Top UK Stocks to Watch: Barclays shares up on dividends and buyback

Barclays benefits from the improving economic outlook, ITV plans to reinstate dividends later this year, Rio Tinto sprays investors with cash as commodity prices surge, the Morrisons takeover is cast into doubt, and Aston Martin’s deliveries more than treble.

UK

Top News: Barclays reinstates progressive dividend and launches buyback

Barclays reinstated its progressive dividend policy this morning and said it plans to launch a new share buyback after bouncing back well after being hit by the pandemic last year.

The bank said it has resumed payouts with an interim dividend of 2.0p per share that will be paid on September 17 and said it intends to launch a new £500 million share buyback. That comes after Barclays completed a £700 million buyback in April.

Dividends and other distributions to shareholders had been restricted by the Bank of England during the pandemic but the last of those limits were removed this month, paving the way for Barclays and other UK banks to resume capital distributions at whatever level they like.

Barclays shares were up 4.1% in early trade this morning at 176.71p.

The dividends and buybacks are being made after Barclays reported a Common Equity Tier 1 (CET1) ratio – a measure of the bank’s financial strength - of 15.1% at the end of the first half, ahead of its 13% to 14% target.  

Net operating income jumped 53% year-on-year to £12.05 billion from £7.88 billion, coming in ahead of the £11.21 billion expected by analysts. Pretax profit improved to £4.97 billion from £1.27 billion while attributable profit at the bottom-line surged to £3.81 billion from £695 million the year before, also beating the £3.06 billion forecast.

The improving economic picture meant Barclays felt confident enough to release £1.1 billion worth of reserves set aside for potentially bad loans. It also released £700 million of credit impairments compared to a hefty £3.7 billion charge the year before. It said impairment levels should remain historically low for the rest of the year as things continue to improve.

Barclays said income from its Corporate and Investment Bank dropped 5% in the first half, but said Equities was up 38% while banking fees increased 27%. Fixed Income, Currency and Commodities (FICC) was down 37% due to the strong comparatives from the year before.

The Consumer, Cards and Payments division saw income dip 4% from the year before thanks to lower interest-earnings card balances in the US. In the UK, Barclays said income edged-up 1% as a strong mortgage performance helped counter lower interest-earnings card balances and lower interest rates.

Barclays said it is aiming to deliver a return on tangible equity of over 10% in 2021 as a whole, having delivered 16.4% in the first half.

ITV to reintroduce dividend at end of 2021

Broadcaster ITV said it is ‘emerging from the worst of the pandemic’ as it reported significant growth in revenue and earnings during the first half, and said it intends to reinstate its dividend at the end of 2021.

ITV shares were up 4.1% in early trade this morning at 123.83p.

Total revenue rose 26% year-on-year in the first half to the end of June to £1.82 billion. ITV Studios reported 26% growth as the vast majority of its programmes have restarted production after being derailed last year, while its Media & Entertainment division reported 25% growth thanks to an uptick in demand for TV advertising as the economy reopens.

Adjusted Ebita almost doubled to £327 million from £165 million the year before. Reported pretax profit leapt to £133 million from only £15 million the year before, with EPS following higher to 2.4p from 0.5p.

ITV Studios is working on a flurry of new productions, spanning from hit drama Line of Duty to unscripted programming like Dancing on Ice and Love Island. Meanwhile, advertising revenue hit an all-time record in June as it benefited from the easing of lockdown restrictions and the boost provided by showing the Euros football tournament.

Viewing figures were down 6% overall in the first half, partly because of the strong comparatives from last year when TV viewing skyrocketed during lockdown. However, views on ITV Hub increased 6% and registered users increased 7% to 34.6 million.

‘We are optimistic about the future, despite the ongoing pandemic risk on our advertising and ITV Studios revenues. We know that the dividend is important to our shareholders and we intend to re-commence a progressive dividend policy based on a notional dividend of 5p per share which we expect to grow over time.  The first dividend under the new policy would be a final dividend of 3.3p per share proposed at the full year results in respect of 2021,’ ITV said.

