Companies Reporting: Nvidia, BAE Systems, Rolls Royce

Our regular look at the FTSE 350 and a selection of other companies reporting from 19 – 23 February.

• Can Nvidia continue its rocket fuelled trajectory longer-term?
• Demand for BAE Systems’ products is likely to remain robust
• AI investment will be in the spotlight at WPP
• Rolls Royce set to benefit from super-strong airline bookings

Nvidia, Full Year Results, Wednesday 21 February

Susannah Streeter, head of money and markets, Hargreaves Lansdown ‘’Nvidia’s shares NASDAQ:NVDA have been on a rocket fuelled trajectory ignited by the frenzy for all things AI. It was the best performing stock on the S&P 500 in 2023 and shares have shot up by more than 50% since the start of the year. AI has the potential to transform a wide range of industries from healthcare through to education and Nvidia’s products provide the infrastructure backbone to the technology. Given its stellar run, expectations for the fourth quarter are very high indeed and any miss in forecasts may see Nvidia lose some of its recent gains. Quarterly revenue of around $20 billion is expected, after its Q3 numbers stunned the market, climbing more than 200% year on year.

Nvidia is in an enviable position given that its powerful graphics processing units are in such high demand from tech titans who are powering their own AI revolutions. And, for now, with budgets being ringfenced for these technological innovations, even as other projects are scaled back, the immediate future looks bright. However, longer-term the trajectory of demand is harder to map. The order book is super-long right now, but smaller rivals, and increasingly Nvidia’s big customers, are marching into the space. The company is also having to grapple with regulatory challenges particularly the ban on the sale of high-tech chips to China, which could potentially have a material impact on its longer-term growth, if strong demand wanes elsewhere.”

BAE Systems, Full Year Results, Wednesday 21 February

Aarin Chiekrie, equity analyst, Hargreaves Lansdown “BAE Systems LON:BA. occupies a key space in the defence market. Given the elevated threat environment, investors are anticipating that demand for BAE’s products and services has remained strong when the group announces full-year results next week. Markets are expecting full-year revenue to grow 6% to £24.6bn, in line with the group’s prior 5-7% guidance.

Investors are hoping for an update on how the group’s $5.55bn acquisition of Ball Aerospace is progressing. The deal should be settled in the first half of the year, and markets are cautiously optimistic that the combination of expertise and technology will be a good fit. Despite taking on new debt to fund the acquisition, the balance sheet’s likely to remain in good health. However, investors will be keeping an eye out for any updates to the group’s shareholder return plans, with the Ball Aerospace deal likely to put some pressure on cash resources in the near to medium term.”

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Rolls Royce, Full Year Results, Thursday 22 February

Susannah Streeter, head of money and markets, Hargreaves Lansdown “Rolls Royce LON:RR. has revved up its engines to make huge strides over the past year. It clinched the top spot as the biggest gainer in the FTSE 100 in 2023, and shares have continued to purr upwards. The new chief executive, Tufan Erginbilgic, was pulling no punches when he slated the company as being ‘a burning platform’ a year ago. But under his leadership, it’s risen from the flames. A restructuring programme has prompted improvements in productivity, while disposals have lightened the load of recent financial scars, with further sales expected of up to £1.5 billion of its assets. Investors will want to see that Rolls Royce is still on track to meet mid-term operating margin targets across its major divisions, with civil aerospace expected to see the biggest improvements moving from 2.5% in 2022 to 15-17%.

The transition under the new boss has not come without hiccups. The company has brought in a tougher stance on pricing, which has led to Thai Airways dropping Rolls Royce as its sole supplier of next-generation widebody engines. However, investors have largely shrugged off this development, clearly looking at the wider picture. Pent up demand for travel which is still spinning out into super-strong airline bookings is a positive tailwind for Rolls Royce. A huge amount of its revenue comes from servicing engines for larger long-haul planes. Engine flying hours, a key metric, had grown to 86% of 2019 levels at the last count, and investors will want to see further progress here, to help Rolls Royce fly even higher.’’

WPP, Preliminary Full Year Results, Thursday 22 February

Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown “Media and advertising giant, WPP, expects to post full year net-revenue growth of 0.9%, with operating margins in the region of 15%. That’s at the top end of guidance, and given how recently the update landed, there is optimism that the group will come good on these plans.

Market moves are more likely to be governed by WPP’s commentary on AI. The rapid changes in technology present huge opportunity, but also risk to the group. There are plans to invest £250m a year in data and technology, but investors would like a bit more detail on exactly how that will be spent.

More broadly, the group’s being stung by lower spending in tech and creaking economic activity in China which affects how much is being spent on marketing, and therefore the amount hitting WPP’s bank account. Investors would like some further steer on how the global advertising landscape is shaping up for 2024.”

This article has been brought to you in association with Hargreaves Lansdown. All opinions expressed in this article are from the analysts and do not necessarily represent the opinions of The Armchair Trader.

FTSE 100, FTSE 250 and selected other companies scheduled to report