Natwest underwhelms despite profit beating expectations and International Consolidated Airlines still losing money

“It’s looking like a soggy end to July both in meteorological terms and with the markets as so-so numbers from Amazon and a sell-off in Asia linked to Covid concerns had a dampening effect on sentiment,” says AJ Bell Financial Analyst Danni Hewson.

“Disappointing results from highly rated testing specialist Intertek and International Consolidated Airlines as well as a downbeat reaction to Natwest's latest numbers did little to lift the mood.

“The mining sector also slumped and investors continued to fret about the Chinese crackdown on its technology sector, despite Beijing’s efforts to dial back some of its recent rhetoric. There was talk about targeted rather than broad-based action.

“As the flood of corporate updates on both sides of the Atlantic slows to a stream and then a trickle, we enter the summer lull for the markets – although this can be a dangerous time for equities.

“With experienced investors away from their desks on holiday and trading volumes lower, it sometimes doesn’t take much for a market correction to begin and with Covid-19, inflationary pressures and regulatory crackdowns all in the background, there are a plenty of a potential catalysts for a sell-off.”

Natwest

“Increased distributions to shareholders and better than expected results following up on last week’s road map to full privatisation – you’d think the market would be made up with Natwest.

“However, its latest results have been met with a shrug as investors reflect on the lack of any special dividend, the fact that the better-than-expected profit was mainly driven by the release of provisions built up as a buffer in the pandemic and the sobering reality that even if the Government sells 15% of its stake as planned and returns Natwest to private control, it will still own a chunky 40% of the business.

“By placing shares gradually over the next 12 months, the Government could put something of a ceiling on Natwest’s share price and the key net interest margin metric – basically showing how profitable its banking operations are – was also slightly disappointing as it dropped quarter-on-quarter.

“The ultimate reality is that despite rebranding as Natwest from Royal Bank of Scotland, the company is still working incredibly hard to escape the full extent of the damage wrought by the financial crisis more than a decade ago.

“Current CEO Alison Rose is just the latest person to try and lift a business which was left on its knees by its disgraced former boss Fred Goodwin in 2009. She has done a solid job and has steered Natwest successfully through another crisis in the form of the coronavirus pandemic.

“Will 2022 finally be the year she can start operating without one hand tied behind her back due to the majority of the bank being owned by the taxpayer?”

International Consolidated Airlines

“Airlines are losing significant amounts of money and the situation won’t change until travel restrictions ease and people feel more confident travelling. As such, the industry is playing a waiting game and what really matters is how much cash they can access.

“International Consolidated Airlines has just over €10 billion of liquidity, which means it isn’t panicking, and helping matters is that the company has reported an improvement in operating cash flow.

“The airline will have to think long and hard about its future post-pandemic. It seems inevitable that business class travel could experience a structural change, with demand lower than pre-Covid as companies have realised it is more convenient to hold a meeting over Zoom or Teams than waste hours and money travelling overseas for an hour’s chat. Reducing the number of flights staff take would also help companies to meet environmental goals, something that is now a boardroom issue.

“International Consolidated Airlines has historically made a good chunk of its earnings from flying people from the UK to the US and back, and now it might have to shift its marketing strategy to target more consumers than business travellers for this route.

“Leisure travel won’t be as profitable as business travel, so the airline will have to think about additional ways to make money. However, working in its favour is the withdrawal of Norwegian from this route, meaning International Consolidated Airlines has a chance to increase its market share.”

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