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LONDON BRIEFING: Centrica lifts outlook; Tesco Christmas sales up

12th Jan 2023 07:51

(Alliance News) - London FTSE 100 is called to open higher as investors hope Thursday afternoon's US consumer price index reading confirms weaker inflationary pressure and prompts the Federal Reserve to soften its monetary policy.

The data is expected to show annual inflation ebbed to 6.5% in December, from 7.1% in November.

"In a way it's not hard to understand why the markets believe a pivot might be coming given how headline CPI has consistently fallen back from the peaks of 9.1% seen in June. In November we came in at 7.1% which was well below expectations of 7.3% and a sharp fall from October's 7.7%, offering a boost to those who think that the Federal Reserve may not have to go as hard, or as far on rate hikes this year," CMC Markets analyst Michael Hewson commented.

"Nonetheless, it's a dangerous conclusion to draw with the main focus set to be on core inflation, and whether it continues to come in lower...If core prices were to come in higher than expected we could see a sharp correction lower for stocks and a sharp rebound in the US dollar."

Trading updates from the UK retail sector continued to roll in on Thursday. Tesco maintained profit guidance, while Asos still expects an interim loss. Elsewhere, Centrica raised its outlook.

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

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MARKETS

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FTSE 100: called up 0.3% at 7,744.78

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Hang Seng: flat at 21,430.28

Nikkei 225: flat at 26,449.82

S&P/ASX 200: up 1.2% at 7,280.40

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DJIA: closed up 268.91 points, or 0.8%, at 33,973.01

S&P 500: closed up 50.36 points, or 1.3%, at 3,969.61

Nasdaq Composite: closed up 189.04 points, or 1.8%, at 10,931.67

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EUR: flat at USD1.0760 (USD1.0758)

GBP: higher at USD1.2141 (USD1.2125)

USD: lower at JPY131.70 (JPY132.57)

GOLD: up at USD1,881.63 per ounce (USD1,872.57)

(Brent): up at USD82.59 a barrel (USD81.43)

(changes since previous London equities close)

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ECONOMICS

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Thursday's key economic events still to come:

1330 GMT US CPI

1330 GMT US unemployment insurance weekly claims report  

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Irish premier Leo Varadkar and UK Labour leader Keir Starmer are to travel to Belfast on Thursday as efforts to resolve the dispute over the protocol ramp up. The premier and Starmer are to meet with the main Stormont parties to discuss the deadlock over the post-Brexit protocol, which the DUP party has cited as its reason for boycotting Northern Ireland's devolved institutions since May. Starmer has planned a two-day visit to the region, his first since June. It comes after a row broke out ahead of a meeting with the UK Foreign Secretary James Cleverly and the five main parties on Wednesday, which Sinn Fein leader Mary Lou McDonald said she was not allowed in to. Sinn Fein subsequently refused to attend the meeting at all, as did the other main nationalist party, the SDLP. Unionist representatives suggested it was a diplomatic issue that led to the snub, that Cleverly could not meet Irish opposition leader McDonald before his Irish counterpart. The meeting was overshadowed by the dispute, after being convened to discuss how to resolve the stalemate over the protocol, a set of post-Brexit trade rules agreed by the EU and UK aimed at preventing a hard border on the island of Ireland. The protocol has become a contentious political issue, with the DUP refusing to engage with the powersharing institutions until it is dramatically altered or removed. But several recent developments have indicated a breakthrough may be possible, including a customs data-sharing agreement between the EU and UK, which has been hailed as a positive step.

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The current cost of living crisis presents a concern for over nine in 10 Europeans with almost half of the population already being affected, a study carried out on behalf of the European Parliament has found. As many as 93% of respondents said they are concerned by rising living costs, while 46% said their standard of living has already been reduced, and 39% expect to be affected in the future. A total of 45% said they are currently experiencing some or a lot of difficulties living with their household's income.

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BROKER RATING CHANGES

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RBC cuts RS Group to 'sector perform' ('outperform') - price target 1,000 (1,250) pence

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Berenberg raises Rio Tinto to 'buy' ('sell') - price target 6,700 (4,000) pence

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Berenberg raises BHP to 'buy' ('hold') price target 3,100 (2,300) pence

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COMPANIES - FTSE 100

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Tesco affirmed annual guidance as the grocer hailed "strong growth" over Christmas. Like-for-like sales in the 19 weeks to January 7 rose 6.4% year-on-year. The figure excludes VAT and fuel. That period encompasses Tesco's third quarter to November 26, when like-for-like sales climbed 5.7%, and the six weeks to January 7, when sales climbed 7.9%. "I'm really pleased with our performance over this period - particularly the further strong growth at Christmas on top of the exceptional growth of the last few years," Chief Executive Ken Murphy said. Tesco backed annual guidance, expecting retail adjusted operating profit between GBP2.4 billion and GBP2.5 billion, as well as retail free cash flow of at least GBP1.8 billion. Retail adjusted operating profit in financial 2022 totalled GBP2.65 billion, while group adjusted operating profit amounted to GBP2.83 billion. The retail figure excludes Tesco Bank, where Tesco still expects adjusted operating profit between GBP120 million and GBP160 million, swinging from a loss of GBP176 million the year prior.

