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LONDON BRIEFING: Barratt predicts profit beat; Direct Line payout plan

10th Jul 2024 07:46

(Alliance News) - London's FTSE 100 is called to open higher on Wednesday, recovering some lost ground after a tricky start to the week, despite some tentative trade on Wall Street overnight.

Despite only registering slight gains, both the Nasdaq Composite and S&P 500 achieved another record high, as comments from Federal Reserve Chair Jerome Powell failed to unnerve.

Powell is in focus again on Wednesday as he testifies before US lawmakers again.

"In the first day of his semiannual testimony before Senators, Powell said – for the first time in three years – that inflation is no longer the only threat to the US economy but the cooling jobs market also is. Although he didn't want to offer a clear timeline when asked when the Fed would lower interest rates, Powell said that the latest jobs report sent a 'pretty clear signal' of a cooler labour market," Swissquote analyst Ipek Ozkardeskaya commented.

In local corporate news, housebuilder Barratt Developments predicted annual profit will beat forecasts, while food and beverage outlet operator SSP affirmed its outlook. Direct Line set out a new strategy update, which included a new payout plan and the announcement that it will add its offering to price comparison websites.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: called up 0.2% at 8,156.91

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Hang Seng: down 0.2% at 17,495.01

Nikkei 225: up 0.6% at 41,831.99

S&P/ASX 200: down 0.2% at 7,816.80

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DJIA: closed down 52.82 points, 0.1%, at 39,291.97

S&P 500: closed up 0.1% at 5,576.98

Nasdaq Composite: closed up 0.1% at 18,429.29

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EUR: higher at USD1.0819 (USD1.0810)

GBP: higher at USD1.2792 (USD1.2781)

USD: lower at JPY161.45 (JPY161.46)

GOLD: up at USD2,369.39 per ounce (USD2,353.59)

(Brent): down at USD84.04 a barrel (USD84.76)

(changes since previous London equities close)

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ECONOMICS

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Wednesday's key economic events still to come:

14:30 BST UK Bank of England Chief Economist Huw Pill speaks

15:00 BST US Federal Reserve Chair Jerome Powell speaks

19:30 BST US Federal Reserve Governor Michelle Bowman speaks

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UK Prime Minister Keir Starmer will use the Nato summit to help "reset" the UK's relationship with European neighbours. As is usual for Nato summits, the prime minister will be joined on the trip by the foreign secretary and defence secretary, but he is also taking Nick Thomas-Symonds, who has been given the newly-created job of minister for European relations. Starmer's administration wants to repair the damage to relations with Europe caused by the Brexit wrangles and strike a better deal with the EU than the "botched" trade agreement signed by Boris Johnson. The presence of Thomas-Symonds in the delegation for Starmer's first overseas summit shows the importance the Labour government is placing on efforts to build bridges with the EU and other nations on the continent. Ahead of the summit in Washington, the prime minister's official spokesman said: "Nato is a political and military alliance of countries from Europe and North America. It's not unusual that the minister for Europe would accompany the prime minister. I'm sure as you're aware, the PM has said he wants to reset our relationship with Europe."

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UK PM Starmer has said he is committed to spending 2.5% of GDP on defence, but that he could not set a timeline to reach the target before carrying out a review. He told journalists on the tarmac before he set off for the Nato summit in Washington that he was committed to 2.5% "within our fiscal rules". The prime minister said: "The most important thing is to, at this Nato summit, recommit to our solidarity with and stand with Ukraine and discuss the practical plans for further action we can take together in relation to Russian aggression." Support for Ukraine will be at the top of the agenda for the Washington summit. Starmer added: "In relation to defence more generally, we will carry out our strategic review to look at the challenges, the capabilities, and on the back of that make further plans.

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Confidence among UK companies was "robust" in June, a report showed, with optimism among manufacturers at their most confident since February 2022. Lower optimism among services firms saw overall UK private sector expectations ease slightly from February's two-year high, despite manufacturers posting their strongest production forecasts since early-2022, the latest S&P Global Business Outlook showed. Expectations towards profits and employment were also dampened by lower optimism in the service economy, whereas manufacturers predicted that greater revenues would support increases in hiring and investment spending. Meanwhile, inflation expectations across the UK continued to cool. A net balance of plus 44% of surveyed UK private sector firms predicted an expansion in business activity over the next 12 months, according to the survey data.

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BROKER RATING CHANGES

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JPMorgan places Flutter Entertainment on 'positive catalyst watch'

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COMPANIES - FTSE 100

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Barratt Developments said annual home completions landed at the top end of forecasts, and profit is to be ahead of expectations as the housebuilder looks ahead to its tie-up with Redrow. Adjusted pretax profit in the year ended June 30 is "anticipated to be slightly ahead of our previous expectations", it said. Total home completions landed at the upper end of guidance at 14,004, for the year, down from 17,206 the year prior. Total forward sales at the end of the financial year amounted to 7,239 homes at a value of GBP1.91 billion, in line with expectations, but down from GBP2.22 billion on-year. For the new year, it predicts total home completions in a range of 13,000 to 13,500. Chief Executive David Thomas commented: "Whilst we continue to navigate a challenging macroeconomic backdrop, we are delivering industry leading build quality, sustainability and customer service. Combined with the strength of our balance sheet, this has ensured we remain resilient and responsive through the cycle. Looking ahead, we are pleased that the proposed combination with Redrow was strongly supported by both sets of shareholders in the spring and, subject to the CMA's approval, we look forward to bringing together two businesses to create an exceptional UK housebuilder ensuring we are well-positioned for the future."

