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Market Outlook: Tesco dips on bank bad loan provisions, US banks flip on Fed stress tests and Volcker Rule change

London equities look set to end the week on a positive note
Market Outlook: Tesco dips on bank bad loan provisions, US banks flip on Fed stress tests and Volcker Rule change

Tesco shares slipped on the open despite surging sales online and in-store. Due to the economic situation and expected rise in unemployment, the company has increased provisions for bad debts at Tesco Bank, which will result in a loss of £175m-£200m for the 2020/21 financial year. In April management had flagged a likely loss at the bank this year versus £193m in operating profit last year. This will weigh on group profits for the year and while grocery sales are much better, profits may struggle to follow the kind of yoy progress.. At the core business, sales are of course exceptionally strong online (+48%) and roaring ahead in-store too. Total sales in the core UK & ROI business increased by 9.2 per cent. Booker was up 6 per cent, with the –32 per cent decline in catering offset by a +24 per cent increase in retail. The decision to match Aldi on prices means lower margins for core consumer division, whilst online operations are costly to maintain, particularly as the business has responded to such a surge in demand. But in big retail you have to keep running. Shares are down 11 per cent YTD.

 

UK company announcements

  
Marlowe (MRL)

The group is buying management software and services provider Elogbooks for £7.35m. It is also conducting a placing to raise at least £35m to fund the acquisition and other M&A opportunities in what it sees as a favourable climate.

Gulf Keystone Petroleum (GKP)

After five years in post, chief executive Jón Ferrier is set to retire and a formal search process for his successor has begun. At the recent annual general meeting, 28 per cent of shareholders voting objected to Mr Ferrier’s reappointment as a director.

John Menzies (MNZS)

Chief executive Giles Wilson will leave the group at the end of August to become chief financial officer at spirits distiller William Grant & Sons. Rather than being replaced, executive chairman Philip Joeinig will take on a more active role.

Keywords Studios (KWS)

The video game developer announced the acquisition of Coconut Lizard Limited for a consideration of up to £2m. The company has an expertise in the development tool ‘Unreal Engine’.

IQE (IQE)

The UK government has approved a £44m semiconductor research and development project in South Wales with 12 partners, including IQE.

Tesco (TSCO)

The supermarket group recorded strong first quarter like-for-like sales growth of 8.2 per cent, but has increased its bad debt provision for Tesco Bank and expects an operating loss of £175m to £200m here.

888 Holdings (888)

Shares in the online gaming operator rose 12 per cent in early trading after 888 said that adjusted cash profits for the year will sit significantly above expectations. In recent weeks, average daily revenue has been 34 per cent higher than the prior year.

Marston's (MARS)

The pub and brewing group plunged into a half year pre-tax loss of £33.2m, as Marston's estimated the impact of coronavirus on turnover at around £40m. Marston's also recorded £16m in Covid-related costs, including bad debt provisions and changes to stock valuation.

Intu (INTU)

Discussions with creditors have been unable to yield suffient "alignment and agreement" on terms for a standstill agreement, ahead of today's expiry of the covenant waiver. The shopping centre owner said the board was considering its position to best protect the interests of stakeholders, which will likely involve administrators being appointed. The group had been battling structural challenges long prior to the pandemic that left it unable to service its debt.

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