We give our thoughts on what to expect from companies announcing results week commencing 27 April 2020
Companies reporting w/c 27 April
HSBC Holdings Plc (Q1 2020 Earnings Release)
The sharp downturn in China’s economy in recent times will have had an impact on banking giant HSBC. The questions uppermost in investors’ minds as they await these first quarter figures are what assumptions the bank’s management is making about its performance during the rest of this year, and what might it say about its future dividend strategy given the cancellation of the fourth quarter payment in April. The deterioration in US-China relations over Covid-19 and the potential for the Hong Kong protests to restart also provide an interesting backdrop.
We currently list HSBC as a BUY
BP Plc (Q1 2020 Earnings Release)
We should see one of the biggest quarter on quarter falls in profitability among the oil majors as the oil price plunge started with the outbreak of the Coronavirus in China rather than when it became widespread in Europe and the US. Cutting the dividend is a natural option for many companies but oil majors such as BP so far has been resistant and instead is looking to save on cash costs, curtailing capital investment projects and possibly plugging up less efficient wells. It has also been tapping the markets for extra financing, but investors will question how long it can resist cutting the dividend as prices at the start of the second quarter have reached unimaginable lows from just a few months ago. There is likely to be a large asset write-down also.
We currently list BP as a BUY
Next Plc (Q1 2020 Sales and Revenue Release)
Interesting times for high street clothing retailers such as Next with all its stores closed the company said in March that it could sustain a loss of more than £1bn in sales without breaching its banking limits. It cancelled its final dividend and said future dividends may also be delayed if the company needs to retain the cash. The online side has been performing well and it was good to hear recently that it has reopened partially. In this first quarter update the market will be looking for any update on what impact the lockdown is expected to have on the business and whether the online operations will be ramped up any time soon.
We currently list Next as a HOLD
Persimmon Plc (Q1 2020 Sales and Revenue Release - Trading Update)
Difficult times for the housebuilding sector with most building sites and sales offices closed during the lockdown. Persimmon has cancelled its surplus capital dividend and postponed its final dividend with a review due later in the year. Its management are sharing the pain with cuts to salaries and bonuses for directors. While the company has some cash in the bank the market will be looking to hear how fast that is disappearing and what overall impact the lockdown is having. Interestingly its shares have outperformed those of some of its main peers so far this year.
We currently list Persimmon as a HOLD
AstraZeneca Plc (Q1 2020 Earnings Release)
AstraZeneca has been one of the exceptional performers during this crisis with its shares leaping to new all-time highs. Its defensive nature helps but also it has been at the forefront of finding a cure/vaccine for Covid-19 by partnering with other pharmaceuticals and receiving a fair amount of media attention. However, from an investors point of view this is likely to be a cost rather than an earnings stream but at these times profits should not be a priority. Aside from the current health crisis the company's expansion into China along with newer drugs selling very well should continue to reflect well on sales and profitability
We currently list AstraZeneca as a BUY
Barclays Plc (Q1 2020 Earnings Release)
The group still has an important trading arm and in these volatile times investors will be expecting a significant pick up in trading volumes. Banks are likely to play an important role in helping to get the economy up and running again. So as with others in the sector it will be less about the first quarter numbers and more about measures the bank will be taking over the, hopefully, short-term in order for businesses to be able to survive.
We currently list Barclays as a HOLD
GlaxoSmithKline (Q1 2020 Earnings Release)
During any other economic crisis the defensive pharmaceuticals generally hold out well and it should not be too different this time around for Glaxo as people always need medicines. However the disease outbreak will have caused operational and logistical costs at R&D and manufacturing sites across the world. As this is a healthcare crisis, governments, health authorities and the public are looking at major pharmaceuticals to develop vaccines and treatments for the disease and GSK is one of the many taking up the challenge, although investors must be aware that finding a vaccine for this may not be profitable, but some things are more important than profit! Aside from the current crisis, we should still see the company's newer drugs continue to sell extremely well and an update on their promising R&D portfolio.
We currently list GlaxoSmithKline as a BUY
Other companies reporting this day include: WPP Plc (Q1 2020 Sales and Revenue Release) – HOLD
Standard Chartered (Q1 2020 Sales and Revenue Release) - HOLD
Lloyds Banking Group Plc (Q1 2020 Sales and Revenue Release)
The focus for investors will be on the current situation and how the banking sector can help especially with regard to lending. Dividends of course have already been suspended for the year. Further updates on cost savings and measures the bank intends to bring in will be closely watched.
We currently list Lloyds as a HOLD
J Sainsbury Plc (Q4 2020 Earnings Release)
It's time to see how well another supermarket has fared from the rush to shops in March as consumers stockpiled goods in light of being in quarantine. Supermarkets across the sector have seen demand challenge capacity levels with inventory struggling to keep up. This hasn't been all positive news as we saw from Tesco's results which resulted in an increase in costs so investors will be keeping an eye on this. Also any details on the Group's financial position and dividend outlook will be eyed closely by investors in the results next week as they seek to gauge future prospects.
We currently list Sainsbury as a HOLD
St James’s Place Plc (Q1 2020 Sales and Revenue Release)
Full-year figures in February from the wealth management group showed a 13% drop in the net inflow of funds although funds under management did increase by 22% to £117bn. Both of those will be scrutinised again in this first quarter update, along with the latest news on the growth in adviser numbers and the client retention rate. However, with all the market uncertainty at present many investors will be interested in any comments on dividends this year. The consensus is for a slight drop but the prospective yield remains a very nice 6.3%.
We currently list St James’s Place as a BUY
Reckitt Benckiser Group Plc (Q1 2020 Sales and Revenue Release)
A rising demand for health and hygiene products has helped guide the shares upwards over the course of the year so far. Companies renowned for relatively defensive cash flows have been favoured and Reckitt has been a prime example of this with its share price rising roughly 6.5% YTD outperforming the market. Aside from the virus, the Group is going through a period of structural change so investors will be keeping a close eye to any developments in this space considering the market did not react particularly well with the previous restructuring plans.
We currently list Reckitt as a HOLD
Royal Dutch Shell Plc (Q1 2020 Earnings Release)
Like any other oil major, Shell is expected to report a plunge in quarterly profitability as oil prices began their slide in January, and like some of its other oil major peers, it has been resistant to cutting its dividend. Back in January and February management instead opted for cutting back on investments and costs as well as raising capital possibly in the belief that the oil price fall would be temporary. Now at the start of the second quarter with oil prices at previously unimaginably low levels, higher cost well’s production will need to be limited investors will ask how long it can hold out with the dividend policy, surely they will need to cave in soon.
We currently list Shell as a BUY
Other companies reporting this day include: EVRAZ Plc (Q1 2020 Sales and Revenue Release) – SELL
James Fisher & Sons Plc (Q1 2020 Sales and Revenue Release) – BUY
Companies reporting this day include Royal Bank of Scotland Group Plc (Q1 2020 Earnings Release) - HOLD
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.