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COMPANIES - FTSE 250

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Direct Line Insurance Group re-affirmed a cost savings target and outlined a revised dividend policy. The insurer said it will target a payout ratio of around 60% of post-tax operating profit for its regular dividend, with any added returns review alongside full-year results. The company hosts a capital markets days in London this afternoon. "We are announcing a refreshed strategy with the objective of establishing DLG as the customers' insurer of choice and delivering profitable growth," it said. "In Motor we aim to deliver technical excellence across the value chain and meet customers where they shop by launching Direct Line on price comparison websites. Outside of Motor we'll make disciplined decisions on where we allocate our capital. We will focus on Home, Commercial Direct and Rescue, where we have the capability and opportunity to win, and exit or stop investing in original equipment manufacturer affinity Motor partnerships and other personal lines businesses." It backed its aim of at least GBP100 million worth of gross run-rate cost savings by 2025.

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JD Wetherspoon said a post-pandemic rise in sales has continued, and the pub firm has looked to "widen the moat" by investing in its estate. In the 10 weeks to July 7, like-for-like sales increased 5.8% on-year. Year-to-date, they are up 7.7%. The firm's financial year ends on July 28 and results are released on October 4. Chair Tim Martin said: "The gradual recovery in sales and profits, following the pandemic, has continued in the current financial year. Total sales are, again, at record levels, with fewer pubs. Sales per pub are approximately 21% higher than pre-pandemic levels, which has helped to compensate for the very substantial increase in costs. For example, compared to the 2019 financial year, labour in this financial year has increased by approximately GBP164 million, energy by GBP28 million, repairs (also affected by labour costs) by GBP38 million and interest (excluding IFRS 16 interest) by GBP16 million. Notwithstanding these cost pressures, the company continues to endeavour to "widen the moat" by investing in areas such as beer gardens, staff rooms, above-bar glass racks and improved beer dispense systems." It expects annual profit to be in line with market expectations.

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Upper Crust owner SSP said the second half of its financial year has "started well". Sales in the third-quarter ended June 30 were up 16% on-year at constant currency, with like-for-like growth at 6%. At actual exchange rates, sales rose 15%. SSP added: "Led by an increasing demand for leisure travel, we have seen a strong sales performance across all regions. On a constant currency basis, in North America sales grew by 27% year-on-year, including a 14% benefit from the acquisitions of Midfield Concessions and Mack II in the US and ECG in Canada. In Continental Europe, sales growth of 7% reflected a solid performance across the quarter. In the UK, sales increased by 12%, with like-for-like performance up 8%, reflecting good passenger numbers in the air sector and a lower incidence of rail industrial action compared with last year." For the full-year, it backed guidance, expecting like-for-like sales growth of between 6% and 10%.

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OTHER COMPANIES

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Workwear supplier Johnson Service Group expects to report an increase in half-year revenue, and predicts profit for the whole of 2024 in line with current market expectations. It said revenue in the six months to June 30 rose 14% to GBP244.1 million from GBP215.0 million. In the HORECA offering alone, meaning the hotel, restaurant and catering sectors, organic growth of 8.5% was achieved. This reflects "a continuing improvement in volumes across the estate, particularly in Hotel Linen". "Our new HORECA site in Crawley is nearing completion and eight delivery routes are now operating from the site ahead of processing commencing in the near future. Workwear revenue is stable, with the gradual improvement in customer retention and recent new sales expected to benefit performance in the second half," the firm added. "The board is confident that we will report full year adjusted operating profit in line with current market expectations." It releases half-year results on September 3.

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Liontrust Asset Management reported a decline in assets under management and advice in the first-quarter of its financial year, but believes the latest UK election result should "herald a period of stability that will be positive for financial markets". Assets under management and advice totalled GBP27.04 billion at the end of June, down 2.8% quarter-on-quarter. It reported net outflows of GBP923 million, though a positive market and investment performance to the tune of GBP139 million. Net outflows slowed from a chunkier GBP1.6 billion a year prior, Liontrust noted. Chief Executive Officer John Ions added: "It is encouraging that the new government has a pro-growth agenda and is committed to the simplification of pensions. Along with falling inflation and the expectation of a reduction in interest rates, this should encourage international investors to return to the UK and boost capital flows to the stock market. Given the ever-increasing need for individuals to save more for their retirement as well, this will significantly improve the outlook for asset managers. Liontrust is well placed for this improving environment as we have a strong brand, distribution, robust investment processes and a leading reputation for managing UK equities."

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By Eric Cunha, Alliance News news editor

Comments and questions to [email protected]

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