Proactive Investors -
- FTSE 100 up 23 points, but eases off highs
- Wall Street seen opening modestly firmer
- BT to face Ofcom probe
2.15pm: Mind the pension gaps
The UK government has committed to implementing the 2017 automatic enrolment review recommendation but is refusing to set out a specific timetable, AJ Bell has noted.
The 2017 review proposed scrapping the lower earnings limit against which minimum contributions are measured and extending the reforms to those aged 18 and over The government maintains this will be implemented by the ‘mid-2020s’ but the cost-of-living crisis has shifted savings priorities for millions of households
Policymakers have, however, committed to finding an agreed measure for the gender pensions gap, which should enable more consistent monitoring in the future
Tom Selby, head of retirement policy at AJ Bell, commented: “The world was very different six years ago when the 2017 review recommended expanding the automatic enrolment reforms.
“While the Government says it remains committed to reducing the age at which employees qualify for auto-enrolment from 22 to 18 and ditching the lower earnings figure against which minimum contributions are measured, an implementation timetable of the ‘mid-2020s’ is purposefully woolly.
“The reality is that millions of households are struggling to meet day-to-day living costs. There are signs that inflation will come down in the coming months, but the latest CPI figure remains in the double-digits and the Bank of England’s target of 2% still feels a long way away."
He added: “Auto-enrolment opt-outs haven’t spiked dramatically as a result of this yet, but AJ Bell research carried out towards the end of last year showed a third of workers could quit their workplace pension in response to rising living costs. This is the sort of scenario ministers will be desperate to avoid.
“Over the medium-term, boosting pension contributions will need to become a priority for either this Government or its successor. But given the pressure facing individuals and businesses, it is understandable the Government is equivocating over expanding auto-enrolment at this point in time.”
1.35pm: London's small cap fallers and risers
A quick look at some of the fallers and risers among the smaller companies today in London:
Textile company Leeds Group slipped 7% to 13p after its half-year results showed much of the cash in its bank will be required for the insolvency of its subsidiary, KMR. According to a statement, Leeds Group had £1.8mln in cash in the bank as of 30 November 2022, of which £1.6mln is related to KMR’s insolvency.
Pure Gold Mining nosedived 30% to 0.8p after filing a notice of its intention to delist from the London Stock Exchange. The cancellation of its listing will be effective from 15 February and will not impact the company’s primary listing in Canada.
Midatech Pharma, the AIM-listed biotech company, lost 21% after eight of the nine resolutions were not passed by shareholders at its general meeting. That includes the proposed acquisition of Bioasis, which the company will no longer proceed with.
Intercede Group (LON:IGP) shot up 19% after the cybersecurity software firm told investors it expects to beat market forecasts for its current financial year, ending 31 March 2023. Shares are currently changing hands at 67p.
GETECH's shares gained 14% to 15.7p after its post-close trading update showed double-digit revenue growth for 2022. Coming in at £5mln, the revenue figure exceeded market expectations, the software company focused on green hydrogen projects said in a statement.
Woman’s fashion brand Sosandar (AIM:SOS) shot up 9% to 22.9p after entering a wholesale agreement to sell its products on Sainsbury’s website before lines enter some selected stores later in the year. The agreement with Sainsbury’s is the latest in a string of online partnerships it has signed, including with Next, John Lewis and JD Williams.
12.55pm: Broker comment helps Pendragon/hinders Informa
Some broker comment helping and hindering shares today.
Pendragon PLC (LON:PDG) rose 2.45% as analysts at Jefferies resumed coverage of the company with a ‘buy’ rating and 25p price target.
“We are positive on the strategic plan being executed and, although FY23 will see headwinds from interest charges and opex inflation, we continue to expect robust medium-term profit progress” analysts wrote in a note to clients.
“We note Pendragon's volume outperformance vs the market, the substantial tech development that has been developed and deployed, and the encouraging progress in the relaunch and build-out of CarStore” the broker added.
On the downside was Informa PLC, which fell 1.25%, as UBS downgraded it to ‘neutral’ from ‘buy’ despite an increased price target of 690p (up from 683p).
