Proactive Investors -
- FTSE 100 falls back, down 17 points
- JD Sports slips as sales growth slows, US softening
- BT slumps 4%, UBS reckons dividend could be halved
1.00pm: Mixed start seen in US markets
US stocks are expected to start mixed on Tuesday after a recent run of falls as investors eye the next batch of economic data and ready themselves for the end of June and the second quarter.
In pre-market trading, futures for the Dow Jones Industrial Average (DJIA) were down 0.1%, but those for the S&P 500 added 0.1%, and contracts for the Nasdaq-100 rose 0.4%.
The moves follow another losing session on Wall Street on Monday, when the Nasdaq Composite led the way down, dropping nearly 1.2% as investors took profits on some technology stocks. Meanwhile, the S&P 500 closed 0.5% lower.
The DJIA ended down only 0.04%, however, that was the sixth consecutive negative session for the blue-chip index, its longest losing streak since September 2022.
Despite Monday’s leg down, the S&P 500 and Nasdaq are still on pace to finish June more than 3% higher, while the DJIA is poised for a monthly advance of nearly 2.5%.
Among the batch of US economic data due for release on Tuesday are home sales, durable goods and consumer confidence.
TickMill Group’s market analyst Patrick Munnelly commented: "Stateside, durable goods orders for May are anticipated to show a sharp decline, largely influenced by volatility in the transportation sector. However, orders from other durable goods producers are projected to have a modest increase compared to the previous month, although still below last year's levels, indicating the challenges faced by manufacturing sectors worldwide.
"On a positive note, non-defense capital goods orders and shipments have experienced significant growth since the beginning of the year, potentially driven by incentives provided by the Biden administration to promote green investment.
"US consumer confidence measures continue to lag behind pre-Covid levels, likely reflecting ongoing concerns about inflation and higher interest rates. The June reading of the University of Michigan's consumer sentiment indicator showed a larger-than-expected rebound from the low recorded in May but remained below the levels seen at the beginning of the year.
12.40pm: Nursing strikes off for now as ballot misses threshold
The threat of more strikes by nurses has ended after a ballot on further industrial action failed to meet the legal threshold.
The Royal College of Nursing said 84% of its members who voted backed more strikes.
But only 43% took part in the ballot, so it failed to reach the legal threshold of 50% required by the 2016 Trade Union Act.
RCN general secretary Pat Cullen said in an email to members: "While the vast majority of members who returned their ballot papers voted in favour of strike action, we did not meet the 50% turnout threshold necessary for us to be able to take further strike action."
"While this will be disappointing for many of you, the fight for the fair pay and safe staffing that our profession, our patients, and our NHS deserves, is far from over."
12.21pm: Car makers plead for EU to delay rule of origin regulations
UK car makers have pleaded with the EU to delay new post-Brexit trade rules which they claim will disproportionately affect electric vehicles.
The Society of Motor Manufacturers & Traders said rules of origin provisions due to come into force at the start of next year will lead to tariffs on exports of UK-built cars, particularly electric models.
It called for the 2024 rule to be scrapped to allow more discussions on the issue to take place, with tougher requirements scheduled from 2027.
SMMT chief executive Mike Hawes told a central London conference attended by international automotive manufacturers and investors: "The rules of origin get tougher, especially for batteries and their contents, from January 1, 2024.
"We're saying basically suspend that requirement and just let the regulation that's currently in place float through to 2027, which is the next threshold."
He went on: "January 1, 2024 is our cliff edge. We need to make sure that those aren't applied (or) else there's the real potential that EVs are more expensive and face the tariff, whereas petrol and diesel equivalents do not."
12.06pm: ECB boss in hawkish mood, more rate rises to come
Contributing to the pull back in markets were hawkish comments from ECB President Christine Lagarde who pledged yet another hike in July.
"It is unlikely that in the near future the central bank will be able to state with full confidence that the peak rates have been reached," she said at the start of an annual gathering of central bank chiefs and economists in Sintra, southern Portugal.
The ECB's policy would be decided "meeting by meeting", she said, but added that "barring a material change to the outlook, we will continue to increase rates in July", at the bank's next meeting.
"Monetary policy currently has only one goal: to return inflation to our 2% medium-term target in a timely manner. And we are committed to reaching this goal come what may."
"We have made significant progress but – faced with a more persistent inflation process – we cannot waver, and we cannot declare victory yet."
11.41am: David Lloyd up for sale reports Sky
One of the best known names in the leisure world is up for sale, according to Sky.
