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What can investors expect in February?

30 January 2019

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

You might be sick of hearing about it, and honestly, so are we, but Brexit will continue to be the dominant issue for UK investors in February.

Ongoing trade tensions between China and the US mean emerging markets haven’t escaped the gloom either. But at least the government shutdown is now over.

Fortunately the corporate calendar is a little more predictable than politicians, and there are several events worth paying attention to in February.

Remember this article isn’t personal advice, if you’re not sure if an investment is right for you, you should always seek advice. All investments can rise and fall in value so you could get back less than you invest. Past performance isn’t a guide to the future.

Lending pressure

The UK’s five biggest banks announce full year results in the second half of February. With the exception of Asia-focused Standard Chartered, all of them having meaningful exposure to the UK, and recent data suggests results could make for interesting reading.

Data from the Trade Union Congress (TUC) suggests that average household debt, excluding mortgages, hit an all-time high in 2018 – with unsecured household debt as a share of income hitting 30.4%. Credit card lending saw particularly strong growth according to the Bank of England – good news for companies with large cards business like Lloyds and Barclays.

However, there are early signs of a slowdown.

Demand for mortgages fell significantly in the run up to Christmas, and the start of 2019 is expected to be even more subdued. Even credit card lending is expected to be weaker going forwards. Less demand means we might see higher levels of competition among banks, and that could see net interest margins (the difference between what a bank pays on deposits and charges on loans) squeezed.

Putting the UK to one side, news from global investment banks won’t be altogether comforting for those UK names with a presence at high finance’s top table. UBS’ investment bank swung to loss in the final quarter of the year, and Wall Street has delivered a mixed picture at best. That doesn’t bode well for the likes of Barclays and RBS, while HSBC has a slowdown in China to contend with too.

A robust retail banking operation may well have cushioned results in the final quarter of 2018, but the bank’s outlook statements deserve the lion’s share of attention.

Full stream ahead

UK adults spend around 4 hours a day watching TV. It’s even more in the US.

But how we’re watching is changing. Gone are the days of compulsory prime time viewing – increasingly we’re using streaming services to watch content when and where we want.

Unsurprisingly, there’s plenty of competition, and a mixture of established players and young pretenders jostling for position.

Netflix has already reported, and earned rave reviews with another set of forecast-busting numbers. 8.8m new subscribers was well ahead of its previous forecasts.

In February, it’s the turn of Amazon and Disney.

While Amazon Prime is about more than streaming, don’t be lulled into thinking the video services are an also-ran. Amazon’s NFL games averaged over 2m viewers each, while Clarkson, May and Hammond’s The Grand Tour has been pulling in the subscribers. A shade over one in five Prime members have watched at least one episode of series 2, meaning it’s second only to the ever-popular Friends for streams across all platforms.

A deal with Comcast, to launch Prime Video on its Xfinity X1 package, means there’s more to come too.

Disney is also gearing up for a battle. Its new streaming service, Disney+, is due to hit screens later in the year, accompanied by a raft of new Disney, Pixar, Marvel, National Geographic and Star Wars content. Much of it will be exclusive to Disney+, and Netflix runs the risk of having blockbuster content pulled from its line-up.

Disney’s ESPN+ service means it’s got a foot in sports streaming as well, somewhere Netflix is notably underweight.

As Yoda might say – ‘Begun the streaming war has’.

The port for a storm?

The focus is likely to be on the economic woes of the UK and US, but Europe’s major economies are hardly looking chirpy at the moment.

The French private sector shrank for the first time in two and a half years in January, while the German economy is showing signs of slowing sharply as Chinese demand shrinks.

In such uncertain times, consumer giants like Nestle and Heineken (both due to report results in February) often attract more attention from investors.

Fast moving consumer goods companies (FMCGs) sell small, everyday items that consumers buy on a regular basis – things like shampoo, chocolate and lager. People tend to be brand loyal, and that helps companies develop healthy profit margins.

Downgrading from your preferred shampoo brand isn’t top of a cost saving list. So when times are hard, FMCG revenues are often more resilient than those of other companies.

Resilient revenues and high margins mean healthy and repeatable profits, and that creates the potential for a steady and growing dividend. Although nothing is guaranteed.

Heineken reports on 13 February, and Nestle follows the next day. As part of an expansion of our share research coverage, we’ll be covering both events.

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Standard Chartered

Lloyds

Barclays

RBS

HSBC

Netflix

Amazon

Disney

Nestle

Heineken

The author holds shares in Lloyds.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Investment notes
No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

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