“We remain positive on long term fundamentals but believe an event recovery is now priced in, and see risks to consensus forecasts if China does not open in 2023” the bank said.
Jefferies also commented on the UK housebuilding sector. It noted that after the strong bounce in share prices from October, “we no longer see the sector as over-sold on our downside scenario.”
But it suggested if company updates in February/March and/or a more dovish macro view can reassure on house prices, “the scene is set for further rally”.
“We remain constructive across the sector” analysts at Jefferies said with the key picks being Bellway PLC (LON:BWY) and Taylor Wimpey PLC (LON:TW).
But “while still seeing strong longer-term opportunity at Berkeley PLC, we see the valuation up with events, and bring the rating back to hold” the broker added.
Bellway was trading up 0.5%, Taylor Wimpey up 1% and Berkeley down 0.4%.
12.27pm: Saga's underwriting sale a logical move
AJ Bell investment director Russ Mould said Saga PLC’s move to sell its underwriting business makes sense.
He pointed out the group has “run aground in recent years as its cruise business struggled in the pandemic and as a series of managerial and operational mis-steps have knocked it off course.”
But he noted most of the insurance underwriting business was offloaded to third parties a while ago “so this feels like quite a logical move.”
But he “how much the company might raise through any sale and how much of a dent it would make in a £700mln-plus debt pile is open to question” he cautioned.
12.12pm: Morrisons cuts prices, Tesco (LON:TSCO) rows with suppliers
Into the food retail sector now and Morrisons has cut the prices of 820 products across food, drink and household items in a bid to help shoppers tackle rising inflation.
Sirloin steaks, potatoes, pears and aubergines are just some of the goods that have seen an average 20% price drop.
As well as the retailer's own-label products, big brands have also seen their prices reduced.
The reductions are set to last for a minimum of eight weeks and may be seen as a reaction to the company losing market share to rivals such as Lidl and Aldi.
Pricing was also at the centre of a row between the country’s largest retailer, Tesco PLC and the head of the National Farmers Union (NFU).
John Allan, the supermarket's chairman, said on an appearance on Sunday with Laura Kuenssberg that the company had "fallen out with suppliers" and was trying "very hard to challenge cost increases".
But the head of the NFU said she was "baffled" by the statements in which Allan accused suppliers of taking advantage of surging inflation by rising prices.
Minette Batters, president of the NFU told the BBC's Wake Up to Money podcast: "It was almost like he was living in a parallel universe.”
Karen Betts, chief executive of the Food and Drink Federation, described Mr Allan’s comments as "difficult".
She told BBC Radio 4's Today programme: "Supermarkets are very tough on this. Most supermarkets are asking suppliers to open their books to justify exactly line by line where the cost increases are coming in.
"I think it is difficult for Tesco to come out and say they think companies might be profiteering” she added.
11.52am: Optimism across the pond
The Footsie has pushed to its best levels for the day, up 21 points, with further support provided by hopes for a strong open in the US.
Wall Street is set for a positive start to the week, with many Asian markets closed for the Lunar New Year and ahead of a slew of corporate earnings and economic data later in the week.
Futures for the Dow Jones Industrial Average rose 1% in Monday pre-market trading, while those for the broader S&P 500 index gained 1.8% and contracts for the Nasdaq-100 jumped 2.8%.
“After a torrid 2022 in which the rising interest rate environment sucked much of the life from growth stocks, there has been some bargain hunting from investors who wonder whether there has been an overshoot of depressed valuations,” commented Richard Hunter, head of markets at interactive investor.
“The backdrop has clearly had some effect on some of the larger tech names which have announced job layoffs in the face of possible recessionary worries. Google parent Alphabet (NASDAQ:GOOGL) is the latest to cut jobs, following on the heels of the likes of Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN),” he added.
Stocks ended higher on Friday as investors reacted in part to the wave of layoffs, particularly in the US tech sector.
The Nasdaq notched its third straight week of wins, adding 2.7% to finish at 11,140 points. The S&P 500 was up 1.9% at 3,973 and the Dow rose 1% to close at 33,375.
