Proactive Investors -
- FTSE 100 opens lower, down 46 points
- IMF cuts UK GDP forecast for 2023
- Tesco (LON:TSCO) set to swoop for Paperchase - reports
9.40am: BAE's Asian potential undervalued - UBS
BAE Systems (LON:BAES) held in positive territory as the FSE 100 tumbled boosted by an upgrade to ‘buy’ from ‘neutral’ from UBS.
Relaunching its coverage the bank set a 1,050p price target believing consensus forecasts ignore the company’s long-term potential, especially in Asia, despite BAE’s strong position in the region.
The broker sees upside in munitions, Australia and potentially Japan while restocking European munition stockpiles is a central short-term focus for European customers.
As a result, UBS estimated BAE’s growing exposure could drive 15% CAGR between 2021-25 and up to 30% CAGR if supply chain issues ease.
UBS suggested it is not clear that AUKUS is factored in to valuations, given that material revenues are only likely from 2025 onwards while Japan joining Tempest is itself a “large, potentially overlooked, upside.”
UBS thinks the combination of Tempest and its credentials as a US contractor leaves BAE potentially uniquely positioned to benefit in Japan as it evolves to become a 50% larger market than France as soon as 2027.
“We see Q1 as catalyst-rich, as UK, Australia and Japan all announce defence reviews” the bank concluded.
Shares were trading 0.4% higher with the FTSE 100 now down 46 points, or 0.6%.
9.21am: Tesco to cut 2,100 jobs
Like London buses you wait for one Tesco announcement and two come along.
Alongside reports that the food retailer may be looking at Paperchase comes news of a shake-up in management and the closure of hot counters and delis which will impact approximately 2,100 jobs.
Tesco store management shake-up plus other changes including pharmacy closures to hit 2,100 jobs— John-Paul Ford Rojas (@JPFordRojas) January 31, 2023
The reorganisation will also introduce around 1,800 new shift leader roles in stores, the UK's largest supermarket chain said.
The counters and hot delis will close from 26 February, Tesco added.
Jason Tarry, Tesco UK and ROI chief executive officer, said: "These are difficult decisions to make, but they are necessary to ensure we remain focused on delivering value for our customers wherever we can, as well as ensuring our store offer reflects what our customers value the most.
9.09am: Tesco to swoop for Paperchase - reports
Tesco PLC is poised to snap up the Paperchase brand in a surprise swoop according to reports.
Sky News has learnt that Britain's biggest supermarket chain is in advanced talks about buying Paperchase's name and other intellectual property through a pre-pack administration that could take place as early as Tuesday.
Exclusive: Tesco is in advanced talks to buy the Paperchase brand and other intellectual property assets out of administration later today, in a deal that will cast doubt over the future of hundreds of employees and scores of high street shops. Full story on @skynews shortly.— Mark Kleinman (@MarkKleinmanSky) January 31, 2023
But sources close to the situation said Tesco was unlikely to be interested in any of Paperchase's stores, meaning that most of its workforce may face the prospect of losing their jobs.
It was unclear on Tuesday morning whether any other suitors were in talks about a deal, Sky said.
9.05am: Rate anxiety holds equities back
The Footsie has extended its losses, now down 38 points, as investors prefer to remain side-lined ahead of this week’s interest rate calls.
Richard Hunter, head of markets at interactive investor, commented “Nerves got the better of investors as a potentially pivotal week unfolds.”
“Recession remains the single largest concern and for the US, the actions of the Federal Reserve may determine that outcome.”
“While another rate hike of 0.25% is fully expected this week, the accompanying comments will be of equal interest” he suggested.
“There is an increasing throng of optimistic investors who are not only pricing in that the aggressive hiking rate is coming to a close, but also that there is a possibility of interest rate cuts later in the year.”
But Hunter felt this assumption is one for “which they could be sorely disappointed and Federal Reserve Chair Powell is most likely to reiterate the mantra of “higher for longer” until such time as inflation is finally brought under control.”
Asian-focused stocks, which were higher yesterday, slipped today with banking giants Standard Chartered PLC (LON:STAN) and HSBC Holdings PLC (LON:HSBA) heading lower while global growth concerns hit mining companies Endeavour Mining PLC (LON:EDV), Anglo American (LON:AAL) and Fresnillo (LON:FRES).
Oil majors BP PLC (LON:BP) and Shell (LON:RDSa) also fell weighing on the index.
Irn-Bru maker AG Barr PLC fizzed 3.4% higher after saying it was set to deliver full-year profit "slightly ahead" of current market expectations following a strong second-half sales performance and an upgrade by HSBC to ‘buy’ gave a boost to Compass Group (LON:CPG) PLC which rose 2%.
8.48am: IMF cuts UK GDP forecast for 2023
More on the IMF's downgrade to UK GDP forecasts which leave it on course to be the worst performing G7 country in 2023.
