Proactive Investors -
- FTSE 100 advances ahead of BoE rate call, up 35 points
- Shell (LON:RDSa) reports record profits, launches US$4bn buy-back
- Standard Chartered (LON:STAN) falls after Goldman downgrade
10.25am: Essentra plans special dividend and buy-back in £150mln package
Shares in Essentra PLC (LON:ESNT), the global provider of essential components and solutions, rose after the company said it will return £150mln to shareholders via a special dividend and share buy-back.
The news follows the sale of its Filters and Packaging divisions, which were completed in quarter four last year.
Essentra will pay a special dividend of £90mln, around 29.8p per share on 27 April 2023 and also intends to start a £60mln share buyback programme following the release of the full year results on 22 March.
The update received a warm welcome with shares up 5.25% mid-morning.
Peel Hunt said "We see this as welcome news, rewarding existing holders plus creating more opportunity to further expand the shareholder base going forward."
10.00am: Water companies to tap customers for more money
Water bills in England and Wales will increase by the most in almost 20 years from April.
The 7.5% hike will see the average customer pay £31 more annually than last year - taking the typical bill to £448, according to industry body Water UK.
It said bills were lower in real terms than a decade ago and that the below-inflation increase reflected rising energy costs, as water firms use 2% of the country's electricity.
Water UK director of policy Stuart Colville said: “With an average increase of around 60p a week, most customers will again see a below-inflation increase in their water bill. However, we know that any increase is unwelcome, particularly at the moment."
Household water bills in England and Wales to rise by 7.5% within monthshttps://t.co/nv5RKIhIhf— ITV (LON:ITV) News (@itvnews) February 2, 2023
9.42am: Bank of England expected to lift rates by 50 basis points
So what will the Bank of England do today. Well the firm consensus is for a 50 basis point rise and ING Economics agrees.
“Persistently high wage and service-sector price inflation points to another 50bp rate hike from the Bank of England” it said.
“If we're right, then we expect one final 25bp rate hike in March, marking the top of this tightening cycle” it added.
“While the minutes of the December meeting appeared to open the door to a potential downshift to a 25bp move in February – and this meeting looks like a closer call than markets are pricing – the reality is that the recent data has looked relatively hawkish” ING commented.
BoE today - our views:✅ Hike? 50bp
✅ Guidance? Retains 'forceful' language to keep options open/avoid rocking the boat on mkt pricing
✅ F'casts? GDP revised up, inflation close to target in two years time.
What's next? 25bp hike in March, then done pic.twitter.com/Lwhd4jjmIe
— James Smith (@SmithEconomics) February 2, 2023
9.20am: Goldman downgrade hits Standard Chartered, prefers Lloyds and NatWest (LON:NWG)
Not that many fallers in the FTSE 100 today but one notable mover heading south was Standard Chartered PLC.
The lender is down 1.9% following a downgrade to ‘neutral’ by Goldman Sachs (NYSE:GS) which sees better opportunities in its UK domestic peers NatWest Group PLC (LSE:NWG) (‘buy’) and Lloyds Banking Group PLC (LSE:LON:LLOY) (‘buy).
The US investment bank cited three main reasons behind the move: 1) the shares have outperformed the European Banks sector by 33% since August 2021 on the back of divergent rate hiking paths, “which we believe has now played out”; 2) consensus appears to increasingly reflect the benefit of higher rates with 2023 net interest income forecasts up 18% over the last year; and 3) “we see more limited benefit from higher policy rates in Hong Kong.”
Goldman has NatWest on its conviction buy list as well.
9.00am: In the green - Footsie makes strong start
London’s blue chips have enjoyed a strong start to the day as investors begin to think that better days are ahead after the US Federal Reserve slowed down the pace of its interest rate increases and said “the disinflationary process has started".
The FTSE 100 is now around 40 points to the good with record profits from oil major Shell PLC also lifting the mood.
“Truth be told there were mixed signals from the Fed statement. It kept the "ongoing increases" language, added inflation "has eased somewhat", and changed "pace" of future increases with "extent", as it transitions from rate of hikes to duration” Neil Wilson at markets.com said.
“I think bulls were too keen to read what they wanted from the comments around disinflation and tighter financial conditions and chose to ignore the fact that the Fed signalled it’s keeping going for now.”
“What matters now is the data - I think we switch now to a more data-dependent Fed henceforth, which is why I think it will keep tightening. The Fed may have declared victory too early and will see wages and inflation accelerate again.”
