NatWest outlook disappoints, EnQuest complains of windfall tax impact and Purplebricks up for sale

“It was only days ago that investors seemed confident we would only get one or two more small increases in US interest rates and then the Federal Reserve might start cutting rates later in the year. The rhetoric has now changed,” says Russ Mould, investment director at AJ Bell.

“Two Federal Reserve officials yesterday spoke in favour of a 50 basis-point interest rate hike in March from the US central bank. That took the market aback, sending US shares into reverse, and that negativity extended across Asia and Europe on Friday.

“A rate hike of this proportion could easily stop this year’s stock rally in its tracks. Investors might  have become too complacent, assuming that inflation is going to fall and the Fed will no longer have a reason to stay aggressive on rate hikes.

“However, there are signs that some of the inflationary drivers are stickier than previously expected, and the jobs market remains strong. The Fed could argue its monetary tightening has not caused economic distress and so it will stay on its current path of rate hikes.

“In the UK, the latest retail sales figures show that consumers are still spending in the shops in certain areas. Retailer Next saw its share price dip after the ONS figures said clothing stores sales volumes fell by 2.9% in January 2023, following four months of positive growth.

“The FTSE 100 fell back below the 8,000 level as a result of the global market pullback, with NatWest following in Barclays’ footsteps by plummeting on its results. It dragged down Lloyds which reports next week, signalling the market has become nervous about the sector.”

NatWest

“NatWest may have delivered its biggest profit since the financial crisis but investors are far more concerned about what’s coming next and that’s less positive.

“Income for 2023 is now guided to be lower than expected, with the key net interest margin metric also falling short. Costs are also set to be higher than forecast.

“While impairments are anticipated to be a bit lower than estimates the market may be cautious of taking NatWest at its word given the difficult backdrop for consumers and businesses which could lead to a big increase in bad debts.

“With the rate cycle nearing its peak the recent momentum in banking shares could be difficult to maintain. Whether this will act as a catalyst for the government to sell down more of its remaining stake remains to be seen.

“Natwest’s rescue by the state during the financial crisis means criticism of its tardiness in passing on higher interest rates to savers arguably carries more weight and that could have some impact on profitability.”

EnQuest

“Can anybody locate the world’s tiniest violin? Despite booking record cash flows, North Sea oil and gas producer EnQuest is vocal in complaining about the windfall tax.

“While sympathy is likely to be in short supply, the fact EnQuest has accompanied these complaints with a move to abandon planned drilling on its Kraken field may provoke some concern, particularly if other operators follow suit.

“The UK needs all the domestic production it can get right now so it won’t want to do anything to dissuade companies from investing. However, EnQuest may have less room for manoeuvre than some others thanks to its debt pile which, despite being paid down materially last year, remains large.” 

Purplebricks

“Purplebricks dived 13% after putting itself up for sale. The company has been working on a turnaround plan and says it might be better off under a different ownership structure. If you go back to 2017 the shares nearly touched 500p, now they’re languishing at 8.59p.

“It’s hard to see who would rush into buying the business, but someone might think the brand is worth more than the current £26 million market valuation of the company.”

These articles are for information purposes only and are not a personal recommendation or advice.