The IMF predicted that UK GDP will fall by 0.6% this year, which is a 0.9 percentage point downward revision from October’s forecasts for growth of 0.3%.
Truly grisly assessment for the UK economy from the IMF this morning.- UK to fare worse than any other major economy this year
- worse even than Russia(!)
- Britain's downgrade came as most other countries saw their growth prospects upgraded
Full story:https://t.co/ATahkwWnqr pic.twitter.com/cRYaO5aa4P
— Ed Conway (@EdConwaySky) January 31, 2023
The Washington-based agency blamed the downgrade on tighter government spending policies and higher interest rates and the burden from still-high energy retail prices on household budgets.
But it wasn't all bad news and the IMF nudged up its outlook for UK growth in 2024 to 0.9%, up from the 0.6% expansion previously forecast.
Pierre-Olivier Gourinchas, the IMF’s economic counsellor, said 2023 would be “quite challenging” for the UK as it slipped from top to bottom of the G7 league table.
He added: “There is a sharp correction.”
The UK growth downgrade came in the IMF’s update to its half-yearly World Economic Outlook.
Chancellor, Jeremy Hunt, responded by saying nearly all advanced economies were facing headwinds.
He said: “The governor of the Bank of England recently said that any UK recession this year is likely to be shallower than previously predicted, however these figures confirm we are not immune to the pressures hitting nearly all advanced economies.”
But Rachel Reeves MP, Labour’s shadow chancellor, suggested the forecasts show Britain needs a proper plan for growth.
“Britain has huge potential - but too many signs are pointing towards really difficult times for our economy, leaving us lagging behind our peers” she commented.
8.30am: Food price inflation hits new high
Grocery price inflation hit a record 16.7% in the 4 weeks to 22 January 2023 according to Kantar, the highest level since it started tracking the figure in 2008.
As a result, households will now face an extra £788 on their annual shopping bills if they don’t change their behaviour to cut costs, Kantar said.
Fraser McKevitt, head of retail and consumer insight at Kantar, commented: “Late last year, we saw the rate of grocery price inflation dip slightly, but that small sign of relief for consumers has been short-lived.”
“Grocery price inflation jumped a staggering 2.3 percentage points this month to 16.7%, flying past the previous high we recorded in October 2022.”
McKevitt continued: “Competition in the British grocery sector is as intense as it’s ever been as retailers strive to retain shoppers.”
“The grocers have been doing this by boosting their own-label ranges especially, with sales of these lines growing consistently over the past nine months.”
“January was no exception as own-label lines grew by 9.3%, well ahead of branded alternatives which were up by just 1.0%.”
“Across the market the move is towards everyday low pricing, with many supermarkets offering price matching and using their loyalty schemes to help shoppers save.”
Aldi was the fastest growing grocer for the fourth month in a row this period, with sales 26.9% higher year on year. It now holds 9.2% of the market. Lidl’s sales jumped by 24.1%, putting its market share at 7.1%.
There was little to split Britain’s three largest retailers. Sainsbury’s sales increased by 6.1%, just 0.1 percentage point higher than Asda and Tesco, giving it 15.4% of the market. Tesco remains the largest British retailer with a 27.5% market share while Asda holds 14.2%.
Although its sales fell by 1.9%, Morrisons’ performance has continued to improve for the eleventh month in a row and its market share now stands at 9.1%.
Iceland’s share increased by 0.1 percentage point to 2.5%, driven by an annual sales rise of 10.6%. Ocado (LON:OCDO) matched the market’s growth rate at 7.6%, well above overall online sales which were down 0.7%. Convenience specialist Co-op has a 5.5% share of the market and Waitrose accounts for 4.7% of total sales.
8.15am: FTSE 100 opens lower
The FTSE 100 opened lower on Tuesday following falls in the US and Asia and after another downbeat assessment of the UK’s growth prospects.
Caution ahead of this week’s interest rate calls from the Federal Reserve, ECB and Bank of England added to the cautious mood.
At 8.15am London’s lead index was 15 points at 7,770 while the FTSE 250 fell 52 points to 19,886.
As if investors didn’t need reminding the IMF has weighed in with its assessment of the UK’s economic prospects cutting its 2023 GDP forecast by 0.9 percentage points and now predicting a contraction of 0.6% this year.
This would make it the worst performing G7 country in 2023, the Washington-based agency said.
IMF Growth Projections: 2023USA????????: 1.4%
Germany????????: 0.1%
France????????: 0.7%
Italy????????: 0.6%
Japan????????: 1.8%
UK????????: -0.6%
China????????: 5.2%
India????????: 6.1%
Russia????????: 0.3%
Brazil????????: 1.2%
Mexico????????: 1.7%
KSA????????: 2.6%
Nigeria????????: 3.2%
RSA????????: 1.2% https://t.co/4ifKc9qi4j #WEO pic.twitter.com/qELAmtqXLP
— IMF (@IMFNews) January 31, 2023
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV) said: “Ultimately, the UK has a productivity and demand problem, which when put together creates a very difficult environment.”
