Barclays sees PPI surge, and WPP returns to growth

“The UK appears to be in limbo as it awaits an EU decision on whether to grant an extension to the 31 October Brexit deadline and the FTSE 100 is also struggling for direction this morning.

“There was mixed trading in Asia overnight as investors weighed the latest moves in the long-running trade dispute between the US and China,” says AJ Bell Investment Director Russ Mould.

Barclays

“Barclays has rather given to shareholders with one hand and taken away with the other in this morning’s third quarter update.

“The numbers themselves are actually somewhat better than expected despite a further PPI provision of £1.4bn (bang in the middle of the guided level). Like its peers the company appears to be a victim of a late surge in claims as some customers left it until close at the August deadline to act.

“More negatively, the company has raised doubts about its ability to hit a 20% return on equity target in 2020.

“The market is taking the latter news in its stride for two key reasons. First, most people felt this target would prove a stretch anyway so weren’t hanging their hats on the bank hitting the 20% level.

“Second, its excuses for falling short look pretty cast iron and would not be a big surprise to investors. Interest rates are no longer expected to go up, and this puts pressure on the amount banks can charge to lend money. While global and domestic economic and political uncertainty remains elevated.

“Management are having their feet held to the fire thanks to the presence of activist investor Edward Bramson on the shareholder register. He is agitating for a change of strategy – principally scaling back its investment bank.

“This part of the business was actually the star performer in the third quarter which CEO Jes Staley will likely see as ballast to keep on resisting Bramson’s pressure.”

WPP

“The turnaround at the advertising giant WPP appears to be gaining some traction. Once you strip out the Kantar market research business, in which shareholders approved the sale of a majority stake yesterday, like-for-like sales were up 1.9% in the third quarter.

“This positive showing comes after having been firmly in negative territory on this measure in the first and second quarters and despite a weak performance at some of its global peers of late.

“If the company was minded to put its skillset towards marketing these numbers it would have quite a lot to work with.

“Instead chief executive Mark Read, who, probably quite sensibly, has made a habit of keeping expectations in check since taking over in the wake of founder Martin Sorrell’s messy departure last year, is at it again this morning.

“He warns of twists and turns along the way as guidance for 2019 – outlining a drop in like-for-like revenue – is maintained.

“Once a business with lots of moving parts, Read has simplified the structure, bringing more focus to a smaller number of more potent agency brands. This approach has been rewarded with some major client wins including Mondelez and Ebay.

“Read had always signalled 2019 would be a year of consolidation and the progress he has made means he has credit in the bank with investors. However, the company will likely face a higher bar in 2020.”

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