Strong results help FTSE move higher, HSBC resists break up call & pledges quarterly dividend and publisher Pearson profits

“The FTSE 100 started the week higher following some relatively positive corporate updates, notably from index heavyweight HSBC,” says AJ Bell Investment Director Russ Mould.

“Education publishing specialist Pearson was among the winners on Monday as it stuck with full year guidance and reported a significant increase in profit following stronger sales.

“The increasingly digital-focused company is less exposed to some of the cost pressures facing other types of businesses and this is helping it in the current environment.

“For a long time Pearson has been negatively impacted by structural changes in its market which saw demand for high-margin sales of expensive physical, academic textbooks disappear. Now the business seems to have got its act together to face a world where an increasing amount of learning is done online.

“Based on the bare facts alone, JD Sports acquisition of FootAsylum has been a costly mistake. Forced to sell by the competition regulator, it has made a pretty staggering loss of nearly 60% on an investment made just three years ago.

“However, the real costs run greater than just the financial. Events surrounding the doomed transaction contributed to the departure of its executive chairman Peter Cowgill, after a highly successful tenure, and damaged the company’s reputation for good governance.

“Elsewhere, oil prices were under pressure after weak Chinese manufacturing figures which really show the continuing impact of lockdowns on the country’s economy. China remains one of the biggest consumers of oil and other commodities.”

HSBC

“Breaking up is never easy to do and HSBC is being pretty steadfast in resisting the push from major shareholder Ping An to divorce its Asian operations from the rest of the bank and list that part in Hong Kong.

“As it looks to resist the pressure for a split the company is hoping to win shareholders over with a pledge to pay quarterly dividends again from next year, as well as boosting its profitability goals.

“The dividend pledge is important as many of its Hong Kong shareholders, under its existing dual-listed arrangement, were mightily unimpressed with the suspension of dividend payments during the pandemic.

“However, this is unlikely to do enough to satisfy Ping An’s appetite for major structural change and this battle of wills is likely to continue for the time being at least.

“For the health of the UK market it is probably preferable that HSBC’s management prevail, as such a move might threaten the status of one of London’s largest listed names.

“As evidence for the merits of HSBC’s current strategy, today’s first half results were, for the most part, pretty favourable.

“Profit came in ahead of expectations, if a little below last year’s total as the company was forced to set aside cash to cover bad debts. Driving efficiencies at a supertanker of a business like HSBC is far from easy but the tight control on costs suggests that CEO Noel Quinn and his team are doing a decent job.

“However, in a development which will add weight to Ping An’s argument for a break up, the Asian business increased its contribution to the overall group to nearly 70%.”

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