Must read weekly preview: HSBC, Next, Diageo, SpaceX

HSBC HY – Tuesday 4 August

Richard Hunter, Head of Markets, interactive investor says, “HSBC Holdings (LSE:HSBA) is the largest FTSE100 constituent with a market capitalisation of £267 billion, and hopes will be high for a strong showing at the halfway stage, with results from its peers suggesting that the second quarter could be a particular boost to revenues and profits.

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That being said, the first quarter update in May saw credit impairments blotting the copybook somewhat, while the lack of a return to the share buyback programme at that time also provided some disappointment even though that return may not be far away. As was the case with many other global banks, the impact of the Middle East conflict made an appearance in the numbers in Q1. HSBC has exposure to the region, let alone the broader economic impacts, and has modelled scenarios of increasing severity and duration which could lead to higher oil prices and inflation, slowing GDP growth and rising unemployment. As such, a charge of $1.3 billion, compared to $876 million the previous year, included $300 million related to the current conflict. 

However, it is hoped that the first quarter turns out to be a blip towards HSBC’s aspirations, as could likely be the case. Given the read across in the season so far, its trading rooms are also likely to have outperformed compared to recent quarters.

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Strong showings from its two largest units, Corporate and Institutional Banking and International Wealth and Premier Banking, cushioned much of the blow in Q1, while the group’s push towards the affluent sector received another boost, with the most promising contribution coming from Wealth, where fee income rose by 18% to $2.7 billion. 

Whereas HSBC had been moving towards becoming a business with a slavish reliance on interest rate movements and levels, the revised and increasing focus on the growth in affluent wealth, especially in Asia, is key to the new offering. The shares have responded strongly to the revamped HSBC offering, rising by 62% over the last year and by 134% over the last two years.  While the group may not be at the top of the pack given the perception of more balanced growth elsewhere in the sector, investors appreciate the stability and major financial strength which HSBC brings during volatile trading times such as these.

Next HY – Wednesday 5 August

Richard says, “The first quarter update in May contained the almost customary profit upgrade to the outlook, underlining once more the singular strength of this slick and well-regarded company. Next (LSE:NXT) now forecasts full-year price sales to rise by 5% (up from 4.5%) after growth of 6.2% in Q1, with pre-tax profit expected to hit £1.22 billion, up from a previous guide of £1.21 billion.

The Middle East conflict casts a small shadow, accounting for 5% of total group sales, although the group plans to lessen any effects in the region through price rises and a cost cutting exercise there. Closer to home, the inflationary impact of higher energy prices threatens to heighten input costs as well as crimp consumer demand.

Even so, growth in the UK, which accounts for 78% of overall revenues (32% retail stores and 46% online), has been maintained by a laser focus on costs, trends and delivery. Indeed, recent numbers have underlined the group’s unparalleled understanding of the market in which it operates and its ability to capitalise on new opportunities, such as the potentially exciting opportunities in the international business. The group believes that international tastes in clothing are beginning to converge, not least of which is due to the increasing visual power, appeal and presence not just of the internet, but also the rise of streaming services which are now increasingly used by younger audiences. 

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Shareholder returns are another major investor attraction, swinging between share buybacks or special dividends depending on the level of the share price. The announcement could refer to more of a concentration on the dividend given the strength of the price, which including specials is currently running on an attractive 4.1% yield. The shares are up by 25% over the last year, and by 113% over the last three, which is a considerable achievement given the traditional restraints which retail stocks face. Of course, as one of the best run and most respected stocks within the FTSE100, Next finds itself needing to walk the continuous tightrope of becoming a victim of its own success, with expectations for its results being so high.”

Diageo FY – Thursday 6 August

Richard says, “The full year results will run alongside a strategy day for investors, where it is anticipated that CEO “Drastic Dave” Lewis will announce some substantial job cuts as he tries to revive the fortunes of the ailing drinks giant.

He certainly has his work cut out, with Diageo (LSE:DGE)'s latest third-quarter update in May revealing a 9.4% decline in sales in North America as the spirits market remained challenging. However, this was offset by 0.3% growth overall, with some progress in Europe, Latin America and Asia. As such, the group maintained its guidance for the full year for an annual sales decline of between 2% and 3%, with operating profit expected to be between flat and a low-single digit higher.

A cut to the dividend from 40.5 cents to 20 cents is further proof of financial pruning, while the need for a more competitive offer in the US is near the top of the agenda. More broadly, it remains to be seen whether the concerns overhanging the sector as a whole are cyclical or societal. There is some evidence of customers trading down to cheaper alternatives, which provides an immediate headwind to Diageo’s premiumisation aspirations. Meanwhile, there is some debate as to whether the younger consumer market is a growth area at all given changing attitudes, although the growing proliferation of the “moderation”, low to no-alcohol drinks could provide an opportunity. In addition, the pandemic “drink at home” boom has long since subsided, on top of which some are questioning whether the exponential growth in weight-loss drugs is a contributing factor to falling sales.

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In terms of performance, the jewel in the crown remains the Guinness brand. Apparently exempt from the concerns seen elsewhere by geography, habits or price, the stout continues to produce sales growth, with double-digit hikes having previously been established for the fifth consecutive year. Sales of this famous brand are estimated to be responsible for around two-thirds of beer sales for the group and for 12% of total revenue, and one which Diageo is keen to protect. For the group as a whole, however, a long path ahead is in prospect. The shares are down by 15% over the last year and are some 60% lower than the record high set in December 2021.”

SpaceX – Tuesday 4 August 

Victoria Scholar, Head of Investment, interactive investor says, “Space Exploration Technologies Corp Class A (NASDAQ:SPCX) prepares to deliver second quarter results on Tuesday 4 August in its first earnings release since becoming a public company. Elon Musk’s company is expected to report a quarterly loss per share while total revenue is likely to hit around $6.9 billion. Profits at its Starlink satellite internet division will likely be offset by losses in its rockets business and its heavy AI infrastructure spending. 

Also next week, on Thursday 6 August one of SpaceX’s important lock up periods expires, meaning that many pre-IPO investors will be able to start selling their shares. This is expected to increase the supply of SpaceX shares in the market, potentially pressurising SpaceX’s share price. Further lock-up expiries will take place over the next year. 

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SpaceX has been a hugely popular tech stock on the ii platform since its flotation in mid-June. After a strong start to public life, shares in SpaceX reached an all-time high on 16th June, its fourth trading day, soaring past its IPO price at $135. However, since then SpaceX has struggled, falling roughly 50% from the peak and down ~30% over the last month. 

According to Refinitiv, there is a consensus ‘buy’ recommendation on SpaceX with an average price target of $240.45, up 111% from the current share price.