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LONDON BRIEFING: Imperial Brands lifts returns; Vistry warns on profit

8th Oct 2024 07:52

(Alliance News) - The FTSE 100 is called to open lower on Tuesday, as the absence of more stimulus measures in China knocked market confidence.

Though the Asian nation said it was "confident" of meeting its 5% growth target this year, on early rally in the Shanghai Composite fizzled. The index jumped some 10% in early trade, but gains eased and it was up 4.5% shortly before the London open.

"Tuesday's press briefing from China's top economic planner, the National Development & Reform Commission, was supposed to be the big moment, the one where Beijing unleashed a stimulus bazooka. Instead, it was more of a pop gun. While officials paid lip service to hitting their economic targets and promised vague "further support," there was no meaningful policy boost. The market reaction? Immediate disappointment. Hong Kong stocks tumbled from boom to bust in a heartbeat, leaving traders scrambling to figure out what's next," SPI Asset Management analyst Stephen Innes commented.

"It's clear the market wanted more, and Beijing's reluctance to roll out a bigger package is raising serious doubts about the sustainability of this rally. With global risk appetite already on shaky ground, China's lack of decisive action could be the pin that bursts the bubble. A historic moment may be looming for Chinese equities, but instead of the rocket fuel investors were hoping for, all they're getting is the market equivalent of a flat, day-old soda. Traders are watching closely, but without a serious commitment from policymakers, this rally may have already peaked."

In early UK corporate news, Imperial Brands announced plans for a chunkier buyback and reshaped dividend, while Vistry said it is looking into South division, where costs of a handful of developments were understated. Engineer Senior said it is grappling with woes and Boeing and Airbus, while sandwich maker Greencore predicted a profit beat.

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

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MARKETS

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FTSE 100: called down 0.8% at 8,240.42

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Hang Seng: down 6.9% at 21,513.76

Nikkei 225: down 1.0% at 38,937.54

S&P/ASX 200: down 0.4% at 8,176.90

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DJIA: closed down 398.51 points, 0.9%, at 41,954.24

S&P 500: closed down 1.0% at 5,695.94

Nasdaq Composite: closed down 1.2% at 17,923.90

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EUR: higher at USD1.0984 (USD1.0978)

GBP: higher at USD1.3090 (USD1.3082)

USD: lower at JPY147.98 (JPY148.03)

GOLD: lower at USD2,640.58 per ounce (USD2,649.60)

(Brent): lower at USD79.66 a barrel (USD80.41)

(changes since previous London equities close)

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ECONOMICS

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Tuesday's key economic events still to come:

08:00 BST eurozone European Central Bank executive board member Isabel Schnabel speaks

07:00 BST Germany industrial production

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UK retail sales picked up in September as the start of the school year saw a boost for children's clothing, footwear and accessories while food sales growth remained healthy, a survey on Tuesday showed. According to the BRC-KPMG retail sales monitor, retail sales increased by 2.0% year-on-year in the five weeks to September 28, against a growth of 2.7% a year prior. This was above the 3-month average growth of 1.2% and the 12-month average growth of 1.1%. Food sales increased 3.1% year-on-year over the three months to September, against a growth of 7.4% a year ago. Non-food sales decreased 0.3% year-on-year over the three-months to September, against a decline of 1.2% before. This is above the 12-month average decline of 1.7%. For the month of September, non-food was in growth year-on-year. In-store non-food sales over the three months to September decreased 1.5% year-on-year, against a growth of 0.3%. Online non-food sales increased by 3.4% year-on-year in September, against an average decline of 3.6% a year prior.

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A new Regulatory Innovation Office has been launched by the UK government, which it says will help speed access to new technologies which can improve daily life. The office has been created to help reduce the burden for businesses looking to bring new products and services to market, the Department for Science, Innovation & Technology said. The government said the new office will support regulators in updating regulation, as well as helping speed up approvals for new tech and help different regulatory bodies work together smoothly. It said the office could help new technologies such as AI for better treatments in the NHS and drones delivering emergency supplies could reach the public faster with the new office in place. The RIO will also liaise with the government on how to remove barriers to innovation and set priorities for regulators and support them as part of wider goals to grow the economy. The search for a chair to lead the new office is now under way, the government confirmed. Science & Technology Secretary Peter Kyle said: "The launch of the Regulatory Innovation Office, a key manifesto commitment, is a big step forward in bringing the UK's most promising new technologies to the public faster and safely while kickstarting economic growth."

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Britain is less likely to lose power this winter than last year, according to the public body responsible for keeping the lights on. The National Electricity System Operator said on Tuesday that it expects power plants, wind farms and other generation methods to be able to provide more than enough power to meet demand. In its winter outlook, Neso said the grid would have an average margin – the difference between supply of electricity and demand for it – of 5.2 gigawatts this coming winter, higher than 4.4 GW last year. The increased margins are in part because of improved capacity, thanks to a new 765 kilometre high-voltage cable that connects the UK's electricity network with Denmark. The cable, called an interconnector, is known as the Viking Link, and started transporting wind power between the two countries in December 2023. Britain also has more battery storage capacity than this time last year, and more generation capacity connected to the grid. Those factors "more than offset" closures of some power plants including the UK's last coal-fired plant at Ratcliffe-on-Soar, Neso said.

