Lloyds Banking on Wednesday reported a dip in first quarter profit and noted that the outlook for the UK economy ‘remains uncertain’, but the lender still upgraded its guidance for all of 2022.

Underlying net interest income for the first quarter of 2022 rose 10% to £2.95 billion, with total net income for the period up 12% to £4.11 billion. Despite this increase, pretax profit fell 14% to £1.62 billion, with Lloyds’s profit hit by a £177 million underlying impairment versus a net credit of £360 million a year before.

The impairment reflects ‘a low incurred charge and limited impact from revised economic outlook, including higher inflation offset by stronger house prices and unemployment.’

‘In the first three months of 2022, we delivered solid financial performance, with strong income growth and capital build. These results demonstrate the consistent strength of our business model,’ said Chief Executive Charlie Nunn.

‘Whilst we are seeing continued recovery from the coronavirus pandemic, the outlook for the UK economy remains uncertain, particularly with regards to the persistency and impact of higher inflation.’

Nunn took over as CEO back in August of last year.

Given the solid start to the year, Lloyds now expects its full-year banking net interest margin to be above 270 basis points, versus guidance of 260 basis points previously, and return on tangible equity to be greater than 11%, versus a prior prediction of around 10%. This compares to a banking net interest margin of 2.68% in the first quarter and RoTE of 10.8%.

On Tuesday, London-based peer HSBC also had reported lower first-quarter profit and for the same reason. In the three months to March 31, the Asia-focused lender recorded $4.17 billion in pretax profit, down 28% from $5.78 billion in the same period the year prior.

HSBC blamed this on a net charge for expected credit losses and other credit impairment charges in the first quarter, compared with a net release the year before. The bank booked a $642 million ECL charge versus a $435 million release last year.

Lloyds shares were up 1.5% early Wednesday, bucking a slightly lower FTSE 100.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100:down 0.1% at 7,376.06

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Hang Seng: up 0.3% at 19,989.16

Nikkei 225: closed down 1.2% at 26,386.63

S&P/ASX 200: closed down 0.8% at 7,261.20

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DJIA: closed down 809.28 points, or 2.4%, at 33,240.18

S&P 500: closed down 120.92 points, or 2.8%, at 4,175.20

Nasdaq Composite: closed down 514.11 points, or 4.0%, at 12,490.74

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EUR: down at $1.0624 ($1.0655)

GBP: down at $1.2574 ($1.2622)

USD: up at JP¥128.00 (JP¥127.27)

Gold: down at $1,899.50 per ounce ($1,903.55)

Oil (Brent): up at $105.47 a barrel ($103.65)

(changes since previous London equities close)

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ECONOMICS AND GENERAL

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Wednesday’s key economic events still to come

1100 BST UK CBI distributive trades survey

0700 EDT US MBA weekly mortgage applications survey

0830 EDT US trade in goods and monthly retail inventories

1000 EDT US housing vacancies

1000 EDT US pending home sales index

1030 EDT US EIA weekly petroleum status report

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Ukraine announced that Russian forces had pushed deeper into the east of the country and captured several villages, as part of Moscow’s offensive to take control of Donbas. Moscow said earlier this month it was withdrawing its invading troops from around the capital Kyiv to focus its military efforts on capturing Donetsk and Lugansk in east Ukraine. The defence ministry said that Russian forces had pushed out Kyiv’s army from Velyka Komyshuvakha and Zavody in the Kharkiv region and had gained control over Zarichne and Novotoshkivske in the Donetsk region.

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The mood of consumers in Germany has plunged to an all-time low as the Russian invasion of Ukraine saps confidence in Europe’s largest economy, according to a key survey. Pollster GfK’s forward-looking barometer fell to minus 26.5 points for May from a revised minus 15.7 points in April. The drop represents ‘a new historic low’, GfK said in a statement. The previous low point had been in May 2020, when the index reached minus 23.1 points amid the first lockdowns to curb the coronavirus pandemic.

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BROKER RATING CHANGES

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Goldman Sachs cuts AB Foods price target to 1,775 (2,015) pence - ’sell’

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Barclays cuts AB Foods price target to 2,300 (2,500) pence - ’overweight’

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JPMorgan cuts AB Foods price target to 1,940 (2,100) pence - ’overweight’

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COMPANIES - FTSE 100

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Pharmaceutical firm GlaxoSmithKline reported first quarter earnings growth amid ‘cost discipline’ as it readies the demerger of consumer healthcare firm Haleon in the summer. Revenue in the first quarter of 2022 was £9.78 billion, up 32% from a year ago. Pretax profit jumped 71% to £2.60 billion from £1.52 billion year-on-year. Following the results, GSK affirmed its full-year outlook and said it is on track to demerge and list Haleon in July. ‘We have delivered strong first quarter results in this landmark year for GSK, as we separate Consumer Healthcare and start a new period of sustained growth. Our results reflect further good momentum across specialty medicines and vaccines, including the return to strong sales growth for Shingrix and continuing pipeline progress,’ said Chief Executive Emma Walmsley. GSK declared a quarterly dividend of 14 pence, down from 19p a year ago. It expects to pay 27p for the first half of 2022, split as 22p from the remaining business - referred to as new GSK - and 5p from the consumer business. New GSK will pay a 22p dividend for the second half of 2022 as well and 45p for 2023, the company said.

