Must read: slew of earnings, UBS, Kantar, Whitbread

Our head of investment rounds up the morning's big news.

European markets have opened lower with corporate earnings front-and-centre. The FTSE 100 continues to trade below 7,900 with Associated British Foods (LSE:ABF) at the bottom of the basket, while Whitbread (LSE:WTB) is the top performer on the UK index so far thanks to strong full-year results.

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US tech earnings are in focus this week with results from Alphabet (NASDAQ:GOOGL) today and Meta (NASDAQ:META) tomorrow. UK banks also prepare to deliver results with Standard Chartered (LSE:STAN) tomorrow, Barclays (LSE:BARC) on Thursday and NatWest (LSE:NWG) on Friday.

UK PUBLIC SECTOR NET BORROWING

UK public sector net borrowing in March hit £21.5 billion, rising £16.3 billion year-on-year to reach the second highest March borrowing figure since records began in 1993. In the financial year ending in March borrowing hit £139.2 billion, £13.2 billion below the OBR’s forecast. While total public spending rose £18.3 billion year-on-year, it also came in below the OBR forecast. Public sector net debt at the end of March was £2,530.4 billion or around 99.6% of GDP with a debt-to-GDP ratio at levels last seen in the early 1960s.

Full-year central government expenditure rose by 8.3% year-on-year impacted by rising inflation and energy costs. Debt interest payments also rose by 46.9% year-on-year driven by higher interest payable on index-linked gilts because of the rise in the RPI. However central government receipts rose by 10.5% thanks to strong growth in VAT, income taxes thanks to record self-assessed taxes and higher corporation taxes.

Better-than-expecting borrowing and spending figures will provide a boost to the government which has been focusing on controlling spending and enhancing tax revenues since the chaos around the mini-budget. However full-year government revenues were £4.1 billion below OBR forecasts, highlighting the tough macroeconomic backdrop.

UBS

UBS (SIX:UBSG) reported a 52% drop in quarterly income after it set aside an extra $665 million in provisions for litigation costs relating to toxic mortgages in the US. The Swiss lender is bracing for the huge challenge of integrating its embattled cross-town rival Credit Suisse (SIX:CSGN). It says the deal is expected to close in the second quarter of this year. UBS’ update comes a day after Credit Suisse reported its first-quarter results in which it suffered heavy outflows in the lead up to the acquisition.

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UBS’ net profit attributable to shareholders hit $1 billion versus forecasts for $1.7 billion. Nonetheless it enjoyed inflows of $42 billion with $28 billion in net new money in its wealth management division. However, it warned that ‘client activity levels could remain subdued in the second quarter.’ Its investment banking unit struggled with quarterly revenue falling 19% and profit before tax down 49%. CEO Sergio Ermotti said its share buyback plans have been temporarily suspended rather than cancelled as the group focuses on Credit Suisse first and foremost.

Today’s earnings report was light on details around Credit Suisse, despite hopes for more clarity on what Ermotti is planning for the combined group. Shares in UBS are under pressure weighed down by its additional provisions, investment bank weakness and guidance that points to softer client activity ahead, underscoring the enormity of the task that lies ahead for the Swiss banking giant.

KANTAR

UK grocery inflation eased to 17.3% in April. According to Kantar, it fell slightly from 17.5% month-on-month but is stuck in double digits for the 10th consecutive month with dairy prices leading the charge. UK grocery sales rose by 8.1% in April year-on-year with consumers switching to cheaper unbranded products to combat the rising cost of living.

German discounted supermarkets Aldi and Lidl continue to benefit from the heightened price sensitivity among consumers with both enjoying grocery sales of around 25% over the 12 weeks to 16th April. Tesco (LSE:TSCO) continues to enjoy the largest market share in the UK among the major supermarkets with 27% versus Sainsbury (J) (LSE:SBRY)’s in second place at 14.9% and Asda in third at 14%. Last year, Aldi overtook Morrisons to enter the Big Four with Lidl just behind in sixth position.

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The drop in the headline rate of grocery inflation is a welcome development but highlights the ongoing food price pressures which continue to negatively impact consumers and squeeze margins for supermarkets, restaurants, cafes and other businesses.

WHITBREAD

Shares in Whitbread are trading higher after reporting annual profit back above pre-pandemic levels. For the year ended 2 March, adjusted profit before tax hit £413 million, outpacing analysts’ expectations for £378.3 million. The owner of Premier Inn and Beefeater among other brands also launched a share buyback programme of up to £300 million.

The return to economic normality post pandemic with the removal of travel restrictions and the release of pent-up demand boosted demand for hotel rooms at Whitbread and provided a tailwind to its bottom line. The cost-of-living crisis and the squeeze on household budgets have also driven more customers towards its budget low price point offering. As a result, Whitbread has been able to return cash to shareholders.

Shares have had a strong first four months of the year, outperforming the wider market, up by over 20% including today’s jump. The analyst community is also increasingly bullish towards the stock with JPMorgan raising its price target on the stock this morning.