The owner of David Lloyd Leisure, one of Britain's biggest upmarket health and racquet sports chains, is preparing to listen to offers of more than £2bn, the report said.
TDR Capital, which has owned the business since 2013, has engaged bankers from Morgan Stanley (NYSE:NYSE:MS) to work on a review of its strategic options, it said.
TDR is thought to have paid around £750mln for David Lloyd although financial terms weren't diclosed at the time.
David Lloyd trades from approximately 150 clubs, and is said to be trading extremely well despite growing leisure industry concerns about the impact of the cost of living crisis.
Possible suitors are seen as large buyout firms.
Meanwhile, the FTSE 100 is stuck in a tight range around its opening levels.
11.05am: Supermarket bosses grilled over profits and pricing
The bosses of leading UK supermarkets have started giving evidence to MPs on the Business and Trade committee, as they face accusations of greedflation and profiteering from rising food prices.
First up, Gordon Gafa, commercial director at Tesco (LON:TSCO), told MPs that Britain’s biggest supermarket is the “most competitive we have ever been”.
“We have not made more profit year-on-year. We have actually made 7% less profit versus out last financial year. It’s important to be clear on that from the outset.”
Kris Comerford, Asda’s chief commercial officer, said that Asda’s sales were flat year-on-year in 2022, but EBITDA profits fell 25%.
He was challenged on what rising interest costs - following the takeover of Asda by EG Group, owned by billionaire brothers Zuber and Mohsin Issa - meant for customers.
Comerford said this ownership change has been ‘factored in’, and despite the impact Asda is still ‘investing in the customer offer’.
Rhian Bartlett, food commercial director at Sainsbury’s, said: "We’ve spent £560mln on keeping prices low, battling inflation and are doing absolutely everything we can to keep prices as low as possible for customers."
"In the most recent year we made lower profits, at £690mln - input costs are not being fully passed through to our shelf prices."
"We are inflating behind our input costs, and we are inflating – wherever possible – behind the market," she added.
The hearing continues.
10.42am: BT slides as UBS warns dividend could halve
BT Group PLC (LSE:LON:BT.A) tumbled 4% to 122.55p as UBS estimated rising interest rates could leave the telco having to halve its dividend.
"We think the market has underestimated the impact of rising interest rates and accounting changes at BT Sport that impacts FCF," analysts at the Swiss bank said.
"Without a dividend cut, BT Group will have to borrow >£900mln pa over the next three years."
"Borrowing to fund both the dividend and pension deficit payments when the cost of debt is rising presents risks and we assume a halving of the dividend to 3.85p (from 7.7p)," UBS stated.
It has moved its rating to 'sell' from 'neutral' with a reduced price target of 120p from 146p.
UBS estimates interest costs of £897mln in financial year 2024 rising to £1.02bn in 2026 from £800mln previously ahead of consensus forecasts of £830mln and £901mln respectively.
The bank also pointed out in a recent accounting change, cash costs of around £200mln pa for the BT Sport JV are no longer recognised in working capital but are now financing activities/investment in associates.
"We think this is not widely understood / captured by consensus, meaning underlying FCF generation for BT Group is up to -£200m lower than expected," UBS added.
10.03am: Aston Martin plans £2bn investment as sets out vision for further growth
Aston Martin Lagonda Global Holdings PLC (LSE:AML) is back in the news today unveiling new mid-term financial targets for 2027/28 ahead of its Capital Markets Day today.
The luxury car maker said it would also be confirming that it remains on track to deliver its 2024/25 financial targets, originally provided in 2020, which aimed to deliver c. £2bn in revenue and c. £500mln of adjusted EBITDA by 2024/25.
"The company expects to substantially achieve these financial targets in 2024 and, with continued strong momentum, is likely to exceed them in 2025," it said in a statement.
Looking further ahead to 2027/28, the DB7 manufacturer forecast revenue of c. £2.5bn, gross margin in the mid 40s%, adjusted EBITDA of c. £800mln, adjusted EBITDA margin of c. 30%, free cash flow to be sustainably positive and a net leverage ratio of c. 1.0x.
Aston expects to invest c. £2bn over the next five years (2023-2027) as it invests in its long-term growth and the transition to electrification.
This is comprised of c.£1.8bn of capital expenditures and c. £200mln in technology access fees to strategic suppliers and partners over the next five years, including the payments related to its proposed strategic supply agreement with Lucid Group Inc, announced yesterday.
Shares fell 3.9%, giving back some of yesterday's strong gains, but are up 125% year to date.
