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Barclays in focus on Thursday as UK banks reporting season gets underway

October 21, 2021

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Barclays PLC (LSE:BARC) (LSE:BARC) share price has almost doubled over the past twelve months as bad debt worries have eased, financial markets have boomed and dividends have returned.

The upcoming trading update should justify investors’ improved view of the bank according to Credit Suisse.

In a preview earlier this month, the Swiss bank’s analysts said clarity of costs at the end of the second quarter allied to the sooner than expected share buyback have helped sentiment while bad debt provisions heading downwards have been another boost.

“Deal data is healthy and pointing to further market share gains while asset quality remains strong though credit card revenues are now unlikely to pick up before 2022.”

An early UK rate rise would add to the good vibes about UK banks at present with Barclays’ net interest margin running flat at present but with so much going its way at present that would just be icing on the cake.

Unilever’s margins on thin ice

Thursday is going to be a busy day for big caps, with Unilever PLC (LSE:ULVR) (LSE:ULVR) dropping a trading update just as its shares have dropped by over 20% since last year.

According to analysts at AJ Bell, this may be partly due to how investors have been looking for cyclical companies that could benefit from an economic upturn in the wake of pandemic, and show a rapid recovery in earnings, such as oils, banks and miners, rather than ‘Steady Eddies’ like Unilever.

However, last year’s sales growth slowed down considerably, while this year the FTSE 100 group is suffering from cost inflation and margin pressure.

“The perception of tardy progress is stoking speculation that Unilever is ripe for the arrival of an activist investor on the share register. Third Point’s Daniel Loeb prompted a shake-up at Nestle, once its appointed Mark Schneider as chief executive, and Trian’s Nelson Peltz has previously lobbied for change at Procter & Gamble (NYSE:PG) (NYSE:PG), having bagged a seat on the US firm’s board,” analysts commented.

“The ongoing auction of a large part of its tea business may head off such chatter, especially as a rumoured four-way fight between private equity firms CVC, Carlyle and Advent and a joint bid from Cinven and ADIA could drive the sale price to GBP4bn.”

“The question then is what Unilever does with the money, and whether it reinvests it in faster-growing areas such as skincare or returns some of the cash to shareholders. Going by the classic activists’ playbook, a shareholder pressing for change could call for a full-blown demerger of the food operations or look to crystallise value from the 62% stake in Hindustan Unilever, whose shares trade on the Mumbai exchange in India.”

Analysts at JP Morgan expect the Anglo-Dutch group to warn on margins and sees risks of volumes turning negative, higher costs and lower promotional spending hitting 2022 results too.

AJ Bell playing catch-up

AJ Bell PLC (LSE:AJB) (LSE:AJB) provides a year-end trading statement on Thursday, with larger rival Hargreaves Lansdown having provided a hint at what might be to come with an update a week earlier.

The Bristol-based market leader reported lower revenues on the back of a levelling-off of share dealing volumes, but won net new business of GBP1.3bn and welcomed 23,000 net new clients.

Back in July, Salford-based AJ Bell said it had signed up 6% more users than the previous quarter and net inflows of GBP1.8bn that helped lift total assets under administration 8% to GBP70.4bn.

Net inflows in the quarter were GBP1.8 bn (2020: GBP1.2bn) while total assets under administration rose by 8% over the quarter to GBP70.4bn.

Looking ahead, chief executive Andy Bell said, “the structural growth drivers for our sector remain strong and we are well placed to deliver further growth across our platform”.