FTSE 100 higher, Barclays disappoints, Centrica profit soars, too early to see Barbie film effect on Mattel sales and National Express in reverse after name change

“The FTSE 100 shrugged off a weak showing from index heavyweight Shell to trade higher as the narrative of the rate hiking cycle being close to its peak continued to hold sway,” says AJ Bell Investment Director Russ Mould.

“As expected, the US Federal Reserve increased rates by 25 basis points overnight but there was no indication of a definite hike when the central bank next meets in September and there is hope inflation can be brought under control without inflicting too much economic damage across the Atlantic.

“Whether the same is true on this side of the pond remains to be seen – with the European Central Bank, and its counterparts at the Bank of England, facing a more stubborn challenge on inflation.

“Shell’s weak second quarter showing reflected a tough comparison with a period in 2022 of surging energy prices linked to Russia’s invasion of Ukraine. The shares lost a little ground on the update.

“Ocado shares slumped as the head of its solutions business – the out-of-a-box online groceries product sold to global supermarkets which is what historically created excitement around the stock – stepped down. Luke Jensen has been the driving force behind this part of the business and there will be concern his exit will undermine Ocado’s efforts on this front.”

Barclays

“The market does not like the latest round of results from UK banks. Investors gave the thumbs down to Lloyds’ results yesterday and now they are doing the same to Barclays, with its shares down more than 6% in early trading.

“Even though Barclays slightly beat analyst consensus profit forecasts and announced a bigger than expected share buyback of £750 million (consensus: £575 million), there were two points in the results that didn’t go down well.

“First, it has downgraded guidance for UK net interest margins to less than 320 basis points compared to previous guidance of more than 320 basis points. Second, it suffered from a drop in dealmaking for its investment banking arm.

“The idea that higher interest rates make life easy for banks is a misconception. Yes, there is an opportunity to earn more money from lending. However, higher rates can curb activity for consumers and businesses which means investors are increasingly looking at the levels of bad debts among banking customers and in the case of Barclays, whether corporate deals are less common as we move away from the era of cheap financing.

“Higher rates also make the deposit market more competitive – if you look at the best buy tables for savings accounts, all the best deals are being offered by banks most people have never heard of. These companies want to grow their customer base and are offering much higher rates than traditional banks like Barclays so that means they stand a good chance of luring people away from high street players.

“Barclays’ results are far from a mess, but it doesn’t take much to disappoint the market and its latest results have certainly hit the nerve as far as investors are concerned.”

Centrica

“British Gas owner Centrica won’t be winning a popularity contest with the public anytime soon, but shareholders may not be too bothered.

“The massive increase in first-half profit reflects the impact on its retail energy-facing business of a lifting of the price cap but the contribution made by its energy marketing and trading division, helped by the big volatility in commodity prices, should not be ignored.

“The strengths of Centrica’s integrated model have really come to the fore in recent times and after several lean years, the company is able to reward investors handsomely – lifting its dividend substantially and extending a share buyback.

“Centrica needs to tread carefully given many households are struggling to pay the bills. The scandal over forced installation of pre-payment meters means the company is already skating on thin ice.

“Political and regulatory pressure may mount on the business if it continues to show largesse with its shareholder returns while taking a hard line with vulnerable customers. All in all, these stonking numbers could put Centrica in the firing line.”

Mattel

“Shares in Barbie brand owner Mattel have been moving higher in recent weeks around the buzz for the film which has been a mega hit at the box office.

“The slight dip in its share price following Mattel’s quarterly results is probably down to investors disappointed at not seeing a surge in merchandise income related to the film, as they will have to wait a bit longer to see if that has happened.

“At the 30 June period end, the buzz around the film hadn’t translated into a surge in merchandise sales as film-related product promotions didn’t start until after the end of the quarter.

“That means its next set of results in three months’ time will be the ones to gauge if film interest has extended to the shop floor.

“The hype around the film has surpassed everyone’s expectations. It has encouraged more people to return to the cinemas and the general consensus is that the film is highly enjoyable, which creates a positive feeling which could extend to merchandise sales.

“Mattel is banking on its intellectual property having a new lease of life, but the big unknown is whether this simply causes a short-term boost in Barbie-related sales – perhaps benefitting branded clothing and accessories more than dolls – or if it is really the start of something long-lasting, reinvigorating Barbie’s evergreen properties.”

Mobico

“The renamed National Express – Mobico – may be looking for another identity shift after today’s first-half numbers went down like a lead balloon.

“The transport company has been hit by the withdrawal of Covid-related support and a big increase in costs – notably on wages.

“Like a coach which has been delayed on the first leg of its journey but promises it can make up time after a stop at Watford Gap, Mobico is confident cost reduction measures can make up for the inflationary pressures seen in the first half and that there will be a pronounced second-half weighting in 2023.

“In both cases this is often a recipe for disappointment and investors will be wary of a profit warning if Mobico cannot make up the shortfall.”

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