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LONDON BRIEFING: Relx optimistic; BHP to book USD6 billion hit

15th Feb 2024 07:56

(Alliance News) - Equity prices in London are called to open higher on Thursday, overlooking a poor reading of the UK economy and clinging onto Bank of England interest rate optimism following Wednesday's softer-than-expected inflation reading.

The weaker than expected UK economic reading also puts the focus on the BoE, and what the figure means for the interest rate outlook.

"The UK officially exited 2023 in recession with economic growth in December weaker than economists had been expecting, leading to a second quarter of negative growth. With inflation lower than expected this week, the news the UK is in recession will lead to growing pressure for the Bank of England to cut interest rates," Wealth Club analyst Nicholas Hyett commented.

"But, while recession is clearly bad news for the UK economy, it's worth bearing in mind that, as recessions go, this is still a very mild one, and might yet get revised out of existence altogether. Whether today's recession transforms into something that's remembered outside the pages of an economic history textbook remains to be seen."

In early UK corporate news, Relx reported a rise in earnings, while miner BHP warned on non-cash costs in its half-year results.

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 0.6% at 7,615.20

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Hang Seng: up 0.5% at 15,961.31

Nikkei 225: closed up 1.2% at 38,157.94

S&P/ASX 200: closed up 0.8% at 7,605.70

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DJIA: closed up 151.52 points, 0.4%, at 38,424.27

S&P 500: closed up 1.0% at 5,000.62

Nasdaq Composite: closed up 1.3% to 15,859.15

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EUR: up at USD1.0736 (USD1.0720)

GBP: up at USD1.2548 (USD1.2542)

USD: down at JPY150.19 (JPY150.62)

GOLD: up at USD1,993.24 per ounce (USD1,988.99)

(Brent): down at USD81.32 a barrel (USD82.63)

(changes since previous London equities close)

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ECONOMICS

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Thursday's key economic events still to come:

11:00 GMT Ireland CPI

13:30 GMT US retail sales

13:30 GMT US import and export prices

13:30 GMT US initial jobless claims

14:15 GMT US industrial production

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The UK economy suffered a sharper than expected decline in the final quarter of last year, entering a technical recession, according to numbers from the Office for National Statistics. UK gross domestic product slumped 0.3% in the three months to December from a quarter earlier, underperforming the expected 0.1% fall, according to consensus cited by FXStreet. The UK economy had declined 0.1% quarter-on-quarter in the third-quarter of 2023. It means the UK has entered a technical recession, which is generally defined as two successive quarterly falls in gross domestic product. "While the economy has now decreased for two consecutive quarters, across 2023, GDP is estimated to

have increased by 0.1% compared with 2022," the ONS added. The ONS announced monthly data for December, as well as downward revisions to readings from November and October. In December, GDP declined 0.1% monthly, a better-than-expected outcome than the 0.2% fall that was predicted, according to FXStreet. However, the damage also came from revisions to previous monthly data. The UK economy grew 0.2% in November, downwardly revised from an initially reported 0.3% climb. GDP slumped 0.5% in October, the outcome lower than the previously reported 0.3% decline.

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Voters in the UK will head to the polls in two by-elections that could give an indication of the scale of the challenges facing the main political parties ahead of a national contest later this year. Prime Minister Rishi Sunak is braced for tests in Wellingborough and Kingswood, where Labour hopes to flip Tory majorities in the tens of thousands. Headlines this week have been dominated by a different by-election – the upcoming Rochdale vote, in which Labour's candidate has had party support withdrawn over remarks he made about Israel and Jewish people. But Thursday's results will also be significant, with a Tory defeat in either constituency meaning that the government has clocked up more by-election losses in a single parliament than any administration since the 1960s. Both votes are seen as largely two-horse races between Labour and the Conservatives – though the Tories are also threatened by strengthening support for Reform UK, which is targeting disgruntled voters on the right. The circumstances surrounding the by-elections could also prove difficult for the governing party. Kingswood's vote was triggered by Chris Skidmore's resignation as an MP in protest at government legislation to boost North Sea oil and gas drilling. The by-election in Wellingborough comes after former Tory MP Peter Bone received a six-week suspension from the Commons when an inquiry found he had subjected a staff member to bullying and sexual misconduct.

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BROKER RATING CHANGES

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Citigroup raises Kingfisher to 'buy' (neutral) - price target 258 (210) pence

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RBC raises IntegraFin to 'outperform' (sector perform) - price target 330 (280) pence

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COMPANIES - FTSE 100

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Relx reported earnings growth for 2023 and set out plans to return GBP1.00 billion to shareholders through buybacks this year. The London-based professional information and analytics firm said revenue rose 7.1% in 2023 to GBP9.16 billion from GBP8.55 billion. Its reported pretax profit was 8.6% higher at GBP2.30 billion from GBP2.11 billion. Adjusted pretax profit rose 9.1% to GBP2.72 billion. The figure excludes items such as amortisation of acquired intangible assets and other costs related to acquisitions and disposals. Relx lifted its final dividend by 7.5% to 41.8 pence from 38.9p. Its total dividend amounted to 58.8p, lifted 7.7% from 54.6p. In addition, it plans to deploy GBP1.00 billion for share buybacks in 2024, GBP150 million of which has already been completed. "We continue to see positive momentum across the group, and we expect another year of strong underlying growth in revenue and adjusted operating profit, as well as strong growth in adjusted earnings per share on a constant currency basis," Relx said.

