Daily market update: Barclays, Reckitt, Halfords, ITV

Markets were patchy in early trading as investors spent time to digest a plethora of corporate announcements.

The FTSE 100 was the strongest market among major European indices. A lower-than-expected reading of UK inflation makes a near-term cut to interest rates more likely and this boosted housebuilders. It also led to weakness in the pound which is typically good news for the FTSE 100 because it increases the relative value of the overseas earnings which dominate the index.

Banks were higher off the back of a reassuring third-quarter update from Barclays, and precious metals miners bounced back after a recovery in gold prices from the recent sell-off.

Barclays

If investors were looking for some reassurance after a tricky little spell for the banking sector then Barclays has provided it.

Barclays was caught up in market concerns about the US private credit situation last week, with the company having some direct exposure to the collapse of sub-prime auto lender and car retailer Tricolor. It also has the broadest US exposure among its London-listed peers.

However, the scale of the share buyback announcement unveiled today does not smack of a business in panic mode, nor does an increase in the guidance for the full year. A decision to move to quarterly buyback announcements is an interesting one and could mean shareholders come to expect a return of capital in this way on a regular basis.

Barclays is undergoing a review of its loan portfolio, and the market may remain wary for some time until it has confidence that there are no more skeletons in the closet.

There was also an increase in provisions linked to the car finance mis-selling scandal but this would have been widely expected after the details of a compensation scheme were outlined earlier this month. This, and a provision in its investment banking business, meant income was slightly below forecasts for the quarter.

Ultimately, this was a decent start to the banking sector earnings season in the UK as the industry tries to rebuild investor confidence.

Reckitt

Much of the growth delivered by the big consumer goods companies in recent times has come from emerging markets, with sales in the developed world proving more sluggish.

Having secured a deal to sell a majority stake in its Essential Home cleaning products division earlier this year, the focus is on how the so-called ‘Core Reckitt’ products are performing. Like-for-like growth is materially ahead of expectations, which is encouraging. The performance of Essential Home confirms why Reckitt is happy to sell and the market will hope this process can be completed as planned by the end of the year.

On paper, the revenue growth for its Mead Johnson infant nutrition business is eye-catching. This reflects an unusually weak performance for the same period a year ago thanks to tornado disruption.

There is still likely to be focus on the destiny of this part of the group, whose $18 billion capture in 2017 has proved to be little short of a disaster. Litigation risk for this business complicates any sale process.

Growth may be back on the menu in the developed world for Reckitt but emerging markets continue to lead the way. The threat posed by unbranded alternatives is less in emerging markets and, for reasons of quality and safety, shoppers will stick with familiar names where possible.

Halfords

Halfords finally seems to have fixed its engine. It has reported growth across the board, higher margins, and strong cash generation. That’s quite a recovery from the spluttering performance Halfords has delivered in recent years.

Investors lapped up the news, putting fuel back in the tank for the share price. It’s an encouraging update, but not enough for Halfords to upgrade its full-year outlook. Investors might not care as any progress is welcome given the retailer’s disappointing track record.

ITV

Dan Coatsworth, Head of Markets at AJ Bell, comments:

Liberty Global halving its stake in ITV is a significant development as it effectively removes a potential blocker if someone makes a takeover offer for the media group.

Liberty Global previously held 10% of ITV which effectively gave it a front seat to either consider a bid down the line, or to stop others swooping in on the cheap. It originally bought a 6.4% stake from Sky and then topped up, citing the stake purely as an investment.

Over the years, Liberty Global showed no interest in wanting to own ITV outright but it stayed put on the shareholder register, quietly observing as the media group was subject to perennial bid talk.

For years, people have speculated that ITV would be an attractive takeover target as its shares were cheap and it offered a mixture of broadcasting and content creation skills.

Various production companies, private equity and even Netflix have been touted as potential buyers for ITV, but there has always been the sticky issue of whether someone would want the whole company or just the studios arm.

Liberty Global selling down is likely to rekindle speculation over who might want to buy the business. Before that might happen, investors need to digest why ITV’s biggest shareholder has taken its first steps down the exit path.

ITV’s shares are down as the £135 million sale implies that Liberty Global offloaded its block of shares at below last night’s closing price. Investors might be concerned as to why Liberty Global has chosen to sell half of its position at time when the shares were trading close to a six-month low. Many large investors wait for a share price to be high before selling down.