RBS takes PPI hit, and AstraZeneca cancer drug investment paying off

“Strong US earnings overnight helped boost markets across Europe on Thursday morning and the FTSE 100 was no exception.

“A strong third quarter update from index heavyweight AstraZeneca also supported a healthy advance for the index,” says AJ Bell Investment Director Russ Mould.

Royal Bank of Scotland

“Nobody loves life admin so it is probably no surprise to see a flood of PPI claims just ahead of the deadline at the end of August.

“That’s cold comfort for Royal Bank of Scotland shareholders who have seen an issue they must have hoped was behind the bank blow a hole through the third quarter numbers.

“The £900m PPI provision was right at the top end of previous guidance pushing the company into a modest statutory loss – a long way short of the £700m plus forecast by analysts on this measure.

“While PPI will take the headlines, performance was disappointing across the board with income, costs and impairments all falling short of expectations.

“At least these results set a pretty low bar for incoming chief executive Alison Rose when she takes over at the beginning of next month.

“Her priorities are likely to include getting underperforming bits of the business like Ulster Bank and Natwest Markets back on track as well as paying out surplus capital.

“Probably the preferred method of doing so would be to start buying back shares from the Government to reduce the 62% stake, or if that proves too tricky perhaps further special dividends.”

AstraZeneca

“It is always nice when results are better than expected for a solid reason, not a lower tax charge or some one-off benefit, but genuine growth.

“That is what’s on display at pharma giant AstraZeneca whose third quarter results see product sales ahead of consensus as its new medicines continue to perform well, with guidance on full year sales also upgraded. The second quarter in a row which has seen a sales upgrade.

“Rocked by the loss of patents on key drugs, an ailing company took its medicine, revamping its management team, scaling back returns to shareholders and increasing investment in the business. The company’s recent financial performance demonstrates the merits of this approach.

“In particular it has prioritised oncology (cancer treatments) and now four of the company’s top ten medicines are from this area.

“Cash is the lifeblood of any company, so it is particularly encouraging to see such a strong performance here with the best part of a $1 billion inflow in the period after capital expenditure – compared with a $334m outflow a year ago on the same measure.

“This should underpin the firm’s strategy of continuing to invest in its portfolio going forward.”

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