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04 May 2021

UK Giants Push Stock Index Higher

UK heavyweights stepped into the ring to report their earnings last week, helping the UK’s 100 stock index, as measured by CBOE, fly high once again last midweek. The index then retraced most of the 1.18% rise seen in the previous days and consolidated around last week’s opening price at an increase of 0.55%.

First of the pack to release earnings last Tuesday was oil giant British Petroleum (BP). BP showed investors the company was in a much-better position after an unprecedented demand shock for oil this time last year. Oil prices are currently sitting three times higher, which has no doubt fuelled strong earnings for Q1 2021. Underlying profit on a replacement cost basis, the preferred measure of income for industry analysts, was US$2.6bn compared to US$791m in the same period last year. The real highlight of BP’s earnings was generating US$11bn of cash inflows, helping the company meet its net debt target a year early. Net debt at the end of Q1 came in at US$33.31bn, a significant decrease from the US$51.40bn reported on the same date a year ago. BP’s successful reduction in debt levels has allowed them to distribute 60% of surplus cash flow for share buybacks in 2021, with the remaining 40% being used to further strengthen its balance sheet. The share price surpassed the 300p level as a result, rising by over 2% on Tuesday.

HSBC also reported robust earnings on Tuesday as pre-tax profit for the first quarter rose by 79% to US$5.78bn, up from US$3.23bn a year before. HSBC joined BP’s share price in climbing over 2% but declines in Aveva and Whitbread were enough to send the main index negative for the day. Aveva fell 4.7% after news that CEO Craig Hayman would be leaving the firm. Whitbread, meanwhile, reported a £1bn annual loss and a 72% decline in annual revenue to £589.4m from £2.07bn the year before, causing the share price to fall 2.9% on the day.

Lloyds Bank reported on Wednesday and did not disappoint the banking sector. Its share price rose 4.4% on the report as pre-tax profit for the three months to the end of March 2021 soared to £1.90bn from just £74m a year ago. Several other large UK companies also released strong earnings on Tuesday, including advertising and marketing firm WPP, pharmaceutical mammoth GlaxoSmithKline (GSK) and Reckitt Benckiser, the consumer goods company. WPP and GSK reported better than expected earnings, boosting their share prices 3.6% and 1.3%, respectively. Reckitt’s share price dropped 2.2%, despite reporting a 4.1% growth in total revenue from the same quarter last year.

Thursday came with another good set of earnings which pushed the index above 7,000 once again. Royal Dutch Shell’s adjusted earnings in the first quarter rose from US$2.86bn to US$3.23bn, ahead of the company’s expectation of US$3.13bn. The share price has since risen 1.03%.

In the US last week, Facebook, Apple, Alphabet and Microsoft all published their earnings. First up came Microsoft, which has continued to benefit from working-from-home schemes and helped commercial cloud solutions revenue rise 33% from last year to US$17.7bn. Overall, revenue was US$41.7bn, a 19% increase from US$35.02bn the year before, while net income jumped 44% to US$15.46bn from US$10.75bn. In contrast, Alphabet’s Google Cloud business suffered a loss to US$974m from US$1.73bn the prior year. This did not reflect the rest of the results, however, as total revenue for the first quarter grew 34% annually to US$55.31bn from US$41.16bn while operating income rose from US$11.55bn to US$19.55bn.

Apple added to the list of technology firms smashing Q1 earnings. Revenue rose an incredible 54% on the back of hardware sales, and earnings per share came in at US$1.40 versus US$0.99 expected. The stock rose 0.7% on the news, but CEO Tim Cook stated that global chip shortages may affect revenue going forward. Facebook also had a positive quarter. Total revenue for the social media giant, which comes largely from ad sales, rose to US$26.17bn in the first quarter, beating analysts’ estimate of US$23.67bn. Net income exceeded expectations massively, coming in at US$9.5bn, or US$3.30 per share, compared with US$4.9bn, or US$1.71 per share, a year earlier. In an attempt to diversify its revenue stream away from solely ad based, CEO Mark Zuckerberg announced that Facebook will begin to invest more heavily in new areas such as virtual reality and augmented reality. As of Friday morning, the US S&P 500 was up 0.50% on the week, and the Nasdaq 100 up 0.19%.

Looking away from the stock market, businesses in Yorkshire and the rest of the UK are experiencing varying levels of distress over one year on from the start of the pandemic. According to the latest Red Flag Alert data, numbers of businesses showing early-stage or significant signs of financial distress had risen by 39% since Q1 last year, to affect 42,719 firms in the region. In the last quarter alone, 5,400 more Yorkshire business had begun to experience financial problems. The overall figure includes 4,700 real estate and property services companies, a 49% year-on-year increase, while more than 3,000 Yorkshire-based retail firms are struggling. The worst-hit sector was the construction industry, which now has more than 6,000 firms experiencing early stage distress.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
UK Giants Push Stock Index Higher
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