Daily market update: British American Tobacco, Barclays, Unilever

“A surprise uptick in the UK economy gave a glimmer of hope to consumer-facing stocks, with JD Sports, EasyJet, Howden Joinery and Taylor Wimpey all moving higher,” says Russ Mould, investment director at AJ Bell. 

“A 0.4% positive reading in December is better than the 0.1% growth forecast by economists, but it’s hardly cause for major celebration. The FTSE 250 saw a small jump at the market open but couldn’t hold onto those gains.

“The FTSE 100 fell 0.6%, dragged down by negative market reaction to updates from three of the market’s biggest players. British American Tobacco’s shares went up in smoke, diving 7.7% after taking a £6.2 billion hit from a proposed legal settlement in Canada, flagging headwinds from higher excise and VAT in Bangladesh and new tobacco regulation in Australia. Unilever fell 6.6% amid a gloomy outlook, while Barclays dropped 5% as investors were disappointed with the lack of upgrades to 2026 guidance.

“After an initial shock around inflation coming in hotter than expected, US markets clawed back most of the lost territory yesterday.

“Lancashire Holdings has quantified the potential hit from the LA fires and a 5% share price drop implies that it isn’t too disastrous for the business. Losses of between $145 million to $165 million look manageable.”

British American Tobacco

“It’s all very well making grand pledges to be a ‘smokeless business’ by 2035 but it does beg the question of what’s going to replace the revenue and cash flow provided by selling cigarettes, given it is this which allows the company to sustain generous dividends and share buybacks.

“In 2024, areas like vaping and e-cigarettes contributed £250 million out of its near-£12 billion worth of adjusted operating profit. This clearly illustrates the size of the task over the next decade better than the company’s observation that these areas of the business are now contributing some 17.5% of revenue.

“At a headline level the company posted a profit for 2024 but a big write down in Canada meant this was still a messy set of numbers.

“The company has a big job on its hands to restore its existing business to a decent level of performance, never mind achieving a complete transformation of the company. For now, CEO Tadeu Marroco is likely to be judged on getting the basics right rather than anything more ambitious.” 

Barclays

“In 2024, UK banks mostly did well as rates came down enough to mean there wasn’t a flood of bad debts driving impairments but stayed high enough that margins were supported.

“The industry will be hoping for a similar pattern in 2025. However, while there was nothing too alarming in Barclays’ full-year results as it kicked off the UK banks’ earnings season, a lack of upgrades after a period of strong performance saw the shares knocked off their perch.

“The £1 billion buyback was widely expected and earnings and dividends per share came in below expectations. Investors were also disappointed that 2026 guidance wasn’t upgraded.

“In the context of the stock having more than doubled in value over the last 12 months, it’s not a surprise to see a degree of profit taking.

“Chief executive CS Venkatakrishnan is one year into his three-year transformation plan. The plan of focusing on its UK operations and exercising discipline on the capital allocated to its investment banking operation seems to be paying off. Restoring momentum will require the company to deliver on its medium-term guidance.

“The investment banking operation, whose presence in Barclays has long been a source of debate, chalked up decent performance.

“The company is certainly not at the centre of the car finance mis-selling affair but it did notably make a provision for losses in this area despite having exited the market in 2019. That suggests it would rather be overly cautious than get caught out later on.”

Unilever

“Unilever has done a good job at increasing sales volumes, margins and cash flow, implying the business is finally getting back on top after a patchy period. A bump in the dividend and a new €1.5 billion share buyback are the cherry on the cake.

“The business has beefed-up investment in brand and product marketing, and it continues to right-size the business by selling non-core brands and buying new ones.

“What’s interesting is how it has managed to do all this in an environment where many consumers are watching their spending and opting for supermarket own-label products rather than the ‘power brands’ that the likes of Unilever own. Whether this situation lasts remains to be seen. The challenge could intensify if inflation rears its ugly head and interest rates stay higher for longer.

“Unilever expects a ‘soft’ first half of 2025 with subdued market growth in the near-term. That guidance has spoilt the party and reminded investors that Unilever is still at the mercy of the global economy and consumers’ ability and willingness to splash the cash. It is guiding for prices to go up, to offset higher commodity costs, and that will test consumers’ appetite for Unilever’s brands.

“There is now clarity on separating the ice cream division. Just like a tub of Neapolitan offering three different flavours, the ice cream arm will also be listed in three different parts of the world. Picking the same locations as where Unilever’s shares trade makes perfect sense. Investors in London, Amsterdam and New York are already familiar with the brands and products, so there won’t be any of the drama around inheriting shares that trade in other parts of the world as that sometimes happens with demergers.”

Nestlé

“Nestlé beat expectations for its 2024 results but warned of pressure on margins this year. It is struggling with a rapid increase in coffee and cocoa prices, two key ingredients for its core products. Passing on the full increase in costs via higher prices is a risky move and guidance for lower margins implies that Nestlé is going to stomach some of the pain itself.”

Vistry

“Changes to Vistry’s shareholder register caused investors to sit up and take notice. US hedge fund Abrams Capital has gone from owning 8.2% to 10.2% of the housebuilder. It isn’t the type of investor to want to own the company outright, but it might want to use the large shareholding to push for change in the business. Three profit warnings in three months capped off a disastrous end to 2024 for Vistry, so other investors might welcome Abrams leading the charge and calling for a strategic and/or board overhaul.”

These articles are for information purposes only and are not a personal recommendation or advice.