so, the currently unstable political environment continues to weigh on consumer confidence, while affordability concerns remain in sharp focus particularly for first-time buyers. 

At the half-year numbers in February, the Budget hangover was plain to see. While revenues grew by 10.5% over the period to £2.63 billion, adjusted operating profit dipped by 0.3% to £210.2 million and adjusted pre-tax profit by 13.6% to £199.9 million. Adjusted margin of 8% compared to 8.9% in the corresponding period as build cost inflation and sales incentives continued to erode some of the group’s profitability. 
There were also some positives which Barratts will hope are leading to a long-awaited inflection point.

Home completions rose by 4.7% to 7444, the underlying private reservation rate ticked slightly higher to 0.55 from 0.54 (and is currently running at 0.59), while the target of £100 million of cost synergies from the Redrow deal were on track as the merger nears full completion. The forward order book stood at £3.41 billion, up from £3.35 billion, comprising 11168 homes compared to 10903 previously.

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The sector has been lifted over recent days following the two-week ceasefire in the US/Iran conflict. In turn, this has dialled down inflation expectations and therefore the vague possibility that interest rate cuts could be back on the table.

For this update, the immediate outlook will largely depend on the vital Spring selling season, where any indications of recovery will be keenly sought. In any event, there is much damage to repair and the shares remain down by 37% over the last 12 months and by 28% so far this year. That being said, a generous dividend yield of 6.8% is certainly paying investors to wait for any potential recovery.”

Tesco full year - Thursday 16 April 

Richard Hunter says, “Hopes will be high as ever for the supermarket giant which continues to rule the British aisles, with full-year numbers likely to confirm further dominance.

Tesco (LSE:TSCO)'s third-quarter update in January saw a relatively light period of growth by Tesco standards, and a subpar contribution from the Booker unit. The group also maintained its conservative guidance – a source of some disappointment earlier in the year – although it expects adjusted operating profit to be at the higher end of the £2.9 billion to £3.1 billion range it previously guided.

Even so, in the recent past and try as they may, other supermarkets have tended to take market share from each other rather than from Tesco. Its current share of 28% is more than that of its two nearest rivals, Sainsbury (15.6%) and Asda (11.6%) combined and at its highest in over a decade. 

The group’s sheer scale feeds its appetite for lowering prices for customers through the likes of Aldi Price Match, Low Everyday Prices and Clubcard Prices, while a strong focus on significant cost reduction creates something of a virtuous circle. As such, the ongoing battle is still for Tesco to lose rather than its rivals to win. 

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Any progress comes alongside not only ferocious competition but also pressure on increased costs, given the Budget measures which have now been implemented on the likes of the minimum wage and National Insurance contributions. In addition, Tesco’s advances inevitably lead to progressively higher expectations, which in turn lessens the likelihood of positive shocks for investors.

Indeed, the reaction to the third quarter update was muted, although the share price has tended to mirror Tesco’s inexorable progress. The shares have risen by 47% over the last year and by 66% over the last two years, a considerable achievement given the traditional ferocity of sector competition. As such, its reputation as the darling of the supermarket sector is likely to stay intact, barring any unforeseen stumbles.”

US bank sector earnings Q1 

Victoria Scholar, Head of Investment, interactive investor says, “US bank sector earnings season begins next week with Wall Street’s biggest lenders taking centre stage. The Goldman Sachs Group Inc (NYSE:GS) reports on Monday followed by Wells Fargo & Co (NYSE:WFC), Citigroup Inc (NYSE:C), JPMorgan Chase & Co (NYSE:JPM) and BlackRock Inc (NYSE:BLK) on Tuesday and Bank of America Corp (NYSE:BAC) and Morgan Stanley (NYSE:MS) on Wednesday. 

It has been a volatile year so far after the Iran war and energy shock hit cyclical risk assets like financials. Investors will therefore be paying close attention to any C-suite commentary on the global macro uncertainty and how it is impacting the outlook for the consumer and business lending environment.

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The higher for longer interest rate backdrop could help support banks’ net interest margins. However there is likely to be an offsetting dampening effect from a weaker US economy, a squeezed consumer and softer loan demand. 

Focus will also be on trading revenues after a volatile March for financial markets, particularly for commodities like oil and gold. On the investment banking side, M&A fees are expected to deliver a strong performance after an impressive start to the year for dealmaking. 

After a challenging period for the KBW Bank Index in February and the beginning of March, caught up in the Middle East turmoil plus stress in the private credit space, US bank stocks have been attempting to regain ground. Any further signs of a more concrete ending to the Iran war are likely to boost risk appetite and in turn US financials.”