Proactive Investors -
- FTSE 100 lower after hawkish comments from central bankers
- Ofwat says Thames Water has "siginificant issues" to address
- Serco gains on raised guidance, De La Rue (LON:DLAR) soars on positive update
10.58am: US banks rise after passing Fed's stress test
Some eye watering numbers in the latest stress test figures for US banks, conducted by the Federal Reserve, but overall encouraging news.
The Fed reckons the largest US banks would lose US$541bn in a hypothetical doomsday economic scenario but still have more than enough capital to absorb the losses.
The stress tests are important as they help determine how much capital banks have to hold in the next 12 months.
As long as banks match or exceed the requirements, they are free from Fed restrictions on how much capital they can put towards shareholder dividends and stock buybacks.
This year's stress test includes a severe global recession with a 40% decline in commercial real estate prices, a substantial increase in office vacancies, and a 38% decline in house prices. The unemployment rate rises by 6.4 percentage points to a peak of 10% and economic output declines commensurately.
The data came after the US market close but after hours US banks climbed.
Bank of America (NYSE:BAC) was up 1.0%, Goldman Sachs (NYSE:GS) up 1.5%, Wells Fargo (NYSE:WFC) up 1.7% and JP Morgan up 1.0%.
The news will encourage hopes of improved dividends or more share buybacks with banks having to hold less capital going forward.
The results come just months after three of the largest bank failures in US history - Silicon Valley Bank, Signature Bank and First Republic – which triggered turmoil in the banking sector.
“Today’s results confirm that the banking system remains strong and resilient,” Fed vice-chair for supervision Michael Barr said in a statement.
10.44am: Revolution Beauty CEO and Chair pick up shares
While the ongoing spat with boohoo carries on, the chief executive and chair of Revolution have put their hands in their pockets and picked up some shares.
CEO Bob Holt has paid £260,000 for 1mln shares while non-exec chair Derek Zissman forked out £30,500 for 100,000 shares taking his holding to 130,000 shares or 0.04% of the company's share capital.
Shares, which resumed trading yesterday after a lengthy suspension, rose a further 6.3% to 26.04p on Thursday.
The FTSE is down 14.51 points, or 0.2%, at 7,485.98.
10.34am: May might prove high point for mortgage approvals
Martin Beck, chief economic advisor to the EY ITEM Club, thinks May's rise in mortgage approvals "may prove the high point for the immediate future."
He pointed out despite the improved figure mortgage approvals are still down 24% on a year earlier.
“Mortgage interest rates have risen significantly during June, driven upwards by the increase in swap rates."
"This has caused a significant deterioration in mortgage affordability and is likely to keep housing activity at very low levels," Beck felt.
"Net mortgage lending remained in negative territory in May, reflecting past weakness in approvals. Given the poor outlook for approvals, very low, or even negative net lending is likely to be the norm for the summer," he thinks.
9.51am: Mortgage approvals hold steady in May
Mortgage approvals rose to 50,500 in May from 49,000, figures released from the Bank of England showed, marginally better than the City had predicted.
Remortgage approvals also rose from 32,500 to 33,600 during the same period while the 'effective’ interest rate - the actual interest rate paid – on newly drawn mortgages rose by 10 basis points, to 4.56% in May.
Net borrowing on consumer credit by individuals decreased from £1.5bn in April to £1.1bn in May.
The figures for May came ahead of the increase in interest rates announced by the Bank of England last week to 5% which prompted lenders to hike mortgage rates across the board.
Meanwhile, the FTSE 100 remains steady, down 7 points.
9.38am: H&M provides boost for Next, Primark owner
Fashion retailers have received a boost from strong results from H&M.
Shares in the Swedish fast-fashion retailer gained 10.7% after it reported financial second quarter operating profit of 4.74bn Swedish crowns, beating forecasts for 4.07bn.
CEO Helena Helmersson said ‘the summer collections have been well received and the third quarter has got off to a good start.’
The news boosted Next, up 0.9%, and Primark owner, AB Foods (LON:ABF), up 0.5%.
9.25am: B&M tumbles despite strong trading
Shares in B&M has tumbled 6% despite a strong looking trading update. So whay the fall?
