Market Anaylsis: Barclays, WH Smith, Sainsbury's, Heathrow Airport, Renault, Airbus

Barclays has posted a strong foundation for the delivery of2024 guidance; Guided GBP 1b of cost savings seems challenging unless more headcount reduction; WH Smith: Air travel boom will benefit footfall in the airports; Struggle on the high street is likely to continue; US Market is crucial for future growth; Sainsbury's: Grocery inflation is decreasing but still face challenges in weather and the conflict in Ukraine; Promotion strategy has been successful; Margins will remain challenging due to cost pressures and limited room for further price increase; Heathrow Airport: Business travel is not expected to return to pre-COVID levels and will hurt profitability; Staff shortages will continue to be a challenge; Ownership structure will be major news to watch; Renault: Ampere's IPO plan was cancelled due to slower than expected EV market growth but will not harm its EV strategy; Substantial pre-orders for new Renault 5 are anticipated to drive up sales; Threat of Chinese EV rivals. Airbus: Opportunity to take advantage of Boeing's quality issues but there is a concern on supply chain; Ongoing ramp up for both narrow body and wide body production.

Max Georgiou, Analyst at Third Bridge comments on Barclays informed by insights from industry experts:

Given the announced restructuring, 24Q1 results could have been more tumultuous, Barclays has posted a strong foundation for the delivery of 2024 guidance. Now they need to maintain the momentum and competition increases within the sector. Barclays needs to deliver on the guided GBP 1b of cost savings in 2024. This seems challenging to meet unless more headcount reduction feeds through in the coming quarters.

Investors will be watching for further updates on the Tesco bank integration, if deposits are not as sticky as anticipated, expected NII growth won’t be achievable."

Olly Anibaba, Analyst at Third Bridge, says on Heathrow Airport:

“Business travel is not expected to return to pre-pandemic levels due to remote work options. This will impact Heathrow Airport’s profitability given its reliance on long-haul business travel.”

“Leisure passengers are increasingly preferring "staycations" within the UK over international travel, driven by concerns about the environment and affordability exacerbated by the cost of living crisis.”

"Staff shortages, mainly experienced ground handlers, will continue to challenge Heathrow Airport in 2024.” Our experts expect a 20-30% increase in staff cost for H1 2024. Key consideration will be air traffic controller shortages, in particular in the London airspace. This will cause more flight delays and potential shutdowns at Heathrow Airport.

“Heathrow Airport ownership structure and shareholder reshuffle will be the major news to watch out for in 2024, as Saudi Arabia's Public Investment Fund (PIF) has entered into an agreement to purchase a 10% stake in London's Heathrow airport contingent on regulatory approval.”

Yanmei Tang, Analyst at Third Bridge picks up on WH Smith:

“2024 is expected to witness an air travel boom surpassing pre-pandemic levels. WHSmith will benefit from increased footfall, particularly in the airports.”

“Our experts anticipate small like-for-like increases in the UK travel segment over the next 12 months, with modest growth in air and hospital travel offsetting a slight decline in rail. Historically, air and hospital travel have shown more resilience to changes in disposable income compared to rail.”

“The struggle on the high street is likely to persist, with our experts forecasting continued decreases in like-for-like sales. Collaborations with third-party companies such as M&S and Wilko should assist in regaining some margin growth.”

“The US market is crucial for WHSmith's growth. While the company's market share is forecasted to remain stable in the UK, significant growth is anticipated in the US. Our experts predict a 2-3% increase in sales in the latter half of 2024, primarily driven by a greater emphasis on convenience categories.”

"WHSmith's EBIT margin in the US market remains lower than that in the UK, but there is potential for significant improvement over the next five years through enhanced cost management."

“To boost profitability, they should expand into high-margin categories like gifts, health and beauty, and food and drink, while also scaling back less profitable areas such as news and magazines.”

Regarding Sainsbury's, Orwa Mohamad, Analyst at Third Bridge says:

“Grocery inflation is decreasing significantly. However, our experts mention ongoing challenges in the food supply chain, such as weather impacts on agricultural production and the conflict in Ukraine.”

“Sainsbury’s outperformed in sales growth, showcasing the strength of its quality positioning and value offerings such as Nectar price deals.”

“Margins will remain challenging due to persistent inflationary cost pressures. Our experts suggest there is limited room for further retail price increases. Sainsbury's must compete effectively against Aldi and Lidl. However, there are opportunities to leverage their volume growth to renegotiate terms with suppliers transparently.”

“Sainsbury's promotion strategy, including Nectar prices and Aldi Price Match, has been very successful in making customers buy more and spend more. Our experts believe that the introduction of Nectar prices has been a turning point because it's a straightforward cash discount that customers can easily see the benefits.”

“A key risk is the potential erosion of quality perceptions if there is excessive focus on matching discounters' prices, leading to a loss of differentiation from other mainstream grocers.”

Orwa Mohamad Analyst also comments on Renault and Ampere: “Renault decided to cancel its IPO plans for Ampere because they see the EV market growing slower than anticipated. Our experts don’t think this cancellation will harm Renault's EV strategy. They've sold some of their Nissan shares recently, which, along with enhanced cash generation, will provide them with enough money to invest in developing next-generation EV cars.”

“Renault is skilled at generating cash because they encourage customers to opt for higher trim levels, excel in the C-segment market, utilize sharing platforms, and simplify their range to reduce production complexities.”

“Our experts stress that Renault's residual value strategy is crucial for staying competitive. Factors like engine choice and model naming significantly impact consumer decisions.”

“Renault's partnership strategy, including potential collaborations with Volkswagen for affordable EVs and battery manufacturers, is crucial for EV development and cost reduction.”

“Our experts are bullish about Renault's 2024 prospects due to its robust brand portfolio. The substantial pre-orders for the new Renault 5 are anticipated to drive up sales.”

“The influx of Chinese EV rivals in Europe poses a major threat to Renault and other European OEMs, notably due to their battery production control. However, our experts note that Chinese brands lack comparable brand value and networks. They highlight the importance of Dacia's European focus and low pricing to combat this challenge.”

In the aerospace space, Louis Knight, Analyst at Third Bridge made a series of remarks regarding Airbus.

Airbus in 2024 is seeing an ongoing ramp up for both narrow body and wide body production. Airbus commercial delivered 15 extra aircraft in the first quarter of 2024 (vs. Q1-23) and our experts expect to hear that the A320 and A350 production ramp-up are on schedule in today's investor call.

Boeing’s recent high-profile quality escapes this year when we saw as basic an issue as screws that were not fitted to a side panel on of Boeing’s best-selling 737s draw attention once again to the long-held question marks surrounding Boeing’s quality management. It’s only been 6 or so years since the world was shocked by two fatal crashes allegedly to some to be caused by Beoing’s own manufacturing faults. Only this week there were fresh calls by the victims families to the U.S. Justice Department officials to criminally prosecute the planemaker. It’s hard to see the case against its European rival pouncing on the opportunity to extent a lead and to pull away it the age-old race against Boeing. The question is: will Airbus be able to deliver? Our experts say the answer lies in it’s supply chain.