FTSE 100 and FTSE 250 Shares – What to expect in the stock market next week
PayPal will reveal whether it is able to improve profitability of customer transactions. We’ll see how HSBC is impacted by sluggish growth in Asia. BP profits are expected to increase as it transitions to renewable energy.
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Among those who are currently going to release the result next week:
*Events on which we will update investors.
PayPal — Laura Hoy, Equity Analyst;
Growth in payment volume is always a metric to watch when PayPal reports because it’s the crux of the group’s business. The group is expected to grow 15% to 17% of total payment volume this year, and it’s important that PayPal hits this target. This is slower than a given group in the past, but considering the exponential growth seen during the pandemic, it is nothing to sneeze at.
The slow rate of growth means that squeezing more out of each customer will be PayPal’s attention. PayPal is investing heavily in new services that it can sell to existing customers. Although they are expensive to manufacture initially, they should become more profitable with each new customer who uses them. The group’s transaction expense rate, which will fall as these transactions become more profitable, has seen annual growth over the past three consecutive quarters. We want to see it come down or at least plateau this time. Otherwise it may indicate a longer term trend which will put additional pressure on margins.
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HSBC — Sophie Lund-Yates, Equity Analyst
HSBC’s profit has been low so far this year. Slower growth in Asia, its biggest market, means that profit before tax is expected to fall from $4.7 billion to $4.0 billion in the first quarter, despite having larger operations in Europe.
The Chinese property market has a big role to play in this. As China’s property development stalls and home prices plummet, upcoming results will indicate an additional impact on the sector’s profits. As a reminder, last quarter HSBC absorbed a $160m fee for expected credit losses due to the downturn in the Chinese property market.
HSBC has also indicated that more share buybacks are unlikely for 2022 due to the weakening of its required capital position. Until the issue is resolved, investors should not expect a return for the share buyback.
HSBC has benefited from the rising interest rate environment. Net interest income increased to $7.0 billion compared to $6.5 billion last year. While it remains profitable, the deteriorating macroeconomic environment has reduced investment banking fees for many competitors. In such a situation, HSBC should also feel this pressure.
HSBC is also grappling with a proposed split of its western and eastern operations sought by Ping An Insurance Group, its largest shareholder. That will hopefully unlock more value for shareholders, however, so there’s unlikely to be any material updates from HSBC on upcoming results, so investors shouldn’t hold their breath.
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BP — Laura Hoy, Equity Analyst
BP will continue to reap the benefits of higher oil prices in the second quarter, with good profits expected this time round. BP has promised share buybacks of $2.5bn in the second quarter, as they aim to return a portion of surplus cash flow to investors. No shareholder return is guaranteed, however.
Capital spending in oil and gas is declining as BP moves forward with its transition to renewable energy. The windfall tax, recently imposed by the UK government, still dominates the industry. But given that projects within the industry take years or even decades to set up, this should have little impact on the group’s investment plans. Nevertheless, any updates from management on the potential impacts would be welcome.
Aggressive spending on low-carbon assets means this will also be an area of focus for investors. These as-yet-unproven projects could become a cash furnace for oil profits, so any update on BP’s objective to generate 8-10% returns in this part of the business could move the needle.
BP’s exit from Russia will also be on investors’ minds, although most of the impact is likely to be priced in. We think the group’s decision to sell Rosneft is the right one, but we don’t expect any eager buyers to emerge. soon. This means that we expect to see continued write-downs in the form of a decline in the value of this asset.
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