Next week on the stock market

Among FTSE 100, FTSE 250 and selected other companies scheduled to report next week:

• RSA will update us on profitability over lockdown
• Sales numbers and liquidity are the order of the day at Next
• The banks give us an update on what the coronavirus outbreak means for corporate and consumer lending

FTSE 100, FTSE 250 and selected other stocks scheduled to report next week

*Companies on which we will be writing research.

RSA – Nicholas Hyett, Equity Analyst

The insurance industry is currently watching the progress of legal challenges the Financial Conduct Authority has brought to test the wording of business interruption insurance contracts. RSA is involved in a few of the cases, but not because it’s on the hook for an outsized share of these contracts. At the end of April RSA had only received around £25m worth of valid claims for travel, wedding cancellation and business interruption related policies, net of reinsurance. We’re not overly concerned by the potential impact these cases could have on RSA, and would expect reinsurance policies to absorb a lot of the cost if rulings are unfavourable.

When it comes to the detail we’ll be looking at the balance sheet, premiums and profitability.

Financial markets have been quite volatile over the past few months, although conditions have calmed recently and interest rates have stayed low. Exactly what effect that will have on capital reserves is unclear, but the dividend has been cut nonetheless following pressure from the regulator. We will be interested to see the net effect on Solvency ratios, though we expect the impact to have been broadly positive.

Premiums were down slightly in the first quarter, but profitability is harder to predict. Motor claims should be lower as fewer of us drove over lockdown, but other claims and social distancing costs may offset this.

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Next - Sophie Lund-Yates, Equity Analyst

Coronavirus hit Next hard, with sales falling even faster than initial stress testing predicted. Total full price sales fell 38% in the period 26 January - 25 April.

Next week’s trading statement will give us an idea of where Next is headed for the full year. At the moment it thinks that the worst case scenario will see sales fall 40%, and the median outcome will see these down 35%. In that event, full year profit will be £0. While the situation is still developing, the Q2 numbers should shed some light on which trajectory is looking more likely.

Beyond this we’ll be looking for news about the balance sheet. This isn’t traditional in trading statements, but we suspect Next might let us behind the curtain because of current circumstances. Last time we heard, Next thought it was “unlikely” it would need to borrow through the government's Covid Corporate Financing Facility. Nonetheless it will be good to see what shape the group’s liquidity position is in, and whether or not it’s had to draft in extra help.

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NatWest Group – Nicholas Hyett, Equity Analyst

This will be the first time NatWest Group reports since adopting its new name, the group was formerly Royal Bank of Scotland, and will also give us an insight into how the coronavirus outbreak is affecting lending.

We expect a significant increase in corporate lending, driven by government initiatives to help smaller businesses. Meanwhile consumer lending looks set to fall – with the Bank of England reporting significantly lower credit card and unsecured debt across the industry. What this change in lending composition, together with the decline in interest rates on client savings accounts, means for net interest margins remains to be seen.

The other big question is around defaults. NatWest has a relatively large number of small business customers – so we might expect a reasonably high level of defaults. It’s early days though, and with significant provisions for bad loans already in place more would be a bad sign.

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