Must read: NatWest, BAT, Reckitt Benckiser, Rolls-Royce

Our head of investment rounds up the morning's big news.

GLOBAL MARKETS

After six sessions of gains for the FTSE 100, the UK blue-chip index is hovering below the flatline, swinging between gains and losses amid a mixed session for European markets.

Focus is on UK corporate reports as well as NatWest Group (LSE:NWG)’s CEO resignation. Stateside, earnings season is in full swing, with mixed results from the tech sector last night including from Microsoft Corp (NASDAQ:MSFT) and Alphabet Inc Class A (NASDAQ:GOOGL) after the bell. All eyes are on the Federal Reserve’s rate decision tonight, with markets pricing in a 25-basis point hike, lifting its benchmark borrowing rate to 5.25-5.5%. 

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NATWEST 

NatWest’s CEO Dame Alison Rose has agreed to step down with immediate effect following criticisms that she leaked false information about Nigel Farage’s bank account to a BBC journalist. Dame Alison said she made a ‘serious error of judgement’, while Farage said ‘others must follow’ her departure. Paul Thwaite, the current chief executive of its commercial and institutional business, will take over for an initial 12-month period. 

As the first woman to take the top job at one of the big four UK banks back in 2019, this is a sad moment for female representation and means that the small handful of women leaders within FTSE 100 companies just got smaller. She was a role model to many and a champion of diversity and inclusion. But clearly her discussions with a journalist about Farage breach client confidentiality and mean her role as CEO is no longer tenable.  

She helped steer the lender through the tumultuous pandemic period and spearheaded NatWest’s rebranding away from RBS, a name that was heavily tarnished by its near collapse during the global financial crisis and subsequent government bailout. The bank is still 39% owned by the taxpayer today. 

Shares in NatWest have shed more than 3% this morning, stuck near the bottom of the FTSE 100, highlighting the disappointment and surprise among investors about Dame Alison’s departure, as well as the uncertainty around the bank’s future direction without her. 

BRITISH AMERICAN TOBACCO 

British American Tobacco (LSE:BATS) reported half-year profit from operations up 61.4% to £5.94 billion while revenues rose 4.4% to £13.44 billion. It reiterated its full-year guidance but warned that global tobacco industry volumes are expected to fall 3% this year, partly due to uncertainty over Russia and Ukraine as well as weakness in the United States. CEO Tadeu Marroco who has been in the role for just 10 weeks warned of a ‘challenging external environment.’ He was the continuity candidate, aligning with former CEO Jack Bowles’ strategy to focus on growing cigarette alternative products such as vapes. 

BAT has enjoyed impressive growth on the top and bottom lines thanks to the rapid growth of vapes and e-cigarettes, the post-Covid revival of duty-free shopping, and successful price increases. This has helped offset its £957 million charge relating to its Russian business. 

The stock is trading higher today after its first-half profit surpassed expectations. However, shares in BAT have underperformed the FTSE 100 recently, down almost 20% year-to-date. Despite this, the stock continues to pique the interest of dividend investors with an alluring annual yield of over 8.5%.

RECKITT BENCKISER

Consumer goods giant Reckitt Benckiser Group (LSE:RKT) reported quarterly like-for-like revenue up 4.1%, beating analysts’ expectations for growth of 3.7% with strength in its hygiene and health divisions while nutrition struggled. But first-half revenue reached £7.446 billion, just shy of estimates for £7.461 billion and H1 adjusted operating margin dropped 180bps year-on-year to 23.8%. 

The group behind brands like Dettol and Vanish maintained its 2023 like-for-like net revenue growth target of between 3% and 5%. It now expects adjusted operating margins ‘to be slightly above 2022 levels’ upgraded from ‘in line or slightly above’ in its previous guidance. It also raised its dividend to 76.6p in the first half, up from 73p year-on-year. 

Following on from results from rival Unilever (LSE:ULVR) on Tuesday, which sent shares sharply higher, Reckitt Benckiser has benefitted from improved pricing, productivity efficiencies and foreign exchange benefits. However, it has been dealing with headwinds from higher fixed costs and employee compensation driven by the inflationary backdrop. It is also facing tough comparables versus last year when it benefitted from a rival’s baby formula shortage in the US. 

Reckitt has been among the businesses accused of ‘profiteering’ from the inflationary environment this year by hiking prices to preserve profit margins at the expense of its customers. As a vendor of essential items such as cleaning products, arguably it has the pricing power to charge customers more without denting demand. However, the risk is that customers trade down to cheaper supermarket unbranded alternatives amid the cost-of-living crisis. Reckitt needs to strike the balance between generating earnings and dividends to appeal to shareholders, while simultaneously charging fair prices to customers and avoiding criticisms of ‘greedflation’ if profits are too high. 

Unlike rival Unilever, which soared to the top of the FTSE 100 after earnings yesterday, Reckitt shares are under pressure, wiping out most of their year-to-date gains. The stock is being weighed down by its first-half revenue miss. Plus, after yesterday’s Unilever-driven gains, perhaps some of today’s good news was already priced ahead of the open.

ROLLS ROYCE 

Rolls-Royce Holdings (LSE:RR.) has raised its full-year operating profit forecasts by around 45%. It anticipates profit to reach between £1.2 billion and £1.4 billion this year, versus previous guidance for between £800 million and £1 billion. 

Rolls Royce shares have had an incredible run so far in 2023. Things couldn’t be going much better for CEO Tufan Erginbilgic who took to the helm at the start of the year. His transformation plan across divisions is clearly bearing fruit with a sharp improvement in its operations, the post-Covid revival in flying hours as well as increased defence spending on the back of the war in Ukraine. In May, Erginbilgic said the turnaround was moving at pace. 

For years, the engine maker failed to rev up investor confidence, with the stock sliding from the highs in 2014 to the trough during the challenging pandemic period. Now, Rolls Royce is the best performing stock on the FTSE 100 over the past six months and the second best over the past year. 

Shares in Rolls Royce have surged more than 20% today, hitting the highest level since March 2020. This is lifting the broader FTSE 350 aerospace and defence index sharply higher, which is on track for its best one-day gain since August 2021.