Credit Default Rates by UK SMEs, Households Rise -2-

1043 GMT - U.K. banks' guidance is likely to move higher to incorporate rate hikes and asset quality is still benign which leads JPMorgan to have a less negative view on net interest income into the first quarter, it says in a note. "We reiterate our view that U.K. [net interest margin] is likely to peak in 2023 with NII gearing unlikely to be a positive driver given deposit migration, risks to the size of structural hedges and increased regulatory focus on liquidity buffers," analyst Raul Sinha says. Risk reward may become unfavorable once NII peaks and asset quality risks come into focus in the second half, he adds. The U.S. bank expects NatWest and HSBC to both launch share buybacks and issue reassuring outlooks. ([e-mail])

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UK's 1Q Economic Growth Could Be Stronger Than BOE's Forecast

1034 GMT - The U.K. economy should record stronger growth than projected by the Bank of England in the first quarter after monthly GDP data showed economic resilience, says Barclays analyst Abbas Khan in a note. The U.K. economy stagnated unexpectedly in February, but January's GDP figure was revised up to a 0.4% rise from 0.3% previously. Following the upward January revision and flat February print, 1Q GDP looks on track for a 0.1% quarterly rise, "creating upside risks to the -0.1% forecast by BOE," he says. Barclays expects the BOE will raise the bank rate by 25 basis points on May 11 following Thursday's data, says Khan. The U.K. 10-year gilt yield rises 3 bps to 3.585%, Tradeweb data show. ([e-mail])

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UK's February GDP Print Presents Upsides to BOE's 1Q Forecast

1018 GMT - U.K. GDP data presents upside risks to the Bank of England's first-quarter forecast, Barclays economist Abbas Khan says in a note. Following the upward revision to January's data, and February's flat growth, the 1Q carry-over is now 0.1% on quarter, above the 0.1% contraction previously expected by the BOE, he says. Given its decision-making committee's focus on resilient activity data at the previous meeting, the GDP print is in line with the principle that it will deliver a 25 basis-point hike at the May meeting, though next week's labor market and inflation data will be key, he says. ([e-mail])

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PZ Cussons Offers Modest Upside After 3Q Update

1016 GMT - PZ Cussons confirmed that performance has developed as expected with its 3Q update, Shore Capital analysts Darren Shirley and Clive Black say in a note. The consumer-goods company's reported sales rose 13.5% to GBP166 million, which include benefits from 2022's Childs Farm acquisition and favorable foreign-exchange tailwinds, the analysts say. The company's adjusted pretax profit for fiscal 2023 is also expected to be in line with market views, with consensus at GBP68.1 million and Shore forecasting GBP69.5 million. "We continue to see PZC as offering modest upside, though reiterate our long-standing hold recommendation," the analysts say. Shares are up 3.9% at 194.40 pence. ([e-mail])

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Darktrace Posts Robust Update Amid Industry Challenges

1008 GMT - Darktrace's third-quarter update was robust despite the downgrade to annual recurring revenue as the company continues to deal with industry-wide challenges, Goodbody's Patrick O'Donnell says in a research note. The U.K. cybersecurity company's shares look extremely cheap relative to peers and it has a very attractive growth and margin profile, he says. "Despite the tougher environment for adding new customers, which is seen across the industry (and even starker with peers), the opportunity for Darktrace to expand its offering is clear, and we have seen this with recent product rollouts," O'Donnell says. Goodbody has a buy recommendation on the stock. Shares are up 3.8% at 252.30 pence. ([e-mail])

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Watkin Jones Looks on Track to Meet FY 2023 Revenue Target

1008 GMT - Watkin Jones has performed in line with expectations in 1H, and full-year guidance seems feasible, Davy Research analyst Colin Sheridan writes in a research note. The U.K. property developer currently has five sites that are formally under offer or will have preferred bidders selected in the very near future. Progress on these sites should see the company land a large portion of the GBP250 million revenue needed to meet the GBP550 million guidance, Sheridan says. "Although meaningful success on other sites would also be required in 2H," he says. Davy has an outperform rating on the stock. Shares are down 4.6% at 91.50 pence. ([e-mail])

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UK's February GDP Disappoints, But Could've Been Worse