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BROKER RATING CHANGES

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Goldman Sachs starts Barclays with 'buy' - price target 290 pence

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Berenberg raises Renew Holdings price target to 1,350 (1,250) pence - 'buy'

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COMPANIES - FTSE 100

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Imperial Brands said it is trading in line with expectations, hailing "growth" for its tobacco and Next Generation Products. The company also announced plans to lift its share buyback and reshape its dividend. For the year ended September 30, the Davidoff cigarette and Rizla rolling paper owner said it is on track to have met guidance. "At constant currency, we are on track to deliver in line with our full-year guidance with an acceleration in tobacco and NGP net revenue growth versus last year and group adjusted operating profit growth close to the middle of our mid-single digit range," Imperial Brands said. It expects next-gen products growth of 20% to 30% at constant currency. "Our results this year have benefited from the launch of innovative products with new formats under the blu brand, new iSenzia non-tobacco heat sticks and new flavours in the modern oral segment. Our entry in the US oral nicotine category with the launch of the Zone range of pouches has been well received and supported a stronger NGP performance in our US business," Imperials Brands said. It expects to report results for the year just ended on November 19. The firm also announced an increased share buyback and a "reprofile our ordinary dividend" for the new year. For the year just ended, it expects a total dividend of 153.43 pence per share, a 4.5% rise on the prior year. "This will result in two quarterly dividends of 54.26 pence per share to be paid in December 2024 and March 2025," it added. For financial 2026, it will change its payout profile to four equal quarterly dividends. "To create the base for future quarterly payments, we intend to pay two interim cash dividends of 40.08 pence per share in June and September 2025. These payments will be higher than would otherwise have been the case and also include a further 4.5% year-on-year increase," Imperial Brands added. The firm also announced a further GBP1.25 billion share buyback, which it expects to complete by the October 29 of next year. The sum represents 7% of its share capital and is a 14% rise on the financial 2024 buyback of GBP1.1 billion.

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Housebuilder Vistry Group cut its profit outlook after discovering that cost projections to complete some developments were "understated". The company said it recently became aware that in its South division, which serves areas such as Kent and the Thames Valley, the total full-life cost projections to complete 9 out of its 46 developments were understated by around 10% of the total build costs. Some of these developments included "large-scale schemes". "To add further context to the 9 developments in question, it is important to note that the group as a whole has around 300 developments," Vistry added. The revised cost outlook cuts expectations for 2024 adjusted pretax profit by GBP80 million. Assumptions for 2025 and 2026 have been cut by GBP30 million and GBP5 million. For 2024, it now expects adjusted pretax profit of GBP350 million, a 16% decline from GBP419.1 million in 2023. The firm added: "We believe the issues are confined to the South Division and changes to the management team in the division are underway. We are commencing an independent review to fully ascertain the causes."

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COMPANIES - FTSE 250

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Senior expects the performance of its Aerospace arm to be weaker in the second-half than the first, on strikes at customer Boeing and supply chain challenges at Airbus. The engineering firm still expects annual growth in Aerospace, but "customer-related headwinds" mean the second half will be more tepid than the first. While Boeing is looking to pick-up 737 MAX production rates by the end of the year after safety incidents earlier in 2024, an employee strike at its commercial aircraft operations will have an "inevitable impact", Senior warned. "In addition, Airbus has publicly been clear about the supply chain challenges it has been facing, particularly on engines and interiors," the FTSE 250 listing added. Senior said it has moved to contain costs. This includes temporary and permanent headcount cuts. It will also look to keep a lid on discretionary spend. In Flexonics, which serves markets including land vehicles, power and energy, the engineering firm's "view on markets" has not changed. It still expects the unit's outturn in the second half to fall short on the first. Senior said: "Land vehicle markets particularly in Europe and North America are seeing a slowdown, largely as anticipated. Americas Commercial Transportation research is forecasting a decline in North American heavy-duty truck production of 7% in the full-year 2024. S&P data shows that European heavy-truck production for the full-year 2024 is forecast to be down 20%. In power & energy, our upstream oil & gas demand remains subdued, partly offset by continued robust demand in our downstream oil & gas and nuclear business.

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Convenience food maker Greencore expects profit to top market expectations. Profit conversion in the fourth-quarter to September 27 was ahead of expectations, so as a result, Greencore expects full-year adjusted operating profit in the range of GBP95 million to GBP97 million. This tops the current market expectation range of GBP87.1 million and GBP90.0 million. At best, the new range represents a 27% rise from the GBP76.3 million achieved in the prior year. Like-for-like revenue in the fourth-quarter rose 3.7%. Greencore expects annual revenue of GBP1.8 billion, a fall of 5.9% from GBP1.91 billion in financial 2023. Greencore said its buyback is progressing and it still intends to declare a dividend for the full year, which would be its first since the onset of Covid-19.

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OTHER COMPANIES

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Cafe, bar and restaurant operator Loungers said its sales have climbed, with UK consumers "feeling increasingly confident". Like-for-like sales in the 24 weeks to October 6 rose 4.7% on-year, a "clear demonstration of Loungers' ability to consistently outperform the broader UK hospitality market", it said. Revenue increased 19% on-year to GBP178.3 million. Chief Executive Officer Nick Collins said: "From what we are seeing across our sites, UK consumers are feeling increasingly confident and want to go out and enjoy themselves across all parts of the day. That confidence, combined with the variety, breadth, flexibility and relevance of our all-day offering, is reflected in our continued sales success."

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By Eric Cunha, Alliance News news editor

Comments and questions to [email protected]

Copyright 2024 Alliance News Ltd. All Rights Reserved.

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