When we see such a concentrated burst of reporting activity my instinct is to try and pull together some general observations from the many specific stories we’re hearing – a task which at the highest level is never easy. Although you will often hear talk that markets are overvalued, when you look at a more granular level it is very clear that this does not mean that all shares are overvalued. Thus my first observation is that even though both US and UK markets are still flirting with record highs, progression is being supported by earnings growth and there is still plenty of opportunities out there.
Sector-level analysis is perhaps easier – and more useful – as industry peers often report simultaneously. All four British banking heavyweights are covered in this issue, for instance and their results are largely encouraging. Levels of capital are in all cases comfortably above past danger levels, supported by divestment programmes and brutal cost reduction initiatives which mean dividends are – Standard Chartered aside – flowing again.
The sector also appears to be far less exposed to property than it once was; just as well because more poor results from listed estate agencies Foxtons and Countrywide suggest that the market is indeed cooling. However, the listed property sector offers another reminder that markets are not homogenous. Rightmove somehow continues to buck the trend, and housebuilders such as Taylor Wimpey are still churning out profits and dividends. Strong results from the likes of Unite and Primary Health Properties also remind us that specific trends within broader sectors – booming university entrance and rising healthcare spending, respectively – can offer chunky returns even if the broader picture isn’t necessarily rosy.
Given my recently expressed worries about oil and electric vehicles it was nice to see decent headline numbers from Shell and BP, but the latter’s talk of a “new oil price environment” hasn’t entirely allayed my concerns that the dividends will keep flowing indefinitely – Shell’s still looks safest, but my advice stands that investors will need to keep a watchful eye on their hydrocarbon exposure and be ready to trim their sails accordingly.
For a case in point of how quickly an industry outlook can shift for the worse look no further than British American Tobacco. Again, unsurprisingly, its results were strong, but the threat of a legislative challenge to tobacco use in the US shook the sector – BAT’s shares fell 10 per cent, Imperial Brands’ by seven. Just as oil majors are upping their investments in sustainable energy, so the tobacco giants are investing in smoking alternatives like e-cigarettes. But like oil majors the balance of their business is still doing what it has done for a century – not a habit easily broken.
