4th Sep 2019 07:46
(Alliance News) - Stocks in London are set for a solid open on Wednesday after MPs in Westminster reduced the possibility of a no-deal Brexit next month by defeating the government in a critical vote.
In early company news, Royal Bank of Scotland said it expects to take a payment protection insurance charge following a spike in PPI claims ahead of August's deadline. Housebuilder Barratt Developments saw annual profit grow on stronger margins. Retailer Dunelm re-introduced the payment of a special dividend, while fellow retailer Halfords issued a profit warning.
IG says futures indicate the FTSE 100 index of large-caps to open 31.01 points higher at 7,299.20 on Wednesday. The FTSE 100 closed down 13.75 points, or 0.2%, at 7,268.19 on Tuesday.
"FTSE traders preferred waiting on the sidelines as yesterday's political uncertainties outweighed the excitement of a cheaper pound. But the Britain's blue-chip index is set for a positive open in London," commented Ipek Ozkardeskaya at London Capital Group.
Ozkardeskaya continued: "Investors eye an advance toward the 7,300 mark on improved sentiment after Tuesday's no-go vote for Johnson's no-deal Brexit."
UK members of Parliament defeated the government last night in a crunch vote on Brexit which could block the prime minister from taking the UK out of the EU without a deal next month.
Tory rebels defied the whip to join opposition MPs in supporting a bid to take control of the Commons agenda and pass legislation which would prevent a no-deal Brexit on October 31. MPs voted by 328 votes to 301, a majority of 27.
The move would require the prime minister to seek a delay to Brexit until January 31 2020 if no agreement has been reached, and MPs have not approved a no-deal withdrawal.
If that passes, UK Prime Minister Boris Johnson said on Tuesday night that he would table a motion for a snap election under the Fixed-Term Parliaments Act, which could be put to a vote on Wednesday.
However, Labour indicated that they would not back the move – which would require the support of two-thirds of MPs – until chances of a no-deal Brexit were taken off the table.
Johnson said Parliament was "on the brink of wrecking any deal" with Brussels after voting to give the cross-party alliance control of the Commons.
Downing Street confirmed that the 21 Tory rebels – including former chancellors Ken Clarke and Philip Hammond as well as Winston Churchill's grandson Nicholas Soames – would lose the Conservative whip as a result of their actions.
Sterling was quoted at USD1.2118 early Wednesday, up from USD1.2082 at the London equities close on Tuesday.
"An election as early as next month could give another shake to sterling, but even a tiny hope of preventing Johnson from crashing out of the EU without a deal could help the currency consolidating support near the 1.20 level against the US dollar and eventually recovering a part of the recent weakness," said LCG's Ozkardeskaya.
In early UK company news, RBS said the volume of PPI claims in August was "significantly higher than expected".
There was a "further spike" in the final days leading up to the claim deadline of August 29, and RBS now expects to take a charge between GBP600 million to GBP900 million in its third-quarter results. Up to June 30, RBS had made provisions totalling GBP5.3 billion for PPI claims, of which GBP4.9 billion had been utilised.
Housebuilder Barratt Developments reported a rise in annual profit on stronger margins. Revenue for the year to June 30 fell 2.3% to GBP4.76 billion, but pretax profit rose 8.9% to GBP909.8 million as the firm's operating margin strengthened to 18.9% from 17.7%.
Barratt lifted its payout to 46.4p from 43.8p the year before, representing a 5.9% rise.
Barratt Chief Executive David Thomas called the year "outstanding" as the firm delivered both a strong operational and financial performance.
Commenting on current trading, Barratt said net private reservations per active outlet per average week from the start of July was 0.70, versus 0.75 a year ago. When excluding two "bespoke design and build" arrangements, this was flat year-on-year.
The company said it has "strong" forward sales as at September 1 of 12,911 homes, up from 12,648 a year ago. The recent forward sales level was valued at GBP3.00 billion, down slightly from GBP3.05 billion a year ago.
"Whilst there is increased economic and political uncertainty, we begin the new financial year with a strong forward order book, balance sheet and cash position which we believe provides us with the resilience and flexibility to react to potential changes in the operating environment in FY20 and beyond," said Thomas.