Rio Tinto to return over $9 billion as commodity prices surge

Rio Tinto sprayed investors with cash this morning as it hiked its dividend and announced a special one-off payment after a spike in commodity prices led to a significant improvement in results during the first half.

The mining giant said revenue surged 71% year-on-year to $33.08 billion and underlying Ebitda more than doubled to $21.03 billion from just $9.64 billion the year before. Underlying earnings jumped to $12.16 billion from $4.75 billion or to 751.9 cents from 293.7 cents.

That comfortably beat the $20.41 billion in Ebitda and $7.37 in EPS expected by analysts.

Rio Tinto shares were down 0.9% in early trade this morning at 6001.0p.

Rio Tinto said government stimulus programmes introduced to battle the pandemic had led to ‘strong demand for our products at a time of constrained supply,’ leading to a significant spike in commodity prices.

Free cashflow soared to $10.18 billion from just $2.80 billion, providing enough for Rio Tinto to raise its ordinary dividend to 376 cents from 155 cents and declare a one-off special payout of a further 185 cents. The ordinary and special payout are worth around $9.1 billion in total.

Rio Tinto also confirmed its entry into the battery metals market after committing $2.4 billion to develop the Jadar lithium-borates project in Serbia, described as ‘one of the world’s largest greenfield lithium projects’. Sales from the mine should start in 2026 and full production should be reached in 2029, when it is expecting to become the ‘largest source of lithium supply in Europe’ by producing enough material to make over 1 million electric vehicle batteries per year.

Largest shareholder in Morrisons casts doubt over takeover

The largest investor in supermarket chain Morrisons has said it is ‘not inclined’ to support the takeover offer tabled by Fortress, plunging the £9.5 billion deal into doubt.

UK asset manager Silchester owns over a 15% stake in Morrisons and said the time given to secure shareholder approval is too short. Morrisons needs shareholders with at least a 75% stake to support the deal for it to go through in a court meeting scheduled for next month. Silchester believes a longer timeframe would allow other potential rival bids to emerge.

The Morrisons board has backed the deal, worth 250 pence per share in cash and a 2p dividend.

Morrisons shares were unmoved this morning, trading broadly flat at 266.9p.

‘Silchester encourages Morrison’s board to allow more time to respond to other parties who might offer better value to Morrison’s public shareholders,’ Silchester said. The shareholder also argued that the price tag could be achieved by Morrisons as a public company, raising questions about the value of the deal.

Clayton, Dublier & Rice was the original bidder for Morrisons before being outbid by Fortress and has until August 9 to launch a fresh offer. Meanwhile, private equity firm Apollo was also thought to be interested before making it clear it had no intention of making an offer.

Aston Martin wholesale deliveries more than treble

Aston Martin said wholesale volumes more than trebled during the first half of the year, leading to significantly higher revenue and smaller losses to keep the carmaker on track to hit its longer-term goals.

The luxury carmaker said it made 2,901 wholesale deliveries in the period compared to just 895 the year before. Aston Martin said it ramped-up deliveries to meet demand and that DBX’s accounted for around half of the total. Importantly, deliveries stepped up in the second quarter from the first, setting the stage for a strong second half. Notably, GT and Sports wholesales more than doubled year-on-year in the second quarter.

Aston Martin is aiming to make 6,000 wholesale deliveries in 2021 as a whole.

That led to a surge in revenue to £499 million from only £146 million the year before. Adjusted Ebitda – its key earnings metric – came in at £48.8 million compared to an £89.0 million loss the year before.

Aston Martin flagged that adjusted Ebitda would be heavily-weighted to the second-half of the year, particularly the final quarter when it is due to launch some Specials.

Aston Martin remained in the red at the bottom line with a reported loss before tax of £90.7 million, but that was still much improved compared to the £227.4 million loss booked the year before.

It reported positive cashflow from operations of £104 million in the period and posted a free cash outflow of £44 million, improved from a £370 million outflow last year.

The carmaker said it remains on track to make 10,000 wholesale deliveries, generate £2.0 billion in revenue and £500 million in adjusted Ebitda each year by 2024/2025.

Aston Martin shares were up 0.2% in early trade this morning at 1901.5p.

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