Proactive Investors -
- FTSE 100 makes strong progress, up 64 points
- AB Foods rises after raising guidance
- Deutsche Telekom (ETR:DTEGn) could buy more of BT (LON:BT) according to FT
Brokers upbeat on Rolls-Royce
Rolls-Royce Holdings PLC continued to attract positive comment following last week’s results and strategic plans.
Jefferies has increased its price target to 170p from 125p while Bank of America is reported to have lifted its target to 175p from 97p and upgraded its rating to ‘buy’ from ‘underperform’.
Jefferies has a ‘buy’ rating on Rolls. It said new chief executive is off to a great start, presenting the first truly solid set of results for the group since the Trent 1000 issues started in 2018.
“The quality of the earnings and free cash flow beat was solid, with lower catch-ups than in H1, and on volumes which remained low.”
It noted guidance also pointed to the group's recovery unfolding a year ahead of expectations while management presentation allayed concerns on risks of a rights issue.
“But it does not end here: an H2 Capital Markets Day could provide further uplift to estimate by providing a path to mid-teens margin for the group,” it suggested.
Shares in Rolls-Royce were top of the FTSE 100 risers, up 4.4% at 142.09p each. The FTSE meanwhile has powered ahead, now 7,948.84, up 70.18 points, or 0.89%, close to its best levels for the day.
UBS sees pound as undervalued, expects rally from second half onwards
UBS has raised its GBPUSD forecast to US$1.24 (from US$1.23) for end-June and thinks the pound will strengthen further to US$1.30 by the end of the year. It also predicts the rally in sterling will continue into 2024 with forecasting US$1.33 by end-March next year.
The US dollar is gaining currently as investors re-position for a prolonged rate hike cycle in the US but UBS thinks this is a temporary phenomenon and will change in the second half of the year.
Although in the near term, UBS expects cable to explore its lows it sees this as a good opportunity to build up positions.
UBS pointed out the economic outlook for the UK has seen a marked improvement, benefiting from lower energy prices amid a healthier fiscal position, and from improving global economic growth.
After a period of ongoing downgrades, economists are turning more positive on the economic outlook for this year.
But the economic challenges remain. The Bank of England is still in a dilemma, balancing an improving growth backdrop against a backdrop where still-high inflation is likely to fall a little quicker.
“As long as this situation persists, we think GBPUSD rallies will remain short lived.”
But looking into the second half of the year, “we expect the US dollar to see a new bout of weakness.”
“When investors have clarity on the end of the US interest rate hiking cycle, they are likely to position for rate cuts.”
The broker added a mild recession may hit the US, which could also encourage further selling of the USD.
UBS believes “that the fair value for GBPUSD is closer to the 1.50 level.”
“Thus, even if the currency pair were to move to 1.30, the pound would still look undervalued, in our view.”
Today, the pound has moved 0.25% higher versus the dollar but remains below US$1.20, at US$1.1976.
Energy price cap falls to £3,280 from April
Consumers will pay an extra £500 on their annual household energy bills from April despite Ofgem cutting the amount suppliers can charge by nearly £1,000.
The energy regulator has dropped its price cap on the amount energy suppliers are able to charge to £3,280 from April 1 from £4,279 at present.
However, households will have to pay more as the Government raises its own cap on bills which it launched to help consumers through the energy crisis triggered by the war in Ukraine.
???? The #PriceCap is going down on the 1 April 2023The Energy Price Guarantee is still in place, though the amount of support is reducing, and consumers will continue paying the price set by the government
Find out more here ⬇️https://t.co/Lr2aFofR8t pic.twitter.com/1er8tN0cex
— Ofgem (@ofgem) February 27, 2023
At the moment, the Treasury caps typical annual household bills at £2,500 under its energy price guarantee.
However, from April ministers will raise this cap to £3,000, meaning households have to pay an extra £500 a year on average, with the Treasury paying the £280 difference to suppliers.
Ofgem CEO Jonathan Brearley said: “Although wholesale prices have fallen, the price cap has not yet fallen below the planned level of the Energy Price Guarantee. This means, that on current policy, bills will rise again in April. I know that, for many households this news will be deeply concerning.”
He also warned, "prices are unlikely to fall back to the level we saw before the energy crisis."
Shares in Centrica were 0.6% higher at 104.49p while the FTSE 100 is at 7,941.35, up 62.69 points, or 0.80%.
Deutsche Telekom could buy more of BT despite "biggest mistake"
Shares in British Telecom PLC rose 2.1% on Monday to 140.20p after Deutsche Telekom’s chief executive said it could increase its stake in its British rival BT, despite a hefty drop in the value of its initial investment.
Speaking to the Financial Times Tim Hoettges said an increased stake was one option for Deutsche to recoup some of those losses, vowing he "will get that money back".
"I am not nervous, I will stay quiet, and do the portfolio transaction when I'm ready to do so," he said, adding that BT had a lot of potential.
Hoettges called the deal his "biggest mistake", adding: "It was too early and I didn't understand all of the obstacles around BT.
