FTSE 100 analysis: BP and HSBC up in wake of earnings – Top UK stocks

FTSE 100 dips

The FTSE 100 is trading marginally lower in early trade this morning.

We have manufacturing PMIs out of the UK and Europe this morning, with unemployment data due out of the latter too. We will then have US manufacturing PMIs and JOLTs job openings this afternoon.

UK inflation data provides ‘optimism’

We discovered this morning that UK shop prices fell month-on-month for the first time in two years, with the pace of increases rising at their slowest rate in 2023. Shop prices rose 7.6% in the year to July, down from 8.4% in June, and the 0.1% month-on-month drop was the first decline seen in two years!

Food price inflation – which has been particularly sticky in the UK relative to elsewhere - also rose at its slowest pace since the start of 2023, rising 13.4% in the year to July and easing from the 14.6% rise we saw in June and the 15.4% increase in May. While still much higher than desired, the British Retail Consortium, which compiled the data with analysis from NielsenIQ, said this represents ‘cause for optimism’ and that the ‘outlook is improving’.

That will provide some confidence ahead of the Bank of England meeting this week. Still, markets are cautious considering they fully expect interest rates to hit a 15-year high. However, while most expect a 25 basis point increase there is an outside chance of a faster 50 basis point hike.

FTSE 100 analysis: Where next for the UK 100?

The UK 100, which tracks the performance of the FTSE 100, is seeing a wedge form as the share price is contained by the year-to-date falling trendline and the supportive trendline that can be traced back to the lows we saw during the pandemic.

The index is currently testing the upper-end of this wedge and we are awaiting a breakout. However, we can see the 50-day moving average has dropped below the 200-day, which is also close to crossing above the 100-day average. That death cross could signal more pressure is on the way.

A break higher out of the wedge would allow it to target 7,780 while a break below would bring the 2023-lows back onto the radar.

Top UK stock news

BP is up 1.5% this morning after it missed expectations in the latest quarter but raised shareholder returns. Underlying replacement cost profit – its headline measure – plunged to just $2.6 billion in the second quarter from the $8.5 billion seen during the year before when BP was enjoying record profits, falling short of the $3.5 billion forecast. Despite cashflow also falling, BP may keep shareholders happy after raising its dividend by 10% to 7.27 cents and launching a new $1.5 billion buyback, although this has eased from the $2.1 billion worth of shares repurchased in the second quarter. BP said it was able to raise its dividend because it has fewer shares in issue thanks to buybacks, meaning it can up payouts without it costing the business more. However, lower earnings and higher shareholder payouts is resulting in higher net debt, which was up $2 billion compared to the first quarter.

HSBC is up 1.9% in early trade after it raised its full year outlook after beating expectations in the latest quarter. The bank said it is now expecting to generate return on tangible equity in the mid-teens this year and next and upped its annual net interest income target to $35 billion. That improvement in guidance came as HSBC revealed pretax profit rose to $8.8 billion in the second quarter from the $4.7 billion reported the year before, comfortably beating the $7.4 billion forecast by analysts. That was the result of revenue jumping almost 37% to $16.7 billion, driven higher by rising interest rates and a mild dip in costs. Deposits continued to flow out of the bank while demand for loans was also down.

Housebuilders like Barratt Developments, Taylor Wimpey, Persimmon and Redrow are volatile today, with some trading down as much as 1.9%, after Nationwide revealed house prices declined 0.2% month-on-month in July as expected, dropping following the 0.1% rise we saw in June. House prices were down 3.8% in the year to July, also in line with forecasts and accelerating from the 3.5% annual drop we saw in June.

Diageo is down 0.5% today after the alcoholic drinks giant reported higher sales and profits in the recently-ended financial year but missed expectations. Net sales increased 10.7% in the financial year to £17.1 billion, driven mainly by organic growth and favourable foreign exchange rates. Organic sales were up 6.5%, while higher prices also helped aide the topline. Operating profit, its headline figure, was up 5% at £4.6 billion but this was below the £5.2 billion forecast by analysts. Profit at the bottom-line was up 15% at £3.7 billion. It raised its annual dividend 5% to 80p and announced a new £1 billion share buyback. Diageo said it will report in dollars rather than sterling going forward.