Russ Mould at AJ Bell thinks "it could be the lack of full-year guidance which implies no upgrades to earnings expectations."
He also pointed out "the shares have already had a strong run this year, up more than 30%, so perhaps some investors are banking profits while the going is good.”
Peel Hunt agreed. "The shares have had a great run but we are slightly concerned about valuation, so stick with a hold.”
Shore Capital also kept its hold rating. “We remain cautious due to the increasingly challenging year-on-year comparisons expected for the remainder of the year, a worrisome increase in shrinkage, and the potential need for price adjustments to support low-income UK consumers,” it said.
B&M shares are up 43% in the last 12 months so investors have had a good run.
8.52am: Thames Water has "strong liquidity", says Ofwat but has "significant issues" to address
As the future of Thames Water continues to attract the headlines, Ofwat, the water industry regulator, has said it is clear that Thames has "significant issues to address."
In a statement, Ofwat said: "We have been clear that Thames Water has significant issues to address - their environmental record and leakage performance, for example, are poor."
"Alongside the turnaround of their operational performance, they need to improve their financial resilience too."
But it sought to reassure over the financial health of Thames and the sector.
It said Thames "has strong liquidity - it recently received an additional £500mln from shareholders and has £4.4bn of cash and committed funding."
“Overall, the sector is continuing to attract international capital and is especially attractive to long term investors such as pension funds," it added, noting "there has been an additional equity injection of around £2bn since 2020, with companies acting to strengthen their financial position."
Environmental campaigner Feargal Sharkey said Thames Water’s financial woes have exposed that the industry is “very financially fragile”.
Sharkey told Radio 4’s Today Programme that failures in the regulatory system and political oversight had led to the current crisis.
"We’ve seen the symptoms of it, in terms of the sewage crisis, in terms of London’s water supply running out, in terms of leaking pipes not being repaired."
"And it’s now exposed this deeper underlying structural issue that the industry is clearly very financially fragile, if not teetering on the brink of insolvency."
8.41am: De La Rue optimistic, shares soar
The FTSE 100 continues to hold modest losses but one company enjoying a good day is De La Rue.
Shares jumped 10% after it reported signs of a recovery in demand for currency as it unveiled results in line with guidance given in April.
Clive Vacher, CEO, said: “Following a significant downturn in Currency demand over the past 18 months, we have witnessed encouraging signs of recovery with strong bid activity, a positive win rate, and the significant majority of FY24 banknote print volume already contracted.”
"In addition, Authentication is on track for significant revenue growth in the current financial year,” he said.
The bank note printer said revenue in the year to March 25 fell to £349.7mln from £375.1mln with adjusted operating profit of £27.8mln, down from £36.4mln.
The FTSE 100 is down 9 points at 7,491.
8.15am: FTSE 100 lower but Serco jumps after raising guidance
The FTSE 100 fell in early exchanges on Thursday weighing up hawkish comments from leading central bankers at a conference in Portugal, yesterday.
At 8.15am, London’s blue-chip index was down 16.16 points, or 0.2%, at 7,484.33 while the FTSE 250 fell 28.03 points, or 0.2%, at 18,384.78.
“Subdued market volatility remained the dominant theme over the last 24 hours, even as central bank governors pointed to further tightening ahead,” Deutsche Bank’s Jim Reid said.
Discount retailer B&M Value Retail slipped 1% despite what analysts called a “strong” trading update.
The retailer reported sales in B&M UK grew by 11.3% to £1.06bn, with both grocery and merchandise categories performing ‘very well.’
Peel Hunt noted “the shares have had a great run but we are slightly concerned about valuation, so stick with a hold.”
Shore Capital also kept its hold rating. “We remain cautious due to the increasingly challenging year-on-year comparisons expected for the remainder of the year, a worrisome increase in shrinkage, and the potential need for price adjustments to support low-income UK consumers,” it said.
Over in the FTSE 250, Serco was a star performer with shares up 6.7%.
The outsourcer increased its full-year revenue guidance by 4% to at least £4.8bn and lifted its underlying trading profit guidance by 4% to £245mln.
Peel Hunt raised 2023 pre-tax profit forecasts by 5% to £220mln.