Home furnishings retailer Dunelm's special dividend returned as annual profit rose by more than a third.
Revenue for the year to June 29 came in at GBP1.10 billion, up 4.8% year-on-year. Meanwhile, pretax profit jumped 35% to GBP125.9 million. The leap in profit was attributed to higher sales and improved gross margins, which rose 160 basis points to 49.6%.
Total like-for-like sales rose strongly, up 11%, with in-store sales up 7.7% and dunelm.com seeing a 35% rise.
Dunelm declared a final dividend of 20.5p, bringing the full-year dividend to 28.0, up 5.7% year-on-year. In addition, Dunelm proposed a special dividend of 32.0p, bringing the total payout for the year to 60.0p.
Dunelm did not pay a special dividend last year. Dunelm last paid a special dividend at the time of its interim results in its 2016 financial year.
"Recent trading performance has continued to be strong, reflecting both weak comparatives in the prior year and continued market share growth. However, we remain cautious about the full year outlook due to increased Brexit uncertainty and specifically the impact it may have on consumer spending as we enter our peak period," said Chief Executive Nick Wilkinson.
Car parts and bike retailer Halfords reported a fall in like-for-like sales and warned on annual profit.
Like-for-like sales in the 20 weeks to August 16 were down 3.2%, with Retail sales down 3.9% - lead by a 5.9% drop in Motoring - while Autocentres sales were up 1.1%. Total revenue was down 3.9%, again seeing a positive performance from Autocentres outweighed by a fall in Retail.
Nonetheless, the firm said its gross margin across Motoring, Cycling and Autocentres has improved year-on-year and costs have been "tightly controlled". However, first half sales were weaker than expected and poorer summer weather, together with weaker consumer confidence, hit the firm's performance.
"At this point in time, the impact of the uncertain economic environment remains an ongoing risk to big-ticket discretionary purchases in the second half. In light of this, we remain focused on improving gross margins and managing the cost base," said Halfords.
Halfords now expects underlying profit for its current financial year between GBP50 million to GBP55 million. At the time of its annual results in May, Halfords anticipated profit for the current year to be "broadly in line" with the GBP58.8 million achieved in the 2019 financial year. This, in turn, had been down 18% on the year before that.
"In the second half, we believe the economic and political uncertainty will continue to impact big-ticket discretionary spend and, therefore, as in the first half, we will continue to focus on improving gross margins and controlling costs," said Chief Executive Graham Stapleton.
In the US on Tuesday, Wall Street ended lower, with the Dow Jones Industrial Average ending down 1.1%, the S&P 500 down 0.7% and Nasdaq Composite slipping 1.1%.
In Asia on Wednesday, the Japanese Nikkei 225 index closed up 0.1%. In China, the Shanghai Composite is up 0.5%, while the Hang Seng index in Hong Kong is up 2.8%.
Released overnight, the expansion of the service sector in China accelerated in August as new orders growth pushed firms to hire more staff, indicating a "slight improvement" in the sector and helping boost overall private sector growth.
The Caixin China general services purchasing managers' index rose to 52.1 points in August from 51.6 in July. Any reading above 50 represents expansion as opposed to contraction in the sector.
The Caixin China composite PMI rose to 51.6 points in August from 50.9 in July. This was a further improvement on the 50.6 points recorded in June and represented the highest print since April. The composite print combines the services sector PMI datat and the Caixin China General Manufacturing Index released on Monday, which rose to 50.4 points in August from 49.9 in July.
To come in Wednesday's economic calendar are services PMIs from France, Germany, the eurozone and the UK at 0850 BST, 0855 BST, 0900 BST and 0930 BST respectively.
At 1000 BST, there are eurozone retail sales while the US trade balance is at 1330 BST, with a composite PMI reading at 1445 BST.
In addition, the results of the latest UK index review will be announced after the market close, based on Tuesday's closing prices, with high street stalwart Marks & Spencer looking set for a demotion to the FTSE 250.
Related Shares:
RBS.LBarratt DevelopmentsDunelmHalfords