Domino’s is up 2.6% after announcing a new buyback after selling its German business as it reported higher revenue and profits in the first half. Total orders were up 2.8% in the first half and, thanks to higher prices, system sales increased at a faster rate of 7.9% to £766.4 million. That resulted in revenue jumping almost 20% to £332.9 million. Adjusted pretax profit was flat from last year at £50.9 million. Reported profits were up over 90%, but this was largely down to the gain booked on the disposal of its German business. It raised its interim dividend by 3.1% to 3.3p. It announced a new £70 million share buyback this morning, funded by the proceeds from that German disposal. Domino’s said it is now expecting to deliver annual underlying Ebitda of £132 million to £138 million, which it said is ahead of current consensus figures.

Greggs is down 2.8% after reporting higher sales and profits this morning, and said momentum has continued in the second half as inflationary pressures ease. Sales jumped 21% in the first half of 2023 to £844 million, with like-for-likes rising 16%, and pretax profit rose 43% to £80 million. Profits were partly boosted by over £16 million of income from an insurance claim, although underlying profits were still up over 14%. It raised its interim dividend to 16p from 15p the year before. ‘The strong trading momentum of the first half has continued into the second half of the year, with good sales reflecting the exceptional value that Greggs offers to customers who need food and drink on-the-go.  The rate of cost inflation has started to ease and we expect this trend to continue through the second half,’ said the baker.

Fresnillo is up 0.1% after the gold miner cut its interim dividend as profits came under pressure in the first half, and warned it will spend considerably more on capex than previously planned in 2023. Adjusted revenue was up 6.1% to $1.4 billion in the first half of the financial year, driven by higher production of gold and silver as well as higher prices. However, profit dropped over 36% to $89.7 million as it continued to struggle with higher costs, which grew at a much faster pace than sales. The dividend for the period dropped to 1.4 cents from 3.4 cents the year before as a result of lower profits. It reiterated its full year production guidance, but warned capital expenditure will be higher at $630 million compared to its original budget of $555 million.

Aston Martin is down 1.4% at 390p this morning after revealing it issued 58.2 million new shares in a placing conducted yesterday at a price of 371p per share to raise a total of £216.1 million. That price was over a 6% discount to its closing share price yesterday. ‘This successful share placing builds on the actions we have taken to create shareholder value. Supported by the company's improved financial position, the placing will allow us to meaningfully deleverage the balance sheet and accelerate our journey to become sustainably free cash flow positive,’ said executive chairman Lawrence Stroll.

AG Barr is up 2.9% after it announced CEO Roger White will stand down within the next 12 months, prompting a search for his successor, as it upped its outlook for the rest of the year. That came as the drinks maker said it expects revenue in the first half of the year to be up 33% at around £210 million. That was driven by a 10% rise in like-for-like sales and a contribution from the Boost Drinks purchased last December. It also benefited from both higher prices and volumes. Margins did feel some pressure but came in line with expectations, the company said. It plans to launch several new brands in the second half and said it thinks its annual performance will be ‘marginally above the top end of analyst expectations’.

Travis Perkins is up 2.3% after reporting lower sales and profits in the first half due to challenging conditions for DIY, as the firm said it is trying to balance between protecting short-term profitability while positioning itself for when conditions finally improve. Sales were down 2.5% in the first half at £2.4 billion and adjusted operating profit was down 31% at £112 million. ‘With the outlook for the UK macroeconomic environment remaining challenging, notably with respect to the impact of higher interest rates on the new-build and secondary housing markets, the Group expects demand to remain subdued into the second half in the new build housing and private RMI markets,’ said Travis Perkins. ‘At a group level, revenues are expected to remain in low single digit decline through the second half with pricing in low single digit growth and volumes in mid single digit decline. As previously guided, the group expects to deliver a full year adjusted operating profit of around £240 million.’