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(Alliance News) - Stock prices in London are seen opening higher on Wednesday amid hopes for a coronavirus vaccine and more economic stimulus measures in the US.
In early company news, fashion house Burberry Group said its first-half sales almost halved as it felt the effects of the coronavirus pandemic. Water utility Severn Trent said it expects an annual trading performance consistent with prior guidance. Construction firm Galliford Try warned margins will be around 5% lower this year because of the lockdown caused by the pandemic.
IG futures indicate the FTSE 100 index is to open 58.65 points higher at 6,238.40. The blue-chip index closed up 3.56 points, or 0.1%, at 6,179.75 Tuesday.
Burberry said sales in the first quarter took a severe hit as demand for luxury goods was dealt a blow due to the coronavirus pandemic.
For the period ending June 27, retail revenue was down 48% to GBP257 million from GBP498 million in the first quarter of 2019. Comparable sales declined 45% in the first quarter, but eased to a 20% decline in the month of June as lockdown restrictions became less stringent.
The luxury retailer expects the second quarter to end of September to continue to suffer from the pandemic. In retail, it said, tourist flows are likely to remain negligible, and store operations are continuing to face significant pressures, with some remaining closed and operating with reduced trading hours.
Burberry expects retail sales performance to decline by 15% to 20% in the second quarter. In wholesale, it is collaborating with partners to protect the brand and as a result, anticipates first-half sales to fall around 40% to 50%.
"Looking ahead, in the absence of full-year guidance due to the macroeconomic and global health uncertainty, we are providing an indication of Q2/H1 2021 performance. The second half, and the course of the pandemic from here, will largely depend on the actions governments pursue to control the spread of the virus as economies restart, including their responses to second viral waves, as well as the phasing of store re-openings, an easing of travel restrictions, and the on-going consumer response," Burberry said.
Severn Trent said the first quarter of the financial year has been in line with expectations and continues to expect to deliver full-year trading performance consistent with prior guidance. The UK water company's AMP7 plans remain unchanged as it benefits from the clarity of a finalised regulatory settlement.
Severn Trent continues to guide a GBP50 to GBP85 million hit to 2021 revenue and said the Ofwat regulatory model allows this to be recovered in 2022-23.
"We have been encouraged by cash collections broadly in line with the same period a year ago, but continue to anticipate Covid-19 bad debt increases in line with guidance previously given as government support schemes come to an end," the company warned however.
Galliford Try said its construction sites across the UK are now operational with underlying operations performing well. The company said its order book was up 10% to GBP3.2 billion from GBP2.9 billion last year.
The construction firm said it was well-capitalised, with cash at June 30, of GBP195 million against net debt of GBP57 million last year and average month-end cash during the six months of GBP140 million.
Galliford noted that, as expected, the combination of site closures and reduced productivity significantly reduced revenue in the final quarter of the financial year. Further, it said that the cost of implementing new operating procedures and site programmes has led to a material reduction in gross margin in the financial year to June 2020, with divisional operating margins expected to show a loss of 5%.
However, productivity levels on its sites have gradually increased since the beginning of the lockdown, and Galliford said it starts the new financial year with productivity close to normal and operating margins expecting to improve in line with its target.
Earlier this year, Galliford suspended financial guidance, in response to the Covid-19 uncertainty.
"Although it is too early to restore guidance, the group has entered the new financial year with a high-quality, carefully risk-managed order book of GBP3.2 billion, and with 90% of the new financial year's planned revenue secured. This gives management confidence in the future as we look to increase operating margins, capitalise on the actions taken to reduce costs and maintain our disciplined approach to contract selection," Galliford said.
In the US on Tuesday, Wall Street ended higher, with the Dow Jones Industrial Average closing up 2.1%, S&P 500 up 1.3% and Nasdaq Composite up 0.9%.
Investors took their lead from Wall Street's higher close, which came after US biotech firm Moderna said the final stage of human trials for a Covid-19 vaccine would start at the end of the month. A report had said its first stage tests had been a success.
Providing added support was optimism that the US would add to its stimulus after reports said top Republicans were reconsidering their opposition to it, including on extending supplemental unemployment benefits.
"Although a mismatch between financial markets and the real economy remains in full effect, the removal of a single recessionary input (the virus) via a vaccine can pave the way for fast economic recovery. So, the positive news on the virus vaccine can go a long way to explain the dissonance between the shift in the stock market sentiment relative to the angst on Main street," said AxiCorp analyst Stephen Innes.
US earnings season continues Wednesday with investment bank Goldman Sachs reporting second-quarter results.
The Japanese Nikkei 225 index closed up 1.6%. In China, the Shanghai Composite is down 0.8%, while the Hang Seng index in Hong Kong is down 0.2%.
The pound was quoted at USD1.2575 early Wednesday, firm from USD1.2547 at the London equities close Tuesday following UK inflation data.
UK consumer prices nudged up in June, but cheap energy kept the annual inflation rate subdued, according to the latest figures from the Office for National Statistics on Wednesday.
The annual inflation rate ticked up to 0.6% in June from 0.5% in May, beating consensus, according to FXStreet, of 0.4%.
The euro was changing hands at USD1.1395 at the London equities close, marginally lower from USD1.1403 at the European equities close Monday. Against the yen, the dollar was trading at JPY107.26, flat from JPY107.21.
Brent oil was trading at USD43.05 a barrel Wednesday morning, flat from USD43.10 at the London close Tuesday. Gold was quoted at USD1,807.10 an ounce, flat against USD1,808.60 late Tuesday.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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