“There’s a chance the UK could muster a better performance than the IMF is predicting, given upgrades to expectations from other bodies in recent months.”
“The market will remain very sensitive to interest rate and inflation readings until we have a clear path out of the stagnation.”
High prices were one of the reasons the IMF blamed for the downgrade and they were in evidence today as the monthly survey from Kantar showed grocery price inflation hit another record, rising 16.7% in January, adding a potential extra £788 to annual shopping bills.
Fraser McKevitt, head of retail and consumer insight at Kantar, commented: “Late last year, we saw the rate of grocery price inflation dip slightly, but that small sign of relief for consumers has been short-lived.”
“Grocery price inflation jumped a staggering 2.3 percentage points this month to 16.7%, flying past the previous high we recorded in October 2022.”
In corporate news, Pets at Home Group PLC (LON:PETSP) soared 9.25% after it upped its full-year guidance on the back of a good third quarter.
But British American Tobacco PLC (LON:BATS) was little moved by news of a shake-up of its global operations and Wickes Group PLC (LSE:WIX) slipped 1.4% despite predicting profits in line with guidance.
Peel Hunt noted the statement flagged c.£6mln of additional cost headwinds, £3.5mln of this in the form of pulling forward an additional pay award with the remaining £2.5mln from higher energy costs.
7.48am: BAT in operational rejig
A bit of a shake-up at British American Tobacco PLC which has decided to streamline its operations, cutting the number of business units and restructuring its regional set-up.
Under the plans the number of regions will be reduced from four to three, and the number of business units from 16 to 12, the FTSE 100 cigarette seller said.
The three new regions will be USA, Americas & Europe (AME) and Asia Pacific, Middle East & Africa (APMEA).
“The new structure will increase the efficiency of BAT's geographical footprint, optimise market prioritisation and will be based on fewer, larger business units, enabling even greater collaboration and accelerated decision-making across BAT” the company said in a statement.
Jack Bowles, BAT chief executive said the changes “will drive increased focus, accelerate our transformation and fuel growth as we strengthen the foundations of our future as a category-led enterprise."
Two new board roles will be created in order to ensure clarity of ownership, accountability and focus: chief transformation officer and director, Combustibles, BAT said..
7.32am: Wickes sees profits in line
Kicking us off today is trading news from Wickes PLC which has forecast adjusted pre-tax profits in line with market expectations after reporting strong quarter four trading with sales up 11.5%,
In a trading update, the building materials supplier reported particularly strong growth in its Do It For Me business where sales soared 34.5% on last year although the prior year was hit by the omicron outbreak.
Core like-for-like sales rose 5.2%, continuing the improving trend since the summer.
Local Trade sales again performed strongly, with the digital TradePro customer base ending the year at 746,000 (+18% year-on-year) although DIY sales remained below last year but stabilised towards the end of the quarter supported by sales of energy saving products.
The company also reported an easing in pricing pressures aided by reductions in the cost of timber and inflation, which was 9% in quarter four, “continues to trend lower.”
Wickes said the order book at the end of December was lower than 2021 but still above 2019 levels with orders in the fourth quarter down “moderately” versus last year but on an improving trend from the third quarter.
The company said this trend has continued and orders in quarter one to date are in line with the prior year.
As a result, the company predicted pre-tax profits in line with City forecasts which it put between £72mln to £76mln.
7.00am: Footsie to follow US and Asia lower
FTSE 100 is expected to open lower following losses in the US and Asia and as the IMF posted another gloomy assessment of the UK economy.
Spread betting companies are calling the lead index down by around 28 points.
The IMF has downgraded its UK gross domestic product forecast once again, predicting a contraction of 0.6% against the 0.3% growth pencilled in last October as Britain looks set to suffer more than most from soaring inflation and higher interest rates.
In the US markets ended the Monday nursing heavy losses with the Dow down 260 points, 0.8%, at 33,718, the Nasdaq Composite off 228 points, 2%, to 11,394 and the S&P 500 53 points worse off, 1.3%, to end at 4,018.
Asian equities followed New York’s path, despite new figures showing China's factory activity returned to growth.
In Tokyo, the Nikkei 225 index was down 0.4%. In China, the Shanghai Composite was down 0.4%, while the Hang Seng index in Hong Kong was down 1.6%.
In London, trading updates are expected from Pets at Home PLC and half-year numbers from ITM Power PLC.
On the economic front, consumer credit, mortgage approvals numbers and the latest Nationwide house price index are also due.