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(Alliance News) - London stock prices were lower in early trade on Tuesday, with Persimmon dragging down fellow housebuilders after a less-than-stellar trading update, while plans for a share buyback lifted Primark-owner Associated British Foods.
The FTSE 100 index opened down 35.28 points, 0.5%, at 7,264.71. The FTSE 250 was down 32.29, or 0.2% at 18,527.28, and the AIM All-Share was down 0.59 of a point, 0.1%, at 824.22.
The Cboe UK 100 was down 0.5% at 726.73, and the Cboe UK 250 was down 0.1% at 15,985.35, though the Cboe Small Companies was flat at 12,520.81.
Stocks in mainland Europe were lower. The CAC 40 in Paris was down 0.4%, while the DAX 40 in Frankfurt was 0.2% lower.
Focus is on US politics, and the dollar was mixed heading into the mid-term elections on Tuesday.
The pound was quoted at USD1.1474 early Tuesday, up from USD1.1459 at the London equities close on Monday. The euro rose to USD0.9993 from USD0.9940. Against the yen, however, the dollar was trading at JPY146.71, up from JPY146.56.
The pound and euro were off overnight highs of USD1.1536 and USD1.0031, however.
"The changing landscape in the government will of course have an impact on the way the political decisions are made in the US, and on the way the US debt is managed. The [Federal Reserve's] aggressive rate hikes make the huge US debt more expensive by the day. The US debt to [gross domestic product] ratio stood at a touch below the 125% mark in June this year. And it's increasing steadily – something Republicans don't like," Swissquote analyst Ipek Ozkardeskaya commented.
"Therefore, the US debt burden could stop the Democrats from putting in place many economic reforms that they would've otherwise, if Republicans are sufficiently crowded to block them moving forward. Hence, slowing debt under GOP could slow growth. Therefore, if Republicans win control of both House and Senate, we should see the US Treasuries rally and the dollar soften, whereas if the Democrats hold on to the House and Senate, we shall continue seeing a positive pressure on the dollar."
Ozkardeskaya noted, however, that a Democrat majority in both the Senate and House of Representatives, an unlikely outcome, would be bad for US stocks.
"Even a divided government would be better than a Democrat majority for the US stocks," the analyst said.
"Empirical data shows that the US stock markets performed better with a divided government in the years following a same party controlling the Senate, the House and the presidency."
US President Joe Biden made a final appeal on the eve of Tuesday's midterms for Democrats to protect democracy by defeating Donald Trump's Republicans in an election that polls show could upend power in Washington.
With Republicans well placed to win at least partial control of Congress and Trump hinting at a 2024 White House comeback bid at his own rally late Monday, Democrats braced for the worst.
Former president Donald Trump, who has never accepted the truth of his 2020 loss, ratcheted up the hints that he would be entering the fray for 2024, meanwhile.
In London, shares in AB Foods climbed 4.1% after it posted a surge in annual earnings, upped its dividend, and announced a share buyback.
AB Foods said revenue for the financial year that ended September 17 climbed 22% to GBP17.00 billion from GBP13.88 billion. Pretax profit jumped 48% to GBP1.08 billion from GBP725 million.
AB Foods lifted its payout by 7.9% to 43.7 pence from 40.5p. In addition, it announced a GBP500 million share buyback programme to be completed in the current financial year. The buyback represents 4.7% of the company's issued shares. They will be cancelled after being bought back.
At Primark, annual sales totalled GBP7.7 billion, up 43% at constant currency. "UK like-for-like sales and market shares [are] now broadly in line with pre-Covid levels," AB Foods said.
Primark is facing rampant cost inflation, but the company had decided against lifting prices further for now.
"We have decided to hold prices for the new financial year at the levels already implemented and planned and to stand by our customers, rather than set pricing against these highly volatile input costs and exchange rates. As a result, in the current financial year, we expect significant growth in group sales from pricing in Food, as well as from some pricing and from space expansion at Primark. Our outlook remains unchanged. We continue to expect group adjusted operating profit and adjusted earnings per share to be lower than the financial year just closed," Chief Executive George Weston said.
At the other end of London large-caps, Persimmon fell 7.8%. The housebuilder warned its weekly sales rate has weakened, as the housing market grapples with rising UK interest rates.
The average net private weekly sales rate per outlet for the period from the start of July to November 7 weakened to 0.60 from 0.78 a year prior. Persimmon still expects to meet its 2022 volume target of 14,500 to 15,000 homes, despite "some increased risk from recent elevated cancellation rates".
Housebuilding peers Berkeley and Taylor Wimpey lost 2.5% and 3.5% early Tuesday.
Direct Line fell 4.4% after the motor insurer worsened its combined operating ratio guidance.
Direct Line now expects a combined operating ratio, normalised for weather of around 98% "or moderately above" for 2022, the guidance lowered from a range of 96% to 98%. A ratio below 100% indicates an insurer is making underwriting profit, so the lower the better. A ratio of 98% would be only barely profitable.
Hilton Food tumbled 15% as it warned that full-year profit will be below expectations.
"Hilton Foods' volume and revenue have been in line with the board's expectations, with continued revenue growth compared to the same period last year, although inflationary pressures are providing a headwind," the company said in an "autumn trading update".
Its financial year ends on January 1.
In its UK Seafood arm, Hilton Food said a process to mitigate or pass through rising costs is moving at a "slower pace than anticipated".
"Given the challenges in the UK Seafood business alongside the wider macro-economic environment, the board anticipates that operating profit will now be below its expectations for the full year," Hilton Food warned.
Elsewhere in London, Applied Graphene dropped 47%. It noted a report on news website ShareProphets saying the graphene materials maker is mulling an equity raise.
Applied Graphene responded that now is not a good time to go cap-in-hand to investors, due to "unfavourable conditions in small-cap equity markets", but acknowledged that its finances are precarious.
"Whilst the board is pleased with the start that the company has made to its new financial year, the company requires additional funding to extend its cash runway beyond 31 January 2023, which as previously disclosed is the date on which the board expects that the company's current financial resources will be fully depleted," Applied Graphene said.
Brent oil was quoted at USD97.70 a barrel, down from USD98.97. Gold was quoted at USD1,668.73 an ounce, down from USD1,678.79.
Still to come on Tuesday is a eurozone retail sales reading at 1000 SAT.
By Eric Cunha; ericcunha@alliancenews.com
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