Hunter noted that the Nasdaq has added 6.4% in the year to date, most recently underpinned by numbers from Netflix (NASDAQ:NFLX), which added more subscribers than expected in the latest quarter, while the Alphabet news also met with a warm reception.
“The market faces a barrage of earnings to consider this week, with an estimated quarter of the S&P500 reporting,” he added.
“The likes of General Electric (NYSE:GE), Johnson & Johnson (NYSE:JNJ), Tesla, Boeing (NYSE:BA), Visa (NYSE:V) and Microsoft are all capable of nudging the dial not only in terms of the latest quarterly earnings, but also the outlook based on current trading conditions.”
Among the important economic releases due later in the week are US fourth quarter GDP and the Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditure price index, Hunter said.
Comments from a Fed member on Friday added to some of the day’s gains.
"While the comments did not veer from the Fed’s mantra of bringing inflation under control at all costs, there was some suggestion that rates could be getting nearer to being “sufficiently restrictive” to finish off the job," Hunter said.
"Nonetheless, the two economic camps of either recession or a soft landing will continue to anticipate outcomes as the year progresses."
11.34am: BoE's PRA criticises City's approach to risk
The Prudential (LON:PRU) Regulation Authority (PRA) has criticised City banks’ approach to risk management despite constant warnings on the issue.
In a letter sent to bank executives in the City, the Bank of England’s regulatory arm set out its priorities for the New Year.
Last year “reinforced the importance of a robust risk culture and sound risk management practices at firms” the PRA said, citing Russia’s invasion of Ukraine, volatility in the nickel market and the long-dated gilt market.
But it added that despite “regular messaging” these events “demonstrated that firms continue to unintentionally accrue large and concentrated exposures to single counterparties, without fully understanding the risks that could arise.”
“In 2023, firms must ensure that those lessons from past crises are definitively learned in full, and thoroughly embedded across the first and second lines of defence” it stressed.
“We expect firms to reflect on their risk management, governance, and control frameworks accordingly” the PRA said, adding “this should include a comprehensive review of onboarding and due diligence practices, as well as counterparty pricing and margining frameworks.”
On the crypto markets the PRA said the number of firms offering products continues to grow, “presenting new challenges for risk management”.
“We will continue to monitor firms’ use of new technologies, and advancements in asset tokenisation” it said.
Another area of interest included in the PRA’s letter was “financial risks arising from climate change”.
“Last year’s volatility in commodities markets provides an illustrative example of the types of risk that could crystallise for some firms with commodities exposures, in the context of the energy transition,” the PRA said.
It added that banks should take action proportionate to the nature of the risks they face.
10.37am: Royal Mail (LON:IDSI) boss could face MPs again
Royal Mail boss Simon Thompson could be hauled back before a committee of MPs on allegations of misleading Parliament, according to the Mail.
A report said the business select committee is due to meet tomorrow to set its agenda, which could include calling the chief executive back for further questioning following a bruising appearance last week that saw him quizzed about strikes, his £140,000 bonus and plans to stop delivering letters on Saturdays.
Committee chairman Darren Jones said Thompson's answers raised 'grave concerns' over the running of the business and reminded him that misleading Parliament would 'not be appreciated' if his responses were proven untruthful.
Royal Mail is owned by Intermediate Capital Group (LON:ICP) PLC and shares were 1.7% higher on Monday.
10.18am: BT faces Ofcom probe
BT Group PLC (LON:BT.A) is to be investigated by industry regulator, Ofcom, over compliance with its obligation to provide customers with clear and simple contract information before they sign up to a new deal.
Since 17 June 2022, telecoms providers have been required to give customers contract information and a short – usually one-page – summary of the main contract terms before signing up, the regulator said.
The summary must include key information about the price, length of the contract and the terms and conditions if a customer decides to end their contract early.
Ofcom has already launched an investigation into EE but has “since received information giving us reason to suspect that Plusnet – another BT subsidiary – may also have failed to comply with these requirements.”
“As a result, our investigation will now consider if BT has breached Ofcom’s rules because of suspected breaches by each of these subsidiaries” the regulator said.