“In our opinion the business is well placed to navigate the current macro-economic challenges (strong inflation protection and economic resilience) and to retain the significant Australian immigration contract due for rebid later this year,” it said.
Ashtead (LON:AHT) slipped as Exane BNP downgraded the company to 'neutral' from ‘outperform’ and cut its price target to 5,550p from 6,250p.
7.52am: B&M sales up as shoppers head for value
B&M European Value Retail SA (LSE:BME) reported strong growth in first-quarter revenues with ‘strong, profitable trading momentum’ across all three of its businesses.
Total sales rose by 13.5% to £1.32bn in the 13 weeks to 24 June 2023, compared to £1.61bn in the same period last year.
Sales in B&M UK grew by 11.3% to £1.06bn, with both grocery and merchandise categories performing ‘very well’ the company said in a statement.
"Our strong trading momentum demonstrates the strength of our unchanged strategy to relentlessly focus on price, product and excellence in retail standards,” commented B&M chief executive Alex Russo.
7.49am: WANDisco laments "wasted year"
WANDisco has published its results for financial 2022 which were delayed after the firm said in March it had found signs of possible “sophisticated” fraudulent activity.
The Sheffield-based data migration platform firm said revenue for the year to December 31, 2022 rose to US$9.7mln from US$7.3mln. In January, the company has forecast revenue of not less than US$24mln.
Pre-tax loss narrowed to US$28.4mln from US$38.8mln while loss per share was US$0.45 compared to US$0.65 the year prior.
Interim chief executive officer Stephen Kelly described 2022 as a “wasted year.”
But “having got off to a bad start, FY23 will be different,” he pledged.
“I am determined that it will serve as a real transition year towards a sustainable, growth-focused future for our business.”
He said the “early results of our turnaround plan show we can bring this focus to bear.”
The firm said on Wednesday that a US$30mln equity raise would be confirmed next week.
7.31am: Boohoo keeps pressure on Revolution Beauty board
Boohoo upped the pressure on the board of Revolution Beauty demanding that the beauty products supplier publishes details of share option awards given to senior executives.
The online retailer holds a 26.6% stake in Revolution Beauty and the latest move continues the war of words between the two firms.
Boohoo wants the terms of the grant of the free share awards granted to chief executive Bob Holt and chief financial officer Elizabeth Lake together with any award letters issued to the relevant individuals published without delay.
It also wants public confirmation that the proposed terms were not amended following the announcement by boohoo on 19 June of its intention to vote against the appointments of Bob Holt and Elizabeth Lake at Revolution Beauty annual general meeting.
Boohoo pointed out shareholders were not consulted on the Free Share Awards, did not approve its terms, nor approve the appointment of its two main beneficiaries as directors.
“This all demonstrates a lack of transparency and actions which are self-serving and not in the best interests of shareholders,” boohoo said.
At a dramatic AGM, shareholders, led by boohoo voted to remove Holt, Lake and chair Derek Zissman.
But the three were subsequently reappointed in controversial circumstances.
7.02am: FTSE 100 expected to edge lower
London’s blue chips are expected to edge lower at the open on Thursday following hawkish comments from a number of leading central bankers at a conference in Portugal.
Spread betting companies are calling the FTSE 100 down by around 5 points. The index closed 39.03 points higher, or 0.5%, at 7,500.49 on Wednesday.
US stocks were mixed Wednesday after the chair of the Federal Reserve warned that interest rates may need to rise further to curb inflation.
At a closely watched conference in Sintra, Portugal, Jerome Powell said "although policy is restrictive, it may not be restrictive enough and it has not been restrictive for long enough."
The Dow Jones Industrial Average fell 74.08 points, or 0.2%, at 33,852.66. The S&P 500 shed just 1.55 points, at 4,377.86, though the Nasdaq Composite rose 36.08 points, or 0.3%, at 13,591.75.
Asian markets were also mixed. In Tokyo, the Nikkei 225 index was up 0.1%. In China, the Shanghai Composite was flat, while the Hang Seng index in Hong Kong fell 1.3%.
Back in London and the early focus will be provided by updates from B&M, De La Rue, Moonpig, R&Q and Serco.