1003 GMT - The U.K.'s GDP numbers for February are a little disappointing--after stronger survey data had suggested that the economy was picking up--though it is finally back at prepandemic levels, Elizabeth Martins, senior economist at HSBC, says in a note. Measures for transport and storage, accommodation and food, and construction were up 8.6%, 4.6% and 7.6% respectively compared with before the pandemic, she says. Indeed, given that inflation is still over 10% and the Bank of England's base rate is high at 4.0%--alongside the shocks of the pandemic, Brexit and energy squeeze--things could have been a lot worse, she says. The BOE's next move will depend less on February's GDP and more on next week's labor market and inflation data ahead of its decision in May, she says. ([e-mail])

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Brooks Macdonald Net Flows Lifted by MPS Performance

1001 GMT - Brooks Macdonald's exposure to the high-growth managed portfolio service, or MPS, market has recently helped it move back into positive net flows, RBC Capital Markets says in a note. "Our initial read is that the flow environment looks to have remained challenged, with MPS the notable exception which remains a bright spot," analyst Ben Bathurst says. RBC has a sector perform rating on the stock. Shares, which are flat at 1,800 pence, have lost 15% YTD. ([e-mail])

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Imperial Brands Share Buybacks Make Sense

0954 GMT - Imperial Brands should keep buying back shares, Panmure Gordon says. The tobacco company's trading update confirmed full-year guidance set at FY22 results last November, the only difference being a reduced benefit from sterling which should be no surprise, Panmure says. "Once again the key is 'robust tobacco pricing' now allied to 'stable aggregate market share'," Panmure analyst Rae Maile says in a note. "The company continues to retire its equity apace having bought back 2.7% of its shares since last October. On a prospective [price-earnings ratio] of just 6x and a yield nearer 8%, it's the right and sensible thing for the company to do," Maile says, reiterating the brokerage's buy recommendation. ([e-mail])

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XP Power's Positive Update Might Not Be Enough for Investors

0937 GMT - XP Power posted a decent update, with both revenue and order intake ahead of forecasts, but doubts remain over whether it is enough to drive a rally in the share price, Jefferies analysts write in a research note. "We believe that investors will want to see the upturn in orders or book to bill before committing, given the operational challenges that the group has faced over the past 12 months," they say. Jefferies has a hold rating on the stock. Shares are up 1.1% at 1,880 pence. ([e-mail])

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Imperial Brands Shares Edge Lower After Trading Update

0924 GMT - Imperial Brands shares fall 2% after the tobacco group forecast first-half net revenue and adjusted operating profit similar to a year ago. The trading update was broadly in line with Barclays's expectations, the bank says. "With weaker FX, our FY23 earnings per share [estimate] goes down by [about] 1%, but leverage remains at 1.8x," Barclays analysts say in a note. "This suggests IMB could meaningfully step up its FY24 share repurchase above GBP1 billion." ([e-mail])

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Tesco's Cash Compounder Thesis Is Alive and Kicking

0859 GMT - Tesco is an effective cash compounder, capable of delivering attractive returns, which is toughing it out well given a challenging U.K. consumer backdrop, Shore Capital says in a note after the U.K. grocer posted fiscal 2023 results with a dividend and share buyback in line with the previous year. "Expedition of such a cash compounding thesis over medium-term leads us to believe that Tesco's shares can grow with the [total shareholder return]," say analysts Darren Shirley and Clive Black, adding that the retailer is in very comfortable financial constitution, unlike its peers. Shore rates the stock buy. Shares, which are up 22% year to date, rise 2.4% at 273.8 pence. ([e-mail])

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Sterling Buoyed by Weak Dollar, Shrugs off Stagnant UK Economy

0853 GMT - Sterling rises as broad weakness in the dollar following Wednesday's bigger-than-expected fall in U.S. inflation offsets data showing that the U.K. economy unexpectedly stagnated in February. Zero GDP growth during the month was below expectations for a 0.1% expansion in a Wall Street Journal poll, though this shouldn't influence the Bank of England's future decisions on whether to raise interest rates further, ING analyst Chris Turner says in a note. "February U.K. activity data has been flat and will have little bearing on the BOE's monetary policy thinking," he says. "The soft dollar story is keeping GBP/USD bid near 1.2500," he adds. GBP/USD rises 0.3% to a nine-day high of 1.2519, according to FactSet. ([e-mail])

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UK Likely to Avoid Economic Contraction in 1H

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