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(Alliance News) - Stocks in London are expected to sink further on Wednesday, after the previous session's bloodbath and ahead of US inflation figures.
In early UK company news, Diageo dusted off its shareholder return-of-capital programme, UDG Healthcare agreed to be bought in a deal worth GBP2.78 billion, and Coca-Cola HBC reported a good start to 2021.
IG says futures indicate the FTSE 100 index of large-caps to open 15.89 points lower, or 0.2%, at 6,932.10 on Wednesday. The FTSE 100 closed down 175.69 points, or 2.5%, at 6,947.99 on Tuesday.
"A number of reasons have been given for yesterday's broad-based weakness, the main being concern that the recent sustained rise in commodities prices could prompt a sharper permanent state of rising inflation in the weeks and months ahead," said Michael Hewson at CMC Markets.
Gold was quoted at USD1,833.17 an ounce early Wednesday, up on USD1,829.77 on Tuesday. Brent oil was trading at USD68.64 a barrel, up from USD68.08 late Tuesday.
Asian markets continued to fall overnight, and this should translate into another lower start for Europe, Hewson said.
In the US on Tuesday, Wall Street ended in the red for a second day, with the Dow Jones Industrial Average down 1.4%, the S&P 500 down 0.9% and Nasdaq Composite down 0.1%.
In Asia on Wednesday, the Japanese Nikkei 225 index ended down 1.6%. In China, the Shanghai Composite was up 0.6%, while the Hang Seng index in Hong Kong was up 0.3%. The S&P/ASX 200 in Sydney finished down 0.7%.
In early UK company news, Diageo said it is recommencing its return-of-capital programme to shareholders following a strong trading performance.
The company said its performance in North America has remained "particularly strong", while Europe has benefited from robust off-trade sales. The distiller said it now expects organic operating profit growth to be at least 14% in the current financial year, slightly ahead of organic net sales growth.
As a result of its trading performance, Diageo said it will restart the return-of-capital programme of up to GBP4.5 billion to shareholders that was first announced back in July 2019. It is initiating the second phase of the programme of up to GBP1.0 billion to be completed by the end of the 2022 financial year. As such, it has entered into an agreement with UBS to buyback shares worth up to GBP500 million until November 12.
"The board's decision to resume our return-of-capital programme at this time reflects Diageo's improved performance in the first half of fiscal 21, the continued strong recovery of our business, and our expectation that we will be back within the top end of our target leverage ratio of 2.5-3.0x at 30 June 2022, post completion of the second phase of the return of capital programme," said Chief Executive Ivan Menezes.
Contract caterer Compass Group reported a slump in interim revenue and profit due to coronavirus restrictions across its markets.
Revenue for the six months to the end of March fell 32% to GBP8.4 billion, with pretax profit collapsing to GBP133 million from GBP787 million.
"As expected, Covid continued to negatively affect our performance during the first six months of the year. Revenue remained at around 71% of our 2019 revenues as containment measures were extended over the winter months," the company said.
More positively, the firm noted that its second quarter operating margin was at 4.2%, 20 basis points ahead of its pre-close trading update and an increase of 150 basis points from the first quarter.
Compass said it expects a gradual improvement in revenue in the third quarter and the margin should be between 4.5% and 5.0%.
"With vaccination rollout underway in our major markets, we are encouraged by the easing of restrictions so we can now focus on working alongside clients to safely reopen their organisations," the company said.
Coca-Cola HBC said it has made a good start to 2021, with forex-neutral revenue growth of 2.7%, or 6.1% like-for-like, driven by Sparkling and Energy, emerging markets and the at-home channel. On a reported basis, net sales revenue fell 4.0%.
Volumes were up 1.5%, or 4.7% like-for-like, the soft drinks bottler noted, with Sparkling and Energy together growing 11%.
"The speed and shape of recovery from the pandemic remains uncertain, but Q1 puts us on track to achieve our 2021 guidance for a strong recovery in FX-neutral revenues, along with a small increase in EBIT margin," said Chief Executive Zoran Bogdanovic.
Healthcare services provider UDG Healthcare has agreed to be taken over in a deal worth GBP2.78 billion.
Nenelite, an affiliate of private equity manager Clayton, Dubilier & Rice, has agreed to buy UDG for 1,023 pence per share, representing a premium of 22% to Tuesday's closing price of 842.0p. This values UDG's share capital at GBP2.61 billion and implies an enterprise value of GBP2.78 billion.
"While the UDG board remains confident in the long term fundamentals of the group, we believe that this is an attractive offer for UDG shareholders, which secures the delivery of future value for shareholders in cash today," commented UDG Chair Shane Cooke.
UDG also reported first-half results to March 31. Pretax profit rose by 5% to USD65.1 million from USD62.3 million a year before, despite a 5% revenue decline to USD661.4 million from USD693.6 million.
With market jitters over inflation pummelling stocks, focus will be on Wednesday's US consumer price index reading at 1330 BST.
The US annual inflation rate is expected to tick up sharply to 3.6% in April, according to FXStreet, from 2.6% in March. However, the month-on-month rate is set to ease to 0.2% from 0.6%.
"The Federal Reserve would have us believe that today's move higher is likely to be transitory, and it is certainly true that some of it probably will be," said CMC's Hewson. "Unfortunately, we won't know if they are right for another two to three months which means we can probably expect to see further gyrations in global equity markets until the picture becomes clearer."
The dollar was stronger ahead of the inflation figures.
Sterling was quoted at USD1.4128 early Wednesday, lower than USD1.4150 at the London equities close on Tuesday, after figures showed the UK economy shrank at the start of 2021.
Gross domestic product is estimated to have contracted 1.5% in the quarter to March on a sequential basis, reversing 1.3% growth in the final quarter of 2020. However, Wednesday's figure was slightly ahead of consensus, according to FXStreet, of a 1.6% fall.
"Compared with the same quarter a year ago, when the initial economic impacts of the coronavirus pandemic began to show, the UK economy fell by 6.1%," the Office for National Statistics said.
The UK economy is now 8.7% smaller than its pre-pandemic size, the statistical body added.
The euro traded at USD1.2129 early Wednesday, falling from USD1.2165 late Tuesday. Against the yen, the dollar rose to JPY108.83 from JPY108.50.
Before US inflation, the economic events calendar on Wednesday eurozone industrial production at 1000 BST.
By Lucy Heming; lucyheming@alliancenews.com
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