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LONDON MARKET OPEN: AB Foods and Frasers rise on buybacks; RS slumps

7th Nov 2023 08:53

(Alliance News) - A subdued start to the week for European equities continued on Tuesday, with hawkish words from a US central banker supporting the dollar and making some rethink their interest rate outlook for the Federal Reserve.

Associated British Foods shares were on the up, as it announced a special dividend and a new buyback, while also hailing its Primark arm. RS Group tumbled on a tepid outlook, meanwhile.

Over in Zurich, UBS shares rose despite a swing to loss after it said it has "stabilized Credit Suisse".

The FTSE 100 index opened down 5.36 points, 0.1%, at 7,412.40. The FTSE 250 was up 23.55 points, 0.1%, at 17,771.02 and the AIM All-Share was down 0.86 of a point, 0.1%, at 697.02.

The Cboe UK 100 was flat at 740.92, the Cboe UK 250 rose 0.3% at 15,455.09, and the Cboe Small Companies was largely unmoved at 12,935.31.

In European equities, the CAC 40 in Paris and the DAX 40 in Frankfurt were both down 0.1%.

Tokyo's Nikkei 225 fell 1.3%, the Shanghai Composite closed flat in China, while the Hang Seng in Hong Kong dropped 1.7% in late dealings. The S&P/ASX 200 fell 0.3% in Sydney.

In New York overnight, the Dow Jones Industrial Average closed up 0.1%, the S&P 500 rose 0.2% and the Nasdaq Composite added 0.3%.

"The US bond yields rebounded, and the equity rally slowed on Monday. The US 10-year rebound from last Friday low, and the S&P 500 consolidate gains near three-week highs. There are divergent opinions regarding whether last week's risk rally is on sufficiently solid ground to extend into a Santa rally, or it would simply fade away. And it all depends on what matters the most for investors. The softening Federal Reserve and other central bank expectations and falling sovereign yields are positive for stock valuations, but the chatter of potentially higher-for-longer rates, growing signs of slowing global economy and the rising recession odds don't offer a bright outlook for equities into the year end," Swissquote analyst Ipek Ozkardeskaya commented.

On Monday, Minneapolis Fed chief Neel Kashkari did not declare victory in the fight against inflation.

He told Fox News that "we need to let the data keep coming to us to see if we really have got the inflation genie back in the bottle so to speak".

"Before we declare that 'we're absolutely done, we've solved the problem', let's get more data and see how the economy evolves," Kashkari said.

The dollar recovered from some recent weakness early Tuesday. The pound fell to USD1.2327 on Tuesday morning, from USD1.2385 at the time of the London equities close on Monday. The euro slipped to USD1.0702 from USD1.0736. Against the yen, the dollar bought JPY150.27, up from JPY149.37.

Weighing on the FTSE 100 in early trade were miners and oil majors. Anglo American and Antofagasta fell 1.7% and 1.1% on the back of weak China data. Exports there declined in a poor reading of the global economy, however imports rose in a sign that domestic demand is picking.

Weaker oil prices hurt BP and Shell, the duo declined 1.1% and 1.0%.

A barrel of Brent oil fell to USD83.71 early Tuesday, down from USD86.00 late Monday afternoon.

"The push-pull between propping up prices through Opec's production cuts and the impact of the Middle East powder keg premium vaporizing and a slowing global economy was on full display overnight. After an OPEC production cut extension triggered some speculators to buy the dip, driving a modest 1% rally in oil, higher prices gave way to the economic reality and no broader Middle East conflagration," SPI Asset Management analyst Stephen Innes commented.

AB Foods rose 6.4%. It lifted its final dividend, announced a special one and outlined a GBP500 million buyback.

It reported an annual earnings hike, shaking off "unseasonal weather" which threatened to hamper the second half for its Primark retail arm.

Group revenue in the year ended September 16 rose 16% to GBP19.75 billion from GBP17.00 billion the year prior. Pretax profit rose by a quarter to GBP1.34 billion from GBP1.08 billion.

"At the outset of this financial year the group was facing very significant economic challenges caused in part by major geo-political events. Looking back on the year, it is clear to me that the group performed extremely well and is as a result now well positioned for the year ahead," Chief Executive George Weston said. "Although consumer demand remains uncertain, Primark is as well placed as it has ever been."

Revenue at Primark alone rose 17% to GBP9.01 billion.

AB Foods, which also owns brands such as Kingsmill and Silver Spoon, said it is seeing lower material and freight costs, aiding a margin recovery.

It declared a 33.1 pence per share final dividend, up 1.1% from 29.9p. It also announced a 12.7p special dividend. It means the total dividend for the year amounts to 60.0p, up 37% from 43.7p. AB Foods also announced a new GBP500 million buyback, after recently concluding one of the same size.

Also announcing a buyback, Sports Direct owner Frasers Group rose 4.0%. It will repurchase GBP80.0 million worth of stock to reduce its share capital.

Elsewhere in retail, Watches of Switzerland jumped 9.8% as it backed annual guidance and set out lofty longer-term goals.

Revenue in the second-quarter to October 29, rose around 1.3% to GBP379 million from GBP374 million. It said luxury watch demand "remains robust". For the whole of the half-year, revenue was down around 0.5% year-on-year to GBP761 million.

The watch seller still predicts full-year constant currency revenue growth of 8% to 11%. Looking further ahead, it plans to double sales and profit by financial 2028, as WoSG set out its "long range plan".

Chief Executive Brian Duffy said: "Today's long range plan demonstrates our confidence in more than doubling our sales and profits from FY23 to FY28, aiming to surpass the milestone of GBP3 billion in revenue whilst driving operational leverage and accelerating new showroom projects and M&A activity."

Back among large-caps, industrial and electronics products distributor RS Group reported a first-half earnings decline amid more tricky trading conditions than expected. The stock slumped 5.2%.

Revenue in the half-year to September 30 inched down 0.8% to GBP1.45 billion from GBP1.46 billion.

Pretax profit weakened 31% to GBP126.3 million from GBP182.5 million.

"RS has delivered a resilient performance in difficult markets, which have been more challenging than anticipated at the beginning of the year. Industrial revenue has been robust despite the challenging macro and geopolitical environment but cyclical weakness in electronics has been exasperated by customer de-stocking," CEO Simon Pryce said.

Naked Wines slumped 30%. The wine seller now predicts annual sales will fall between 12% and 16%. It had previously predicted a decline between 8% and 12%.

Trading in the US market has been "weaker than anticipated", Naked Wines warned.

It also announced Nick Devlin has stepped down as CEO with immediate effect. Founder and Chair Rowan Gormley becomes executive chair on an interim basis. Devlin remains as president for Naked Wines USA "through the peak trading period" before leaving the group entirely.

In Zurich, UBS shares rose 4.2%. It reported a chunkier third-quarter loss than expected. The bank, fresh from the acquisition of Credit Suisse, said revenue in the third-quarter of 2023 rose 42% on-year to USD11.70 billion from USD8.24 billion.

It swung to a net loss attributable to shareholders of USD781 million, from profit of USD1.74 billion, wider than the USD444 million loss that was expected according to company-compiled consensus.

"We have now stabilized Credit Suisse and continued to grow our franchise through new client acquisition and share of wallet gains, as well as the continued success of our client retention and win-back strategy," UBS said.

Gold traded at USD1,968.12 an ounce shortly after the European stock market open on Tuesday, down from USD1,982.98 at the equities close on Monday.

By Eric Cunha, Alliance News news editor

Comments and questions to [email protected]

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