9.43am: MGM could bid again for Entain (LON:ENT) - reports
According to The Mail, casino giant MGM Resorts is mulling another takeover bid for the FTSE-100 gambling group Entain PLC which owns Ladbrokes (LON:LCL), Coral and Gala Bingo, later this year, citing City sources.
The US company previously made a swoop in January 2021. However Entain, led by Danish businesswoman Jette Nygaard-Andersen, rebuffed the £8.1bn approach on the grounds the price was too low.
Analysts believe the bid is likely to be revived once the UK Gambling Commission has published its long-delayed white paper.
Shares in Entain were a touch higher, up 0.4%, today.
9.32am: The Times fuels Asda/EG merger talk
Another big deal in the offing?
The Times reported on Saturday that the billionaire owners of Asda are exploring a merger of the supermarket and their UK petrol forecourts business in a blockbuster deal that would create a retail giant worth more than £10bn.
The merger talks are being held before a crunch refinancing at EG Group, which has £7bn of debt falling due in 2025.
The merged group would have more than 581 supermarkets, 700 petrol forecourts and 100 convenience stores in Britain, the report said.
Brothers Zuber and Mohsin Issa and London-based private equity group TDR Capital have owned EG Group together since 2016.
They later bought Asda.
9.00am: Measured start by Footsie
Blue-chips remain in demand in the early exchanges with the FTSE 100 now up around 18 points to 7,789 while the FTSE 250 is 89 points higher at 19,792.
Richard Hunter, head of markets at interactive investor described the progress as “measured but cautious” noting UK markets had “followed the lead of the US” to notch “early gains to leave the FTSE100 ahead by 4.5% so far this year.”
Shares in Fuller, Smith & Turner plc slumped 7.3% after warning full-year earnings will be below market expectations as train strikes hit trade.
Victoria Scholar, head of investment, interactive investor noted “The pub group enjoyed a pick-up in sales thanks to a boost from the FIFA World Cup, but train strikes over Christmas meant that sales have struggled to push beyond pre-pandemic levels.”
“It estimates that industrial action reduced sales by around £4mln” she added.
Associated British Foods PLC (LON:ABF) held firm, up 1.3%, with positive comments from Credit Suisse (SIX:CSGN) adding to the upgrade from Deutsche Bank (ETR:DBKGn) (see 8.27am).
Credit Suisse reiterated an ‘outperform’ rating and 2,150p price target.
Saga PLC (LSE:SAGA) rose 2.5% after confirming it was in talks to sell its underwriting business as it bids to pay down its debt pile and shares in funeral services provider, Dignity (LSE:DTY) PLC, were another firm feature, up 8.4%, as it confirmed it had agreed to be taken over by a consortium in a deal with an enterprise value of £789mln which valued each share at 555p.
Meanwhile, over in the currency markets sterling rose to push up to a fresh one-month high against the dollar with the “bullish trend” remaining in place, according to Neil Wilson at markets.com, “while the euro rose to its highest since April as the dollar faded further as the market bet on a less aggressive Fed”.
8.27am: AB Foods lifted by Deutsche upgrade to 'buy'
Shares in Associated British Foods PLC received a boost as Deutsche Bank which has moved the stock to ‘buy’ from ‘hold’ and raised its price target to 2,180p from 1,600p as well.
“Our upgrade to buy is based on our view that earnings expectations will start to recover as the headwinds that have been faced during 2022 start to reverse especially with regards to energy prices, FX and Primark will benefit from both trading down and new space growth” analyst Adam Cochrane said.
“Sentiment has improved for AB Foods from its lows with a re-rating from September lows but there is still scope for both a re-rating and earnings upgrades in our view” he continued.
Cochrane said he expects management to take a less bearish view on the Primark EBIT margin guidance at the first quarter trading update while a robust balance sheet and ongoing share buyback provides some technical support.
He has increased his fiscal year 2023 EPS estimate by 8% and for 2024 by 12%.
8.14am: Bright start for Footsie
The FTSE 100 has made a steady start to the week with the blue-chip index up around 17 points in the early exchanges.
