Mindful Money’s Monday share tips: Barclays & Lloyds kick-off bank reporting season

10th February 2014

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Investors will be keen to hear the latest updates from Barclays and Lloyds Banking Group who this week kick-start the UK bank reporting season writes Philip Scott.

As a result of increasing regulatory prudence, there will be close attention on the banks’ capital cushions.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers says: “Provisions in general will be under the spotlight. Over recent quarters, the general level of impairments has improved, and investors will show little patience if this trend has noticeably reversed.”

Barclays for example, reporting its full year results on Tuesday, underwent a rights issue in September 2013 to shore up its balance sheet. Its stock has fallen back by 2% over the past 12 months but the market consensus has the stock rated a ‘buy’.

For Sheridan Admans, investment research manager at The Share Centre, the shares are currently a ‘hold’. He says: “The sector has once again been under pressure and investors will be keeping their fingers crossed for no more nasty surprises. Revenues have been falling at the important investment banking division and investors will want to hear of updates on the progress or otherwise of its new strategy. Other items worth noting are the amount of provisions as a result of mis-selling and other regulatory issues, such as the FX investigation.”

Also updating the market on Tuesday with its latest interim management statement is mining giant Glencore Xstrata, up 20% in the last six months. Investors will be hoping that the firm’s report will echo the more upbeat news, which has been coming from the commodity sector recently.

The consensus is that the stock is a ‘buy’. Admans says: “With commodity prices holding up during the last quarter investors should be confident of some half decent revenue and earnings numbers. While some of the large miners have been holding back on large scale expansion projects and others still fairly aggressive, investors will want a clearer idea of Glencore Xstrata’s position on this.”

On Thursday, the banks will be back in the spotlight as Lloyds Banking Group, up a robust 55% over the past year, reports its full year results.

Hunter sounds a note of caution, he says: “Lloyds recently joined the likes of Royal Dutch Shell and BG Group in announcing disappointing news ahead of their full year numbers, presumably in the hope of taking the sting out of the market reaction on the actual day of the results.” However ahead of the update the stock remains a ‘strong hold’ according to the market consensus.

Also reporting its end of year results on Thursday is Rolls-Royce. The group’s shares are up 21% over the past year and according to the overall market sentiment and Admans, the stock is still a ‘buy’. He says: “Investors should not expect too many surprises from these results as the last management statement suggested trading was in line with expectations.

“For 2014, the management statements may emphasise more on cost control measures to improve margins. The defence side of the business will still remain a concern as governments reduce spending and investors will look for indications of any other merger takeover possibilities following the failure of the Wartsila merger.”

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