9.27am: Ithaca boss warns Labour could starve Britain of North Sea power
The boss of Ithaca Energy has warned the UK could be “starved” of North Sea energy under energy plans proposed by the opposition, Labour Party.
Labour leader Sir Keir Starmer last week said the party would grant no licences to explore fresh fields in the North Sea, calling a wait until UK oil and gas runs outs an “historic mistake”.
But Ithaca's executive chairman has warned such a ban and existing taxation policy was putting off investors and threatened energy security.
Gilad Myerson told the BBC: “By a new government imagining they’ll be able to stop licences and oil development in the UK, ultimately what that means is that they’ll be starving the UK of energy, and it will become very dependent on energy from abroad."
“Politicians keep making statements which spook investors. You have to make sure that the environment is stable because this is a project that will last for 10 years.”
8.55am: Wise market value jumps more than £1bn
Shareholders in Wise will be enjoying their breakfast after shares in the payments technology firm jumped 18% in early exchanges boosting the market value by more than £1bn.
The company reported more than quadrupled pre-tax profit and a 50% jump in revenue in its annual results, released today.
Analysts at Peel Hunt said guidance came in "better than expected" with total income growth of 28-33% for the financial year 2024 ahead of the consensus of 27%.
"Given the growth, Wise’s 15x 2024E EV/EBITDA looks optically attractive," the broker said.
"However, we think investors are unlikely to pay a full multiple on the net interest income piece," it added.
Meanwhile, the FTSE has lost its early shine, up just 8 points now at 7,462.
8.35am: JD Sports slips as sales growth slows, US "softening"
Some more on JD Sports which sits top of the FTSE 100 fallers.
The sports retailer has enjoyed a strong year with shares up 18% year-to-date but today's trading update has left it 4% lower.
Why. Well, the firm said sales growth in May was 8%, below the rate of growth of 15% seen in the first three months of the year. It also highlighted "some softening" in North America.
JD said: "This moderation in the growth was in line with management expectations and reflects tougher comparatives in the prior year as the supply chain normalised and the availability of product improved."
However, it still expects full-year profit in line with current expectations of just ober £1bn.
House broker, Peel Hunt said: "The US performance will probably catch the headlines but Europe and the UK are in rude health and have picked up any bottom line slack."
"JD continues to outperform all of its major competitors and the shares discount far too much bad news, in our view."
The broker reiterated a buy rating as did Shore Capital.
"While conscious of the macro backdrop challenges, we maintain our Buy stance on JD due to its strong structural position: the company’s robust balance sheet allows it to outinvest its peers, particularly in the US market," analysts at Shore Capital said.
8.15am: FTSE 100 higher but JD Sports knocked by US "softening"
The FTSE 100 has opened higher boosted by a welcome deceleration in shop price inflation and as China said it is on course to hits its 5% economic growth target.
At 8.15am, London’s lead index was up 32.78 points at 7,486.36 while the FTSE 250 jumped to 18,078.19, up 103.52 points, or 0.58%.
Richard Hunter at interactive investor said; “The comments from China gave an early boost to a premier index in the UK which had given up any gains in the year to date prior to today’s open.”
Mining and Asia-focused stocks led the rally with Rio Tinto (LON:RIO) up 1.6%, Anglo American (LON:AAL) up 1.8%, Prudential (LON:PRU) up 2.1% and HSBC (LON:HSBA) up 1.3%.
There was also some better news for the Bank of England as it battles stubborn inflation.
According to the latest British Retail Consortium-NielsenIQ tracker, annual shop price inflation in the UK eased to 8.4% in June, from 9.0% in May, and below the three-month average inflation rate of 8.7%.
Food inflation, a thorn in the side of the UK consumer, ebbed to 14.6%, from 15.4% with fresh food inflation falling to 15.7% from 17.2%.
"Households up and down the country will welcome the easing of shop price inflation in June,” BRC Chief Executive Helen Dickinson commented.
In company news, JD Sports Fashion PLC (LSE:LON:JD.) slipped 4.4% to 140.15p after reporting some “softening” in North American markets.
The sports retailer said sales growth of 8% in May was below the 15% posted in the first three months of the year.
Nonetheless, the company held current profit guidance of just over £1bn.
“While the pace of growth has slowed, it is worth noting that the Group remains pleased with the positive trading trends across all regions, indicating a stable and resilient performance in the face of market challenges,” analysts at Shore Capital said.
PZ Cussons (LSE:LON:PZC) was another faller as it cautioned that a devaluation of the naira in Nigeria would cause a one-off hit to profit in the coming year.
