Bitcoin price eases back, Lloyds’ profit beats expectations, Reckitt shaken by tornado disruption, WPP holding steady in difficult market and Barratt Redrow targets cost savings after merger

“Storm clouds appeared to have passed as Europe’s main equity indices pushed ahead on Wednesday,” says Russ Mould, Investment Director at AJ Bell.

“It’s helped that Wall Street’s latest earnings season has got off to a good start, with many big names this week beating forecasts including Philip Morris and Texas Instruments.

“The FTSE 100 rose 0.2% to 8,321 thanks to strength among consumer-facing companies, utilities, healthcare, real estate and financials.

“Bitcoin eased back from $69,332 on Monday to $66,834 amid signs that crypto-champion Donald Trump might be losing traction in his election campaign. Various polls over the past two days have shown Kamala Harris to still be ahead in the race for the White House.

“The price of bitcoin has closely followed Trump’s position in the polls and on betting markets, with investors potentially taking the view that a Republican victory would lead to a surge in demand for the digital currency.”

Lloyds

“There has been concern about the impact on consumer confidence from speculation ahead of the Budget but Lloyds paints a picture of improvement as its third quarter pre-tax profit beat expectations.

“The beat was driven by lower-than-expected impairments. The amount of bad debt being chalked up is still low and the bank and its customers will hope we’re now through the worst of the cost-of-living crisis.

“The other big positive surprise for investors was the quarter-on-quarter increase in the net interest margin – measuring the difference between what the bank pays out to depositors and charges those to whom it is lending money.

“The quarterly uptick in this key metric followed five quarters of decline and helped lend increased credibility to the company’s full-year target. Guidance for the year as a whole remains unchanged which might explain why the initial reaction to the update was muted, if still positive.

“In addition, Lloyds, like its peers, has enjoyed a strong 2024 in share price terms so the market may feel it has given the company enough credit for its progress for now. There also remains the sceptre of the ongoing probe into mis-selling of motor finance – with Lloyds having greater exposure to this issue than its rivals.”

Reckitt

“Reckitt’s third quarter Nutrition sales were about as healthy as a double bacon cheeseburger. Look a bit closer and it’s clear that demand wasn’t the problem, it was supply as the company was knocked off course by a tornado.

“Just as the movie Twisters took the box office by storm this summer, the weather phenomenon also swept up Reckitt in real-life. Finished goods and raw materials were destroyed by the Mount Vernon tornado, meaning it struggled to get products on the shelf. However, the disruption wasn’t as bad as feared.

“Clearly this is a one-off event and investors seemed happy to look at the bigger picture. The Hygiene division saw volume and price gains, albeit at lower rates than the first-half period. The Health division did better, turning in a stronger performance for both volume and price than the first half.

“It’s given investors enough confidence that Reckitt is in a decent position to drive its new strategy which is built on streamlining and focusing on what it does best, namely ‘powerbrands’.

WPP

“WPP is one of the biggest economic bellwethers on the UK stock market. If companies are feeling confident about the outlook, they’re more likely to spend money on marketing and advertising. If they’re worried about an economic downturn, they cut back on promotions. That’s why WPP is a highly cyclical stock and its updates typically provide a clue on corporate confidence.

“Its third quarter update doesn’t ring any alarm bells, but neither does it scream great times ahead. While WPP works for some of the world’s biggest companies, its third quarter net new billings only showed minimal progress year-on-year. Year-to-date the figure is running behind 2023’s equivalent. North America, Western Europe and India are doing well, China is not.

“With no change to full-year guidance, there is a sense of caution around WPP’s update and while it talks with optimism, in reality it could be a tough few months to go.”

Barratt Redrow

“Newly merged housebuilder Barratt Redrow was always going to look to make savings as part of its tie-up so it’s not a surprise to see the company unveil a round of cost cutting – although the market has still given the business some credit for the news.

“The company is cutting back on central and support functions where there will have undoubtedly been some duplication. The savings look meaningful but not so unrealistically high that management are setting themselves up to fail or mindlessly slashing costs with a potential knock-on effect on business performance.

“The company has plans to increase the volume of homes built from this year’s total, which is somewhat short of what had been expected, and it will hope the recent stabilisation in the market and improvement in mortgage availability and affordability persists.

“Consolidation in the sector was expected after housebuilders were hit by a wave of rising interest rates, sluggish house prices and rising costs. Shareholders in the new Barratt Redrow entity will hope the enlarged group has the best foundations for an eventual recovery to the levels of profit and cash generation enjoyed before the sharp rate increases of recent years.”

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