Communication-driven share price reaction

The quarterly results were broadly in line with the consensus expectations despite the management’s late confirmation of the less-supportive environment for the investment bank business. Unfortunately, the management failed to properly communicate on the evolution of the net interest margin and the rationale for the restructuring, leading to a sanguine share price reaction.

Low-quality beat

The second quarter earnings surprise was fully attributable to the unexpected and unsustainable cost of risk reduction which more than offset weaker CIB revenues. The UK Retail Banking and Consumer Finance revenues were also marginally weaker than expected translating into slightly downgraded net interest margin guidance.

Reassuring set of results

The group posted a strong set of results. Although it is necessary to be fully sustainable, it has enabled the management to reiterate its full-year guidance. The deposits’ stability and the group’s liquidity are also welcomed as BARC has accumulated large excess deposits.

Sanctioned by an over-optimistic market

The group was heavily sanctioned for having failed to beat the market’s expectations, posting contrarian net interest margin attrition and warning of limited interest rate tailwinds ahead.

Strong but unsustainable results

The group posted a strong but unsustainable set of results supported by trading and hedging gains. The CET1 ratio is getting closer to the group’s threshold but the gain will be fully reversed by the anticipated unwinding of the two controversial pension transactions spotted by the regulator last April.

Strong operating performance offset by increased litigation charges

Management’s reluctance to commit to precise short-term guidance signals that the strong first-half operating performance cannot be taken for granted. The return to a sustainable decent profitability level (above 10%) remains a distant objective as reminded by the management itself.

Trading and interest rate tailwinds

The group posted record, albeit partly unsustainable, quarterly results, supported by the trading activities, interest rates and ongoing provision recoveries. Although the coming quarters will see some normalisation, these results enabled the company to reiterate its full-year RoTE guidance.

The misfortune of some is the happiness of others

The announced accident is not good advertising but belongs to an operating risk which is covered (and remunerated) with dedicated equity. We see no reason to over-interpret the block sale that followed the announcement. Based on the past correlation, we believe that the rapid rise in US rates should be strongly supportive for the stock. The recent share price underperformance provides a strong Buy opportunity in our view.

Confirmed 10% RoTE guidance

The quarterly performance was boosted by net provision releases and tax gains which partly offset seasonally lower revenues. Management did not commit to any precise guidance but reiterated its confidence in the group’s ability to maintain the RoTE above 10% over the medium term.

Unexpected but prepared CEO replacement

Mr Staley’s shock departure should not prove too disruptive for the group, in our view, as he leaves the group in good shape and in preferred hands.

Ongoing record revenue generation and benign cost of risk

The third quarter continued to enjoy record CIB revenues and loan provision recoveries. Consensus expectations have now largely aligned with our projections, thus leaving limited upside potential in our view.

Provision releases and equity adjustments boost

The quarter enjoyed stronger-than-expected provision releases and a partial reversal of the first quarter negative equity adjustments, whereas the DTA remeasurement offset ongoing restructuring charges.

Morning Note – 22 April 2024

Benefits of scale set to materialise

Frenkel Topping - Resilient with strong growth potential

FY 2023 was a challenging year for Frenkel with higher interest rates encouraging clients to place money into lower margin money market funds. Despite this, sales grew +32% (supported by recurring revenue +9% and +51% in non-recurring), EBIT margins remained strong at 22% and adj. EPS grew +17% (taking into account the higher number of shares). FY 2024 has seen a solid start to transactional business and there is a strong pipeline of new FUM opportunities both of which support further growth. Wi

LSL Property Services (LSL LN) - Transformation & market recovery

2023 results are, as indicated in its February pre-close update, “slightly ahead of market expectations”. Current trading continues to improve, with 1Q24 underlying operating profit up yoy, “reflecting the benefits of the Group’s transformation programme completed in 2023 as well as improving market conditions.” With net cash of £35m at end 2023, the Board approved 7.4p final DPS and £7m buy back.

Bluefield Solar Income Fund – Fundamentals shine despite discount

The manger comments that, in common with the other trusts in the renewable energy sector, the last six months have continued what has been a challenging period for the Bluefield Solar Income Fund (BSIF). It adds that the trust’s ongoing fundamental performance has failed to reverse a steady slide in its share price which began back in May 2023. Despite this, it says the company has continued to deliver solid NAV growth and market-leading shareholder distributions thanks to a range of contractual

S&U - PBT ahead, encouraging volume trends

S&U reported FY24 PBT of £33.6m, down from £41.4m in FY23 on higher funding and regulatory costs and higher impairments in Advantage in H2. PBT was 2% ahead of our forecast as stronger revenues – up 12% to £115.4m – and better costs offset higher-than-expected impairments. Net receivables grew to a record at both Advantage and Aspen and management noted particular strength in Q4 and a good trading environment in the current year. Having absorbed a significant rise in funding cost as well as addi

Henderson Far East Income - Repositioning to raise total returns

Henderson Far East Income (HFEL) has consistently delivered on its objective to provide a rising dividend. However, like many investors, HFEL’s managers overestimated the potential for a post-pandemic rebound in China. The trust’s resultant overweight to Chinese consumer and other cyclicals led to a fall in portfolio revenues and underperformance in the financial year ended 31 August 2023 (FY23). With a view to improving future returns, HFEL’s board has since indicated an increased willingness t

Hardman & Co Insight: 2023 was an annus horribilis for Quoted UK Infrastructure and Renewable Energy

The focus of Hardman & Co Research is on the nine quoted Infrastructure Investment Companies (IICs) and on the 22 Renewable Energy Infrastructure Funds (REIFs): the stocks analysed are all members of the Association of Investment Companies (AIC). We are updating our publication of January 2023, assessing both the lacklustre share price performances during 2023 and the key issues, including interest rates, inflation and power prices. As a 31-strong group, its combined market capitalisation is no

Foresight Solar Fund - Termination of coverage

Edison Investment Research is terminating coverage on ABC Arbitrage (ABCA), paragon (PGN), Foresight Solar Fund (FSFL), Kendrion (KENDR), Lithium Power International (LPI), Triple Point Energy Transition (TENT), 4iG (4IG), e-therapeutics (ETX), Pharnext (ALPHA) and Shield Therapeutics (STX). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant. Previously published reports can still be accessed via our web

LIBERUM: PensionBee: Strong start to the new financial year

International Public Partnerships - Consistently and responsibly delivering

International Public Partnerships’ (INPP’s) FY23 results show that it continues to deliver consistent and predictable returns for investors, while delivering environmental and social benefits for the individuals and communities that are served by its assets. Despite this strong performance and a substantial need for private infrastructure funding, the macroeconomic environment has weighed on INPP’s share price, in common with the wider sector. Regardless, attractive returns are available from th

LIBERUM: NewRiver: Q4 trading update: Continued operational momentum

Regional REIT - Performing as expected ahead of refinancing

In a challenging market, Regional REIT’s (RGL’s) FY23 operational and financial performance was robust, in line with expectations and previous guidance. Investor focus remains on the company’s loan to value (LTV) reduction and bond refinancing plans, explored in detail in our previous note and RGL will provide an update on this in due course.

Witan

Business as usual for WTAN’s executive team, while the board reviews investment management arrangements…

LIBERUM: PayPoint: On track for £100m of EBITDA in FY 26