It’s the turn of the Bank of England and the ECB today and both are expected to hike rates by 50bps today.
In the UK, Wilson said “Inflation is not coming down fast enough, and the Bank of England is likely to respond with a 50bps hike.”
“Another split vote seems likely as we continue to see genuine disagreement between members of the Monetary Policy Committee. But the BoE looks likely to prefer to raise rates by 50bps and signal is not done yet.”
“My sense is that the Bank will be able to sound a little more optimistic on the economy given the decline in energy prices and the market pricing for rate hikes; whatever the IMF thinks” Wilson said.
Shell PLC remained a firm feature, up 2% after reporting record profits and a US$4bn share buy-back.
Richard Hunter, head of markets at interactive investor, commented “Following the clues provided last week by US titans Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX), Shell has posted record annual profits which erase the financial pandemic pain.”
“A combination of higher prices, trading and refining margins all helped propel the overall result, while the sheer scale of cash generation also enabled some generous spring cleaning of the overall financial position” he said.
Elsewhere, advertiser WPP PLC (LON:WPP) surged 4%, after its French rival Publicis Groupe forecast more growth in 2023, banking on sustained investments in digital transformation.
Superdry PLCalso rose as Julian Dunkerton, founder and chief executive officer of Superdry PLC ("Superdry"), said there were no “at the moment” to take the group private. He was responding to press speculation.
Cranswick PLC (LON:CWK) was also in favour after an upbeat trading update.
Steve Clayton, head of equity funds at Hargreaves Lansdown (LON:HRGV) commented: “Cranswick is a recent addition to our HL Select UK equity funds. We’ve invested precisely because the group can trade strongly like this, even under times of economic pressures”.
“Demand for food rarely stays down for long and Cranswick have built strong positions in the pork and poultry markets that place them at the heart of millions of shopping trolleys every week.”
“Today’s trading update gives confidence that can continue. We’re not surprised to see the market reacting positively to the statement, with the stock rising 2% in early trading.”
8.36am: Centrica (LON:CNA) boss apologises after Times report
Shares in British Gas owner, Centrica PLC, fell around 2% in early exchanges after it said it will temporarily stop using court orders that permit the forced installation of pre-payment meters in people's homes after a damning report in The Times said the practise was being used against vulnerable people.
The court warrants obtained by British Gas can be used by a contractor to break into the homes of customers who have fallen behind on their bills to install pre-payment meters, meaning they could have their heating cut off if they did not pay, the report said.
Some of the customers being affected were vulnerable people, the Times said, citing instances of a mother with a four week-old baby, a woman with mental health problems and a woman with a disabled daughter.
Centrica’s CEO Chris O’Shea told the BBC “This happened when people were acting on behalf of British Gas. There is nothing that can be said to excuse it."
Mr O'Shea told BBC Radio 4's Today programme: "The contractor that we've employed, Arvato, has let us down but I am accountable for this.”
Business Secretary Grant Shapps said he was "horrified" by the findings.
"Switching customers - and particularly those who are vulnerable - to prepayment meters should only ever be a last resort and every other possible alternative should be exhausted," he told the BBC.
"These findings suggest British Gas are doing anything but this."
8.17am: FTSE higher with rate calls taking centre stage
FTSE 100 pushed higher as investors took heart from a slower pace of rate rises in the US and awaited the latest monetary policy moves in the UK and Europe.
At 8.15am London’s blue-chip index was up 17 points at 7,779 while the FTSE 250 jumped 188 points to 20,086.
The US Federal Reserve increased rates by 25 basis points, as expected, and Fed chair, Jerome Powell “stated "the disinflationary process has started” boosting hopes that rate cuts might be on the menu sooner than expected.
But Powell added the US central bank will need "substantially more evidence" to be confident that inflation is on a sustained downward path in the US, despite "encouraging" recent developments.
Derren Nathan, head of equity research, Hargreaves Lansdown noted: “It is rare to find ourselves in a position where rate rises are seen as good news, but this is a material slowdown following a sustained period of aggressive tightening, with rates now at levels not seen since 2007.”
“But we may not be at the end of this cycle yet” he cautioned.
In the UK and Europe, interest rates are expected to rise by 50bps but attention will focus, as always, on any signs that central bankers on this side of the pond may follow their US counterparts and signal a slower pace of increases.