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British Gas owner Centrica lifted its dividend but reported mixed earnings for 2023. Revenue totalled GBP26.46 billion, a rise of 11% from GBP23.74 billion. It swung to a pretax profit of GBP6.47 billion, from a loss of GBP383 million. Excluding exceptional items and some re-measurements, revenue totalled GBP33.37 billion, down 0.8% from GBP33.64 billion. Pretax profit by this measure fell 14% to GBP2.71 billion from GBP3.17 billion. It provides the re-measurement adjusted figures as these items are judged to "distort the group's underlying business performance". Chief Executive Chris O'Shea said: "We are pleased to report that this strong underlying operational performance has continued into early 2024. As you would expect, sharply lower commodity prices and reduced volatility will naturally lower earnings in comparison to 2023 as we return to a more normalised environment. Our performance over the past year has reinforced our confidence in delivering against our medium-term sustainable profit ambitions and continuing to create value for shareholders." Centrica lifted its final dividend by just over a third to 2.67p per share from 2.00p. Its total dividend amounted to 4.00p, up by a third from 3.00p. It said total cash returns to shareholders for 2023 amounted to GBP800 million. Centrica currently has a buyback of GBP1 billion in operation, which runs until July. As of Wednesday, it has bought back GBP727 million under the programme.

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COMPANIES - FTSE 250

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Close Brothers warned it will not pay any dividends for the current financial year as it cautioned on a "potential financial impact" stemming from the UK Financial Conduct Authority's probe of historical motor finance commission arrangements. "While there is no certainty regarding any potential financial impact as a result of the FCA's review, the board recognises the need to plan for a range of possible outcomes. It is a long-standing priority of the group to maintain a strong balance sheet and prudent approach to managing its financial resources. To that end, the board considers it prudent for the group to further build capital strength, while supporting our customers and business franchise," the merchant bank said. It explained it will pay no dividend for the current financial year, which runs to July 31, and the reinstatement of payouts for financial 2025 will be reviewed once the FCA has concluded its probe. In a brief trading statement, the firm said its business "continues to perform well".

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OTHER COMPANIES

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Miner BHP said it will book a roughly USD6.00 billion hit in its half-year results to December 31. These charges related to the carrying value of the Nickel West operations and West Musgrave project, and an increase to the provision for the Samarco dam failure. "This is an uncertain time for the Western Australia nickel industry and we are taking action to address the current market conditions. We are reducing operating costs at Western Australia Nickel and reviewing our capital plans for Nickel West and West Musgrave," CEO Mike Henry said. "BHP Brasil along with Samarco and Vale continue to progress negotiations towards a settlement of the Federal Public Prosecutor Office Claim and framework agreement obligations in Brazil. The Renova Foundation has made good progress on reparation and compensation programs and over 84% of the community resettlement cases have been completed." BHP explained the nickel industry "is facing challenges" amid a sharp fall in prices. BHP said it will record a USD2.5 billion post-tax impairment for Western Australia Nickel and a USD3.2 billion charge related to Samarco.

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Jet2 slightly lifted annual guidance. The travel firm said forward bookings were strong for the winter 2023/2024 season. "With February and March 2024 bookings displaying similar trends to recent months, plus the benefit of an extra day's flying in February and an earlier Easter, we tighten and slightly raise our guidance for group profit before FX revaluation and taxation for the financial year," it said. Jet2 expects a profit outcome between GBP510 million and GBP525 million for the year to March 31, above its previous GBP480 million to GBP520 million outlook.

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South32 slashed its interim dividend as profit tumbled due to weaker commodity prices and lower coal volumes. For the six months that ended December 31, the Perth-based diversified mining group said pretax profit fell to USD66 million from USD885 million a year earlier. The mining group blamed a slump in commodity prices and poor metallurgical coal volumes as it completed two planned longwall moves at Illawarra metallurgical coal in Australia. For the first six months, revenue declined 15% to USD3.13 billion from USD3.69 billion, dragging underlying earnings before interest, tax, depreciation and amortisation to USD708 million, nearly halved from USD1.36 billion. South32 cut its interim dividend to 0.4 US cent from 4.9 cents. It said it had decided to cancel its share buyback, which was due to expire on March 1. During the financial first half, the group repurchased shares worth USD35 million.

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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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