However, the maker of Carex and St Tropez did forecast top of the range full-year profit in the current financial year.
7.44am: PZ Cussons (LSE:PZC) ups guidance despite Nigerian hit
PZ Cussons (LSE:PZC) PLC is also in upbeat mood, expecting top of the range full-year profit despite a one-off hit from the devaluation of the naira in Nigeria.
In a trading update, the maker of Carex and St Tropez forecast adjusted profit before tax for the year of at least £70mln reflecting a particularly strong Q4 performance in Afric, above a company compiled consensus of £68.4mln.
Like-for-like revenue in the financial fourth quarter grew 6.7%, resulting in annual growth of 6.1%.
Group revenue for the year is forecast to be around £655mln with like-for-like growth in each geographic region in the fourth quarter.
PZ Cussons (LSE:PZC) welcomed moves in Nigeria to liberalise the foreign exchange regime although it said the resultant devaluation of the naira would result in a one-off hit.
The company explained every 10% devaluation in the Naira is estimated to result in a £23mln reduction in revenue, £3mln reduction in adjusted operating profit, and 0.5p reduction in adjusted earnings per share.
“Management believes that the Group will be well placed to withstand any macro-economic volatility in Nigeria given our market position and the significant improvement in the profitability of our business there in recent years,” the company said.
7.27am: Wise lifted by jump in customers and volumes
A strong update from Wise PLC (LON:WISEa) (LSE:WISE) kicks off the day. The firm said growth in active customers and volumes, combined with increased adoption of the Wise account led to jump in full year revenue.
In the year to March 31, the payments technology firm reported revenue of £846.1mln, up 51% while pre-tax profit jumped 234% to £146.5mln.
Customer numbers increased 34% to 10.0mln supporting a 37% year-on-year rise in volumes to £104.5mln.
This customer growth led to a 37% YoY increase in volumes to £104.5 billion.
Wise predicted further growth in the coming financial year.
“We expect income to grow by between 28-33% in FY2024, and for income to grow by more than 20% CAGR over the medium-term,” the firm said in a statement.
“We continue to expect our adjusted EBITDA margin to be at or above 20% over the medium term, but for it to remain higher than our target in FY2024 due to a higher proportion of interest income flowing to adjusted EBITDA.”
7.06am: Shop price inflation cools in June
Some better news on inflation. UK shop price inflation decelerated in June, with price cuts for staples such as milk and eggs easing some pressure on the consumer, figures released on Tuesday showed.
According to the British Retail Consortium-NielsenIQ tracker, annual shop price inflation in the UK eased to 8.4% in June, from 9.0% in May, and below the three-month average inflation rate of 8.7%.
Food inflation, a thorn in the side of the UK consumer, ebbed to 14.6%, from 15.4% with fresh food inflation falling to 15.7% from 17.2%. Ambient food inflation decelerated slightly to 13.0% from 13.1%.
"Households up and down the country will welcome the easing of shop price inflation in June. Food inflation slowed for the second consecutive month, particularly for fresh products, as retailers cut the price of many staples including milk, cheese and eggs. Clothing and electrical goods also saw falling prices, helping customers to pick up a bargain ahead of the summer holidays," BRC Chief Executive Helen Dickinson commented.
"If the current situation continues, food inflation should drop to single digits later this year. However, it is imperative that government does not hamper this progress by introducing costly new policies."
7.00am: FTSE 100 seen higher, China on target to hit growth target
Good morning. The FTSE 100 is expected to open higher taking heart from a fall in the rate of growth of shop price inflation and news that China is on course to hits its 5% economic growth target.
Spread betting companies are calling London’s lead index up by around 27 points.
China is on course to achieve its 5% target for economic growth in 2023 set by Beijing earlier this year, Premier Li Qianq.
"For the whole year, we are expected to achieve the target of about five percent economic growth set at the beginning of this year," Li said as he opened a meeting of global political and business leaders in northern China.
Asian markets were mixed. In Tokyo, the Nikkei 225 index was down 0.5%. In China, the Shanghai Composite was up 1.3%, while the Hang Seng index in Hong Kong was up 2.0%.
US markets fell back in late trading to end in the red. As Wall Street headed to the close, Russian President Vladimir Putin gave a defiant address to the nation in which he condemned the organisers of last weekend’s shortlived mutiny, saying they had betrayed their country and the fighters in their command.
Back In London, and, aside from the shop price inflation date – more to follow shortly - updates from PZ Cussons (LSE:PZC) and Wise will provide an early focus.