Ahead of this, record profits from Shell PLC caught the eye. Annual earnings doubled to US$39.87bn, a record, as the FTSE 100 listed oil major benefited from soaring energy prices inflamed by Russia's invasion of Ukraine.
The oil major also announced a new US$4bn share buy-back. Shares rose 1.2%.
Stuart Lamont, investment manager at RBC Brewin Dolphin, suggested the “record profit for the year will only intensify calls for more to be done to claw back profits from energy companies in the current environment.”
But BT Group PLC (LON:BT) dipped 3.5% as it reported a fall in third quarter revenues although it is holding full-year guidance.
Charlie Huggins, head of equities at Wealth Club, pointed out “High inflation poses challenges to BT’s business model.”
“Telecoms is a mighty challenging sector. There’s little to differentiate providers and regulators and consumers are always demanding more for less. So while BT is pushing through price increases, it must be careful not to push too hard” he noted.
“Overall, BT faces an uphill battle in the current inflationary environment, and will have to run very hard just to stand still” he said.
7.58am: Record breakers - profits gush at Shell
Shell PLC has reported record fourth-quarter profits of US$9.8bn driven by higher trading from its liquefied natural gas (LNG) operations and launched a new US$4bn buy-back programme.
Annual earnings doubled to US$39.87bn, which is also a record, as the FTSE 100 listed oil major benefited from soaring energy prices inflamed by Russia's invasion of Ukraine.
The record quarter four adjusted earnings, were 4% higher than quarter three and well above last year’s US$6.4bn, while Shell also reported adjusted EPS of US$1.39 compared to US$1.30 in quarter three.
Analysts had expected Shell’s chief executive, Wael Sawan, to report adjusted earnings of US$7.97bn for the fourth quarter and US$38.17bn for the year, in his City debut.
A 15% increase in the dividend was announced to US$0.2875 and Shell has embarked on a further US$4bn share buy-back programme which it expects to be completed by the time quarter one results are announced.
Shell said the growth in quarter four mainly reflected higher LNG trading and optimisation results, favourable deferred tax movements, which were partly offset by lower realised oil and gas prices, and higher operating expenses.
7.38am: BT holds guidance, connecting full fibre "like fury"
Some big names reporting today and telecoms giant BT Group PLC has stuck to its full-year guidance despite reporting a 3% fall in adjusted revenues in the third quarter.
In a trading update the FTSE 100-listed telco said adjusted revenues were £5.2bn in quarter three taking the figure for the nine months to 31 December to £15.6bn, down 1%.
Price increases and improved trading in Openreach and Consumer were offset by lower strategic equipment sales in Global, migration of a MVNO customer, the removal of BT Sport revenue, and legacy product declines, the company said.
For the nine months adjusted EBITDA reached £5.9bn, up 3% due to tight cost control and the removal of BT Sport costs, offset by revenue declines and inflationary cost pressures while reported pre-tax profits of £1.3bn were 15% lower as increased depreciation offset EBITDA growth.
BT also reported record quarterly growth in its FTTP base in the Consumer division, up 155,000 to 1.6mln while the 5G ready base is now 8.5mln with churn rates stable in what it called “a competitive market.”
Philip Jansen, chief executive said "On full fibre, we're building - and now connecting - like fury.”
He noted 9.6mln premises had been reached to date, with 29% already connected, while the 5G mobile network now reaches 60% of the UK population.
7.00am: FTSE seen higher ahead of Bank's rate call
FTSE 100 is expected to make a strong start to the day as the Federal Reserve slowed the pace of interest rate increases and the Fed chairman, Jerome Powell, stated "the disinflationary process has started.”
But In a press conference following the decision, Powell added the US central bank will need "substantially more evidence" to be confident that inflation is on a sustained downward path in the US, despite "encouraging" recent developments.
Nonetheless, US markets took heart from the slower pace of rate rises and the Dow which had been down over 300 points closed in positive territory, up 7 points, the Nasdaq Composite added 232 points, 2%, to 11,816 and the S&P 500 improved 43 points, 1.1%, to 4,119.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank noted Powell’s comment: “‘Disinflation process is getting underway’.
She felt “that was the major - and the only take - of his speech yesterday, and sent the markets rallying.”
Back in London and spread betting companies are calling the lead index up by around 29 points as the interest rate baton is passed to the Bank of England and ECB with both expected to increase interest rates by 50 bps.
Ahead of that and trading updates are expected from two of the FTSE 100’s best known names, Shell PLC and BT Group PLC.