Daily market update: NatWest, luxury sector, Wood Group

“After a solid session on Wall Street last night, European markets took a step back on the last trading day of the week,” says Russ Mould, Investment Director at AJ Bell.

“Banking and pharma stocks pulled the market down, led by HSBC amid talk of more job cuts. Reducing staff numbers typically yields a positive reaction from the market as the business is saving money, yet investors might fear HSBC isn’t going hard enough with trimming its bloated headcount.

“NatWest also weighed on the FTSE as its results were solid rather than spectacular. The bank has been doing well, yet the market has already priced in that success. Investors were upset there wasn’t enough in the forward guidance to warrant large upgrades to earnings forecasts, so there was an element of profit-taking on the results.

“In France, Hermès shares jumped on better-than-expected sales. Japan was the star of the show, with the luxury goods company saying it benefited from loyal clients. It was enough to trigger a rally across the luxury sector, with the likes of Burberry, Richemont and LVMH moving higher on hopes that wealthy individuals were back in spending mode.

“Wood Group crashed on a smorgasbord of bad news. An independent review of the business by Deloitte is still ongoing but it has already found ‘material weaknesses and failures’. Fourth quarter trading was below expectations and staff aren’t getting their annual bonus. It guided for negative free cash flow in 2025 and it needs to find a solution to refinance debt that matures next year. It’s a lot of bad news to stomach, hence why investors have been quick to hit the sell button on the shares.”

NatWest

“It may be Valentine’s Day but there is not a huge amount of love for NatWest this morning – its results were received more like petrol station forecourt flowers than a bumper bouquet of roses.

“For the most part, the UK banking sector came into full-year earnings season with a fair bit of share price momentum. With two of the big names now having reported (NatWest and Barclays), that momentum looks to be ebbing away.

“NatWest’s numbers were solid enough – and actually came in slightly above expectations – but the 2025 outlook was only in line with the existing guidance and the market has reacted negatively to the lack of upgrades.

“There is one big milestone which the company could chalk up this year if it finally shakes off the last vestiges of state ownership. The government stake has been a gorilla on NatWest’s back for more than 16 years but that stake is now comfortably into single digits.

“On income and impairments, NatWest did a bit better than anticipated in 2024 although costs came in somewhat higher than had been forecast.

“The ideal scenario for NatWest is that Bank of England interest rate cuts remain gradual while the health of the UK economy improves and a lid is kept on bad debts.

“The company displayed some confidence in its future prospects by lifting the payout ratio to 50% and has said it is mulling share buybacks.

“An alternative use of its capital might be to pursue M&A, with CEO Paul Thwaite signalling late last year that he was looking for deals after taking over Sainsbury’s Bank in June.

“Thwaite was at pains to signal that these would be easy-to-swallow transactions – likely mindful that the market will remember the mess the company got into with its acquisition spree in the mid-to-late 2000s.”

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