Deutsche Telekom became BT's second-largest shareholder in 2015 when it sold its mobile joint venture EE, accepting part of the €16.7bn purchase price in shares.
Over the past eight years, the FTSE 100-listed telco has lost about two thirds of its market capitalization, shrinking the value of Telekom's 12% stake by around €4bn.
Footise powers ahead
Equities remained in favour in early exchanges with the FTSE 100 now at 7,935.19, up 56.53 points, or 0.72%. Gains in oil majors and housebuilders provided support while Rolls-Royce PLC continued its recent strength after last week's results and strategic plans.
Adding to the positive mood are hopes of a much-anticipated deal to end the dispute with the EU over post Brexit trading arrangements in Northern Ireland.
But Susannah Streeter at Hargreaves Lansdown noted, “Dawn may be about to break on a new era of calmer relations between the UK and the European Union, but hopes still aren’t racing away that it will herald a significant post-Brexit boost for the economy.”
“The pound hasn’t powered up significantly,” she pointed out.
“Any deal would be a significant step forward, and this new consensual approach should help for other thorny political problems such as migration but in itself, it’s unlikely to move the dial much for a big uplift to UK trade immediately,” she felt.
“With no big fire lit under sterling and recent weakness persisting, it has given support to the internationally focused FTSE 100, which benefits from a weaker pound given that it boosts earnings made overseas in dollars,” she explained.
Trading updates helped support the lead index. Bunzl PLC was 2.4% higher after its final results which broker Jefferies noted were 3% ahead of consensus at the EPS level but well ahead in terms of free cash flow.
Peel Hunt agreed noting 2022 pre-tax profits of £818mln were slightly ahead of the £800mln consensus. “The shares are trading on 17.2x December 2023 and remain attractively valued,” the broker said, reiterating an ‘add’ recommendation.
Associated British Foods also rose after its trading update described as “good” by Shore Capital.
“We are provisionally upgrading our EPS estimates by around 11%, noting that the company now guides to ‘broadly’ flat adjusted EBIT and EPS, year-on-year.”
The Primark-owner said full-year expectations have improved, with adjusted operating profit and earnings per share now expected to be broadly in line with the previous financial year. It had previously forecast profits would fall.
Inflation has become less volatile and some commodity costs have declined, the FTSE 100-listed firm said.
But the company cautioned macro-economic headwinds for the consumer remain and may weigh on spending in the months ahead.
FTSE makes strong early progress
The FTSE 100 jumped in early exchanges recouping Friday’s losses as US markets closed off their worst levels on Friday after the strong PCE inflation numbers.
At 8.15am London's blue chip index was at 7,937.08, up 58.42 points, or 0.74% while the FTSE 250 was also in fine form at 19,770.54, up 74.01 points, or 0.38%.
Despite renewed concerns that US rates would stay higher for longer equities in London powered ahead supported by gains in oil majors BP PLC and Shell PLC, up 1.2% and 1.5% respectively.
Associated British Foods PLC advanced after raising guidance for the full year as it signalled inflationary and cost pressures were easing.
The owner of Primark said operating profit and earnings per share now expected to be broadly in line with the previous financial year. It had previously forecast profits would fall.
Inflation has become less volatile and some commodity costs have declined, the FTSE 100-listed firm said.
But the company cautioned macro-economic headwinds for the consumer remain and may weigh on spending in the months ahead.
“At Primark, we remain cautious about the resilience of consumer discretionary spending in the face of continuing inflation in the cost of living and higher interest rates,” the group said in a statement.
Nonetheless, AB Foods expects Primark operating profits to be ahead of previous guidance in the second half as a result of higher sales and lower operating costs. “For the full year we now expect adjusted operating profit margin to be above 8%,” the firm said.
Shares rose 2%.
Richard Hunter at Interactive Investors said, “In all, the idiosyncratic nature of the group continues to play into the hands of AB Foods.”
“A diversified range of businesses gives the group any number of levers to pull depending on economic cycles, while Primark is on the way to cementing its place as the company’s jewel in the crown.”
Bunzl PLC was also in favour after reporting strong growth in full year revenue and profit alongside a 10% increase in the dividend. Shares improved 2.5%.
For the year to December 31 revenue totalled £12.04bn, up 9.8%, statutory pre-tax-profits rose to £634.6mln, up 12%, from £568.7mln and basic earnings per share improved 6.8% to 141.7p from 132.7p. 6.8%. Shareholders were rewarded with a 10% boost to the dividend to 62.7p.
The FTSE 100-listed distribution firm said revenue growth was driven by product cost inflation, volume recovery in the first half and growth from acquisitions.
The group held 2023 guidance and announced two more bolt-on acquisitions.
Matt Britzman, equity analyst at Hargreaves Lansdown commented: “Bunzl marks its 30th consecutive year of dividend growth, an impressive feat by anybody’s standards, underpinned by a well-oiled, cash generative machine.”