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Aveva warned that revenue growth in its current financial year is expected to slow and margins are set to reduce amid cost pressures. The firm said it delivered a strong end to its 2022 financial year, which finished on March 31. It registered revenue growth of 18% in the fourth quarter on a pro forma organic constant currency basis, with full-year growth of 7%. Aveva aims to drive an acceleration in annual recurring revenue growth in the recently commenced financial year to a level of 15% to 20%. As ARR accelerates, it cautioned, reported revenue will be impacted by the timing of revenue recognition. In addition to this, revenue will be knocked by the war in Ukraine and sanctions on Russia - though Aveva noted that Russia is a ‘relatively small’ market for the group. Adjusted earnings before interest and tax in the current financial year will be pressured by additional costs, including wage inflation, increased travel and event costs post-Covid and investment, the company said. ‘Taking all of these factors into account, revenue growth is expected to be lower in FY23 than in FY22 and adjusted Ebit margin is expected to reduce, before resuming growth in FY24,’ Aveva said.

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Advertising and marketing firm WPP reported first-quarter revenue less pass-through costs growth of 9.5% on a like-for-like basis. It now expects full-year growth to be in the region of 5.5% to 6.5%, up from ‘around 5%’ previously. ‘Demand is strong for our services, particularly in digital media, e-commerce, data and marketing technology,’ said Chief Executive Mark Read.

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London Stock Exchange Group said it is on track to meet all financial targets despite expecting a hit from actions taken in response to Russia’s invasion of Ukraine. Total income excluding recoveries was £1.75 billion in the first three months of 2022, up 8.0% on a year before. Gross profit rose 7.6% to £1.59 billion. The revenue hit from Russia’s invasion of Ukraine is anticipated to be around £60 million in 2022. ‘Most of the impact reflects the suspension of Data & Analytics services to customers in Russia, with the largest impact in Trading & Banking,’ LSEG said. More positively, the company said it had achieved £25 million in run-rate revenue synergies by the end of the March from its acquisition of Data & Analytics firm Refinitiv.

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COMPANIES - FTSE 250

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WH Smith swung to a half-year profit with its pandemic recovery ‘underway’. The stationary and magazines retailer posted a pretax profit of £18 million for the six months to the end of February, turning from a loss of £38 million year-on-year. ‘The group has delivered a good performance with a strong rebound in profitability. We have seen a recovery across all our travel markets despite the impact of the Omicron variant in Q2, and we are in a strong position to capture growth as the recovery continues,’ said Chief Executive Carl Cowling.

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Electricity generator Drax said it expects full-year adjusted Ebitda around the top end of current range of analyst expectations after reporting a strong system support performance during the first three months of 2022.

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COMPANIES - SMALL CAP

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Ted Baker said it has received ‘a number of non-binding proposals from potentially interested parties’ in response to the formal sale process that it launched at the start of April. The retailer said it will invite a ‘focused selection’ of the bidders to enter due diligence. It said there is no guarantee that a takeover offer will be made. Ted Baker said it will release its results for the financial year that ended on January 29, as well as a first-quarter trading update, on May 26.

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COMPANIES - GLOBAL

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Deutsche Bank reported its highest quarterly profit in nine years in the first quarter, with all of the bank’s units performing in line or ahead of expectations. In the three months to March 31, the Frankfurt-based lender recorded pretax profit of €1.66 billion, up from €1.59 billion in the same period the year prior. Holding profit back, however, was a sharp rise in credit provisions - which increased to €292 million from €69 million. Deutsche noted the rise reflects ‘rating migrations and overlays to reflect macro-economic uncertainties.’ Deutsche’s cost-to-income ratio improved to 73% from 77%. Total net revenue was up to €7.33 billion from €7.23 billion, with the bank enjoying a rise in income from all of its businesses.

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German automaker Mercedes-Benz said higher sales prices enabled it to lift its bottom line slightly in the first three months of the year, despite a shortage of semiconductors and fallout from the war in Ukraine. Mercedes-Benz said it booked net profit of €3.6 billion in the period from January to March, an increase of 3% over the same period last year. Underlying or operating profit rose by 11% to €5.2 billion on a 6% increase in revenue to €35 billion. The Stuttgart-based carmaker said its results were boosted by a ‘sharpened focus on top-end vehicles and premium vans, combined with ongoing cost discipline...even as the Covid-19 pandemic, semiconductor supply-chain bottlenecks and war in Ukraine continued to impact business.’

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Wednesday’s shareholder meetings

Drax Group PLC - AGM

EP Global Opportunities Trust PLC - AGM

Global Invacom Group Ltd - AGM

Hutchmed (China) Ltd - AGM

London Stock Exchange Group PLC - AGM

McKay Securities PLC - GM re Workspace offer

Nichols PLC - AGM

Persimmon PLC - AGM

Primary Health Properties PLC - AGM

VH Global Sustainable Energy Opportunities PLC - AGM

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