(Alliance News) - Stock prices in London are seen opening higher on Thursday following a positive close on Wall Street overnight, as Omicron coronavirus variant fears lessened despite new restrictions on public activity being imposed in the UK.
In early company news, jet engine maker Rolls-Royce said it expects its 2021 cash outflow to be better than forecast. Packaging firm DS Smith raised its interim dividend after strong results. Transport operator Go-Ahead apologised to the UK government after admitting to errors and failings in the way it ran the Southeastern rail franchise.
IG futures indicate the FTSE 100 index is to open 10.75 points higher at 7,348.10. The blue-chip index closed down 2.55 points at 7,337.35 on Wednesday.
Rolls-Royce said it was seeing good results from its restructuring programme, as the jet engine maker seeks to reduce costs and deliver a leaner and more efficient company.
The London-based firm said the gradual recovery in international flying alongside a market recovery in the Power Systems unit and resilience in the Defence arm were driving improvements in trading.
In addition, its restructuring programme, launched in May 2020, is delivering sustainable cost savings more quickly than initially anticipated. This leaves the company well-placed to meet the GBP1.3 billion savings target set for the end of 2022, it said.
Rolls-Royce said the improved trading performance drove a return to positive free cash flow in the third quarter and reduced the outflow expected in the second half. In addition, around GBP300 million of original equipment concession outflows, originally expected in 2021, are now expected to fall in 2022 due to delayed delivery of aircraft for which it has already supplied engines.
As such, Rolls-Royce's free cash outflow in 2021 is expected to be better than the GBP2 billion previously guided.
Rolls-Royce said large engine flying hours are currently around 50% of 2019 levels and around 46% year-to-date as compared to the 43% average for the first half of the year. Engine flying hours in business aviation remain above their 2019 level.
"While external uncertainties clearly remain, we have seen continued gradual recovery in our Civil Aerospace business, a growing order book in Power Systems and have secured a significant contract win in Defence," said Chief Executive Officer Warren East. "This all underpins our strategy of creating a better quality and more balanced business which can deliver significantly improved returns and cash flow into the future."
DS Smith said pretax profit and revenue rose for the first half of financial 2022 as the paper and packaging firm increased its interim dividend.
For the six months to October 31, revenue rose to GBP3.4 billion from GBP2.9 billion last year and pretax profit increased to GBP177 million from GBP120 million.
DS Smith declared an interim dividend of 4.8 pence a share, up 20% from 4.0p a year prior.
Looking ahead, DS Smith issued a positive outlook for continued growth over remainder of the financial year.
"We have built a business to benefit from the significant structural growth drivers within fibre based corrugated packaging. These benefits, combined with our scale, geographic footprint, sustainability and innovation focus, position us very well for continued volume and market share growth. Together with pricing momentum, this underpins our confidence to deliver a significant improvement in profitability during the second half of this year in line with our expectations and towards our medium-term targets," it said.
Go-Ahead said the review of London & South Eastern Railway franchise with the UK government found that "serious errors" were made by LSER in its dealings with the Department for Transport over several years.
Go-Ahead said it has accepted that by "failing to notify the DfT of certain overpayments or monies due to the DfT, LSER breached contractual obligations of good faith contained in the franchise agreements." As a result, the company has apologised to the DfT. The government department is considering enforcement action, Go-Ahead said, including a financial penalty.
Go-Ahead promised to enhance "certain aspects" of its corporate governance in order to better safeguard and assure compliance obligations of complex long-term rail contracts.
Go-Ahead has delayed annual results due next week until January and as result of missing the deadline for publication, its shares will be suspended from trading, starting January 4.
Calls for a higher market open in London follow from an upbeat close in New York on Wednesday. The Dow Jones Industrial Average closed up 0.1%, S&P 500 up 0.3% and Nasdaq Composite up 0.5%.
Drugmakers BioNTech and Pfizer said a third dose of their vaccine is effective at guarding against the new strain, while a two-dose regime will leave Omicron "not sufficiently neutralized".
The Japanese Nikkei 225 index closed down 0.5% on Thursday. In China, the Shanghai Composite ended up 1.0%, while the Hang Seng index in Hong Kong was up 1.1%. The S&P/ASX 200 in Sydney closed down 0.3%.
"Having recovered most of the losses seen in the post-Thanksgiving sell-off investors now caught between hope that vaccines will be able to afford enough protection against the new variant, against concerns that even a significant acceleration in infection rates might overwhelm health systems," commented CMC Markets analyst Michael Hewson.
"US markets having also seen two days of strong gains were able to build on those gains yesterday, albeit on a more incremental basis, despite concerns over rising and more persistent inflationary pressure, and ahead of tomorrow's November CPI numbers, which could upset the apple cart from a sentiment point of view. As a result of last night's positive finish, markets in Europe look set to open higher this morning, with Asia markets trading somewhat mixed," Hewson added.
Consumer inflation in China picked up to its highest level in over a year in November, official data showed, bolstered by an uptick in pork prices as seasonal demand spiked.
The consumer price index, a key gauge of inflation, rose 2.3% annually from in November from 1.5% in October, according to the National Bureau of Statistics. The latest reading was slightly below expectations but still the highest since August 2020.
The pound was quoted at USD1.3204 early Thursday, down from USD1.3236 at the London equities close Wednesday.
The UK government on Wednesday brought in further Plan B measures in England to slow the spread of the Omicron variant, which looks increasingly likely to take over from Delta as the dominant strain of coronavirus globally.
Until now, ministers had kept most of their Plan B measures in reserve for if Covid-19 cases rose so high that they placed the NHS under unsustainable pressure.
But with concerns mounting, the government has brought back guidance to work from home, alongside face masks in most indoor venues, including theatres and cinemas.
Mandatory vaccine passports are being brought back for larger events and nightclubs, where people must prove they are double-jabbed. A negative lateral flow test will also be sufficient proof, with all measures coming into force in seven days' time, Prime Minister Boris Johnson said.
The euro was priced at USD1.1324, lower from USD1.1332. Against the Japanese yen, the dollar was trading at JPY113.51, down from JPY113.83.
Brent oil was quoted at USD76.11 a barrel on Thursday morning, up from USD75.86 Wednesday evening, Gold stood at USD1,786.40 an ounce, firm against USD1,782.70.
In the international economic events calendar on Thursday has US jobless claims at 1330 GMT.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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