“2022 was another strong year for growth on both the top and bottom-line, price hikes and acquisitions did their jobs to keep inflation at bay and margins were even able to creep up. At a reported level, exchange rates helped the cause too – contributing 6-7% to profit growth as around 90% of earnings come from outside the UK.”
Trainline PLC rose 2.4% as Deutshce Bank put the firm on its buy list upgrading from ‘hold’ while positive comments from Barclays Capital supported Lloyds Banking Group, up 0.4%. The broker reiterated its ‘overweight’ rating.
“While net interest margin has likely peaked, earnings are building toward a higher and more sustainable level, underpinned by lower deposit risks and receding provision concerns,” the bank said.
Bunzl packages strong growth, lifts dividend
Bunzl PLC held guidance for 2023 as it reported strong growth in revenue and profit in 2022 alongside two more bolt-on acquisitions.
For the year to December 31 revenue totalled £12.04bn, up 9.8%, statutory pre-tax-profits rose to £634.6mln, up 12%, from £568.7mln and basic earnings per share improved 6.8% to 141.7p from 132.7p. 6.8%. Shareholders were rewarded with a 10% boost to the dividend to 62.7p.
The FTSE 100-listed distribution firm said revenue growth was driven by product cost inflation, volume recovery in the first half and growth from acquisitions.
Growth of the foodservice, retail and grocery sectors was particularly supported by significant product cost inflation although the cleaning & hygiene, safety and healthcare sectors were impacted by the year-on-year decline in Covid-19 related sales.
Group revenues were further supported by 3.1% growth from the incremental impact of acquisitions, Bunzl said.
Looking ahead and the company kept 2023 guidance unchanged and expects revenue in 2023 to be slightly higher than in 2022, driven by both organic growth and announced acquisitions, and partially offset by a small impact from the UK healthcare disposal.
Adjusted operating profit in 2023 is forecast to be “resilient,” with operating margin slightly higher than historical levels.
Bunzl also announced two further acquisitions buying Arbeitsschutz-Express, a fast-growing online distributor of workwear and PPE in Germany and Capital Paper, a distributor of foodservice packaging and consumables, cleaning & hygiene supplies, and industrial packaging products in Canada.
AB Foods raises guidance
A trading update from Associated British Foods PLC,to start the week and its positive news.
The owner of Primark said on Monday full year expectations have improved with adjusted operating profit and earnings per share now expected to be broadly in line with the previous financial year. It had previously forecast a fall.
Inflation has become less volatile and some commodity costs have declined, the FTSE 100-listed firm said.
But the company cautioned macro-economic headwinds for the consumer remain and may weigh on spending in the months ahead.
“At Primark, we remain cautious about the resilience of consumer discretionary spending in the face of continuing inflation in the cost of living and higher interest rates,” the group said in a statement.
Nonetheless, AB Foods expects Primark operating profits to be ahead of previous guidance in the second half as a result of higher sales and lower operating costs. “For the full year we now expect adjusted operating profit margin to be above 8%,” the firm said.
Full year adjusted operating profit in its Food businesses are expected to be modestly ahead of last year with Ingredients profit for the full year forecast “to be well ahead of last year. “
But a much lower UK beet crop will reduce second half profit and bring adjusted operating profit for the full year at AB Sugar broadly in line with the prior year. Grocery adjusted operating profit is seen broadly in line with the prior year benefiting from “pricing actions.”
The improved outlook came as the company updated on first half performance. The group forecast interim sales to be 20% higher year-on-year at actual exchange rates with adjusted operating profit expected to be broadly in line with the last year.
Cost pressures remained significant but consumer spending proved more resilient than anticipated.
Primark sales are expected to be up 19% at £4.2bn and adjusted operating profit margin for the half year is now expected to be above 8%.
Profits at its Food businesses are forecast to be significantly ahead of the same period last year but in Grocery profits are likely to fall with inflation in input costs continuing to run ahead of pricing and cost mitigation activity.
Footsie set to open higher
The FTSE 100 is expected to start the week in brighter fashion recouping some of Friday’s losses.
Spread betting companies are calling London’s lead index up by around 21 points.
US markets endured a tough day on Friday after stronger-than-expected PCE inflation figures, but closed off session lows.
The Dow finished Friday down 337 points, 1%, at 32,817, the Nasdaq Composite lost 195 points, 1.7%, to 11,395 and the S&P 500 fell 42 points, 1.1%, to 3,970. The small-cap Russell 2000 index declined 24 points, 1.3%, to 1,884.
In Asia on Monday, the Nikkei 225 index closed down 0.1%. In China, the Shanghai Composite was down 0.4%, while the Hang Seng index in Hong Kong was down 0.7%.
Michael Hewson at CMC Markets commented, “As we look towards a new week, and the end of the month tomorrow, last week’s falls have called into question whether markets in Europe can hold onto their February gains, while US markets have already slipped into negative territory for the month, after last week’s sharp falls.”
In London, the early focus will be a trading statement from Primark owner, Associated British Foods PLC and full-year results from Bunzl PLC.
No major economic data is expected in London on Monday but in the US later today, durable goods orders and pending homes sales figures are due for release.