Gains in the US on Friday provided support while a couple of big contract wins also boosted the underlying mood.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown (LON:HRGV) said “The FTSE 100 has opened marginally higher, as quiet optimism continues to swirl.”
She also highlighted “investor confidence has jumped 12% according to the Hargreaves Lansdown survey which tracks sentiment every month.”
In corporate news, National Express PLC was firmly on track in early dealings with shares up over 6% after it which has secured a contract worth €1bn to operate the RE1 and RE11 Rhein-Ruhr-Express lines in Germany to 2033 (see 7.58am).
Analysts at Peel Hunt said “this contract award is a clear vote of confidence in the group's operational skills.”
“Sentiment towards the stock has been incredibly negative given downgrades from ongoing challenges to recruit and retain drivers, and reintroduce school bus routes to support a reduction in net debt, and this award should be seen as positive.”
Reaction to Balfour Beatty’s £1.2bn contract win (see 7.53am) was more muted with shares up 0.3%.
Positive broker comment boosted Associated British Foods PLC which rose 1.7% as Deutsche Bank upgraded to ‘buy’ from ‘hold’.
The bank also increased its price target for the Primark owner to 2,180p from 1,600p.
7.58am: National Express nets €1bn deal
Another big contract win for National Express Group PLC (LON:NEX) which has secured a contract worth €1bn to operate the RE1 and RE11 Rhein-Ruhr-Express lines in Germany to 2033.
The company took over the operation of the two lines in February 2022 through an emergency contract award, successfully mobilising in a short timeframe.
Following this new contract award, National Express now operates all three asset light RRX lots under long term contracts.
The award of this contract establishes National Express as the second largest rail transport company in the region, delivering an anticipated 20mln train kilometres in 2023, the company said in a statement.
7.53am: Balfour Beatty (LON:BALF) wins £1.2bn contract
A good start to the week for Balfour Beatty plc.
The international infrastructure group has won a £1.2 billion contract from National Highways to deliver the 'Roads North of the Thames' package of works for the proposed Lower Thames Crossing.
The Lower Thames Crossing will create a new connection under the River Thames to increase capacity and ease congestion in the South of England.
Leo Quinn, group chief executive of Balfour Beatty, said: "The Lower Thames Crossing is a significant scheme - one that will stimulate local, regional and national economic growth, create employment opportunities and new, sustainable methods of construction for the future of our industry.
The full value of the contract will then go into Balfour Beatty's order book, with main construction scheduled to commence shortly after. Completion is expected between 2029 and 2030.
7.29am: Saga aims to sell underwriting arm
Saga PLC, which offers cruises, package holidays, insurance, and financial services to the over-50s, has confirmed it is in talks to sell its underwriting business, Acromas Insurance.
The London-listed company was responding to a report in The Sunday Times.
Sage said it remains committed to providing a “best-in-class insurance offer” to its customers but has looked at opportunities to optimise its operational and strategic position in the market, alongside plans to reduce debt.
The company concluded that a potential sale of its underwriting business was consistent with strategy and would crystalise value and enhance long-term returns for shareholders.
Sage noted Acromas Insurance currently underwrites approximately 25-30% of Saga's insurance business.
The report in The Sunday Times said the group was aiming to raise £90mln to help pay down its huge £721mln debt mountain.
7.00am: FTSE to open the week higher
The FTSE 100 is set to start the week on the front foot after a strong finish last week in the US.
Spread betting companies are calling London’s blue chip index up by around 14 points.
Michael Hewson chief market analyst at CMC Markets UK said: “financial markets appear to have a rising conviction that central banks are on the cusp of a significant pivot on monetary policy sometime later this year, a view that appears to be getting additional traction now that a number of Fed policymakers appear comfortable with the idea of another step down in the central banks rate hiking cycle to 25bps next week.”
On Friday, US markets closed higher with the Nasdaq up 2.7% to finish at 11,140 points. The S&P 500 was up 1.9% at 3,973 and the Dow had risen 1% to close at 33,375.
Back in London and results from BAE Systems (LON:BAES) take centre stage.