(Bloomberg) — UK banks will be in the spotlight next week as Europe’s reporting season continues. While financials have fared better than most industries so far, earnings overall haven’t missed consensus this badly for at least four years, according to Bloomberg Intelligence’s tracker.
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Barclays Plc’s fixed-income dominance will be tested after US peers disappointed, as it prepares to give a long-awaited strategy update. Weakened revenue prospects probably subdued results for Lloyds Banking Group Plc, while loan provisions may increase amid a motor finance review by the UK Financial Conduct Authority.
With UK rate cuts looming and job cuts under way, 2024 margin guidance will be key for both, according to BI senior banking analyst Philip Richards.
Rising defense spending in Europe probably boosted income for Rolls-Royce Holdings Plc and BAE Systems Plc.
On the consumer staples front, reports from French supermarket Carrefour SA, coffee maker JDE Peet’s NV and food giants Danone and Nestle SA should paint a clearer picture of shopper sentiment as inflation slows.
Highlights to look out for:
Monday: Swiss fintech Temenos (TEMN SW) is in the crosshairs of activist short seller Hindenburg Research in the run-up to a capital markets day on Tuesday, sending the stock to its steepest decline in more than 15 years on Thursday. The company rejected Hindenburg’s allegations of accounting irregularities as “false and misleading.” Temenos beat consensus with preliminary results in January, shifting the focus to its mid-term targets. Analysts don’t expect it to deliver on its goal for more than $700 million free cash flow until 2030, “suggesting a disconnect with management,” BI said.
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Anglo American Platinum’s (AMS SJ) warning last week that 2023 headline earnings per share would be down as much as 77% should come as “no surprise” as prices for the metals it produces plunged and inflation drove up mining and processing costs, according to BI. Weakness in the rand — in which it incurs most costs — and higher output may bring some relief in final results.
Tuesday: Barclays’ (BARC LN) FICC revenue will be closely watched after a slump among peers, with consensus pointing to a 15% drop in the fourth quarter. Margins at the UK retail bank may also disappoint as looming interest rate cuts add to the squeeze, BI said. Costs will be in focus as it works through a restructuring while making targeted acquisitions. Barclays is reportedly weighing a bid for Societe Generale’s UK private bank. It recently announced plans to buy much of Tesco Plc’s retail banking business in the UK and is exiting consumer financing in Germany. Also, its investment bankers may be in for a brutal bonus round.
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Carrefour’s (CA FP) 2023 revenue is expected to rise 4.1% to €87.4 billion, masking a slowdown in Latin America as a result of the Argentine peso’s devaluation. Brazil could also weigh in the region, following consolidation of the typically high-margin cash-and-carry sector, BI said.
Wednesday: BAE Systems (BA/ LN) is benefiting from rising weapons demand, as conflicts in Ukraine and the Middle East prompt European countries to bolster their defense budgets. Consensus points to a 5.6% increase in underlying Ebit for 2023. The company’s balanced portfolio and strong sales growth means “last year’s blue sky scenario is this year’s base case,” despite supply-chain issues, Bernstein analyst George Zhao said. Another £10 billion of orders in the second half of 2023 would imply an end-of-year backlog of around £63 billion and be “a positive sign for 2024,” BI said.
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JDE Peet’s (JDEP NA) full-year report will show whether recent investments in coffee assortment in Brazil and the US have helped volumes stabilize. With its exit from Russia now complete, increased marketing should boost volume as pricing normalizes, BI said. Volumes were hurt by a decision to withhold promotional spending last year. Its ability to flex its brand pricing muscle is key.
Thursday: Lloyds’ (LLOY LN) net interest margin performance and outlook will be critical in driving sentiment as consensus continues to trail the lender’s full-year guidance. Costs will be firmly in focus after the bank announced 1,600 job cuts as revenue momentum is set to stall, said BI’s Tomasz Noetzel. While the bank’s £15 billion of auto loans will be scrutinized by the FCA, strong CET1 and proceeds from selling the Telegraph newspaper raise expectations for higher shareholder returns.
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Volume mix is key for Nestle (NESN SW). A significant improvement in the quarter would indicate consumers have become used to higher prices for major brands, while marginal gains may suggest shoppers are shifting to cheaper products, BI said. Facing similar pressures, Danone’s (BN FP) fourth-quarter report may show a slowdown in organic sales growth. Promotional spending will be watched for signs that new initiatives are feeding through to the volume mix.
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Rolls-Royce’s (RR/ LN) full-year operating profit probably rose across all major units, driven by demand for higher-margin after-market services. Civil aerospace earnings may have jumped more than fivefold as wide-body flying recovers, while the defense segment likely benefited from increased military spending in Europe, according to BI’s Melissa Balzano. Free cash flow may top expectations, leaving ample capacity to reduce debt and improve prospects to reclaim investment grade this year.
Friday: After January’s profit warning, BASF’s (BAS GY) 2024 forecast will be key as energy prices remain elevated and demand is slowing, casting doubt on its ability to stage a short-term recovery. Consensus points to adjusted Ebit climbing 12% to €4.25 billion this year, still historically low. Cost-saving measures so far aren’t sufficient to fully offset cyclical downturns, according to BI.
–With assistance from Leonard Kehnscherper, Ana Monteiro, Paula Doenecke, Valentine Baldassari, Laura Malsch and April Roach.
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