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Centrica raised its outlook on a "strong operational performance" recently. The British Gas owner now expects to report 2022 adjusted earnings per share of above 30 pence. In November, it predicted an adjusted EPS at the top end of a 15.1p to 26.0p sell-side analyst range. Adjusted EPS from continuing operations in 2021 amounted to just 4.1p. "Infrastructure asset availability and volumes have remained good, and we delivered incrementally strong optimisation performance," Centrica said. The company named Russell O'Brien as chief financial officer, replacing Kate Ringrose from March 1. Ringrose steps down from the post at the end of February but is expected will remain with Centrica until the end of 2023 "after an orderly transition". O'Brien was most recently treasurer at Shell. He also held a "number of senior chief financial officer roles" at the oil major, Centrica added.

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Housebuilder Persimmon said its sales rate has weakened as the UK housing sector grapples with interest rate rises and tumbling consumer confidence. Persimmon said its forward sales position stood at GBP1.0 billion at the end of last year, down 36% from GBP1.6 billion at the end of 2021. CEO Dean Finch said: "In the second half of the year, rising interest and mortgage rates, inflation and weaker consumer confidence began to impact customer behaviour across the housing market. This change in market conditions gathered pace in the fourth quarter and is reflected in the reduction in our recent weekly sales rates and a lower forward sales position as we enter the new financial year."

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COMPANIES - FTSE 250

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Asos said it has seen "encouraging" gross margin developments recently, though sales have continued to fall due to "challenging trading conditions". The online-only fashion retailer said revenue in the four months to December, a period it labels P1, fell 4.1% year-on-year to GBP1.34 billion from GBP1.39 billion. At constant currency, revenue fell 6%. The revenue fall was "broadly in line with expectations", Asos said. Aside from tough trading conditions, the outcome also reflects a "prioritisation of structural profitability improvements and cash generation". Adjusted gross margin fell 10 basis points to 42.9%, though it expects a "significant improvement" in the second half of its financial year. "Actions taken on pricing and the reduced use of air freight drove an encouraging progression through the period relative to the prior year," Asos said on its margin. Asos still expects a half-year loss due to inflation and elevated product return rates.

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Marks & Spencer said it outperformed the market "on volume and value" in the key four-week Christmas period. In the third quarter, covering the 13 weeks to December 31, group sales improved 9.9% year-on-year to GBP3.60 billion. Food sales rose 10% to GBP2.11 billion. In Clothing & Home, sales rose 8.8% to GBP1.18 billion. "M&S Food outperformed the market on volume and value in the critical four-week Christmas period for the second year running and reached its highest ever recorded market share. Clothing & Home delivered another outstanding performance, maintaining its market leadership position with its highest market share in seven years," M&S said.

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OTHER COMPANIES

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Gym Group said its membership numbers climbed in 2022, though it is taking a "more measured" approach to site openings this year amid tough economic conditions. The low-cost gym operator said annual revenue rose 63% year-on-year to GBP172.9 million in 2022 from GBP106.0 million in 2021. "Total like-for-like revenue for the whole year in the pre-Covid mature estate (sites open up to end of 2018) was 90% compared to 2019. The membership profile during the year reflected a more normal seasonal pattern for low cost gyms without further post-Covid membership recovery in the second half as macro-economic challenges act as a headwind to underlying demand," Gym Group said. Total year-end membership rose 14% to 821,000.

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Halfords said its third-quarter revenue grew but progress was stifled by subdued market conditions in its cycling and tyre-focused units. The motoring and cycling products retailer said revenue in the 13 weeks to December 30 jumped 22% on-year, 4.6% like-for-like. "Overall revenues were impacted by softer than expected cycling and tyre markets," it cautioned, however. "Macro-economic headwinds continue to impact the cycling and consumer tyre markets although we gained share across all our measured markets including Cycling, Motoring and Tyres." Halfords reduced underlying pretax profit guidance to a range of GBP50 million to GBP60 million, from the lower end of its GBP65 million to GBP75 million range previously.

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Poundland-owner Pepco said it enjoyed a "successful Christmas". Group revenue in the first quarter ended December 31 rose 27% at constant currency on-year to EUR1.65 billion. Revenue at Poundland alone climbed 9% at constant currency to EUR645 million.

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By Eric Cunha, Alliance News news editor

Comments and questions to [email protected]

Copyright 2023 Alliance News Ltd. All Rights Reserved.

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