(Alliance News) - Share prices in London dropped markedly at the open on Wednesday, with just a handful of blue-chip stocks in the green, while the mid-cap index was in negative territory despite a strong start to the session by Dunelm.
"The wider cyclical concerns and a mixed showing from Asian markets filtered through to a weak opening in the UK, where investors have been more circumspect over recent trading sessions.
Where the initial surge of economic growth had been positive for the market, demand soon outstripped supply, causing blockages in the supply chain and some labour shortages which have hampered subsequent progress," Interactive Investor analyst Richard Hunter commented.
"Cyclical shares such as the banks bore the brunt of early selling pressure, although there was an element of positive pushback from the mining stocks in the opening exchanges."
The FTSE 100 index was down 54.62 points, 0.8%, at 7,094.75. The mid-cap FTSE 250 index was down 126.17 points, 0.5%, at 23,971.31. The AIM All-Share index was down 4.85 points, 0.4%, at 1,302.70.
The Cboe UK 100 index was down 0.8% at 705.36. The Cboe 250 was down 0.7% at 21,745.79, and the Cboe Small Companies was down 0.2% at 15,553.54.
In mainland Europe, the CAC 40 stock index in Paris and the DAX 30 in Paris both tumbled 1.1%.
In the US on Tuesday, the Dow Jones Industrial Average fell 0.8% and S&P 500 fell 0.3%, but the Nasdaq Composite rose 0.1%. The technology sector helped lift the index to another record high.
"Relatively unaffected by the vagaries of the return to normality due to the Delta variant, consumers continue to use technology regardless. As such, big tech stocks are edging towards becoming the 'new defensives', as uncertainty abounds elsewhere. In addition, investors switched once more from value to growth, propelling the Nasdaq to a fresh record closing high," Hunter added.
Early Wednesday in London, Barclays and Standard Chartered were down 1.3%, while NatWest fell 1.0%. Antofagasta, meanwhile, was 0.3% higher, one of just four large-caps stocks in the green.
Engineer Smiths Group topped the blue-chips, rising 3.7%. It backed a higher offer to sell its Smiths Medical unit to California-based medical technology firm ICU Medical.
The terms of the deal are "superior" to a USD2.3 billion sale it agreed with private equity firm TA Associates. The company had agreed the TA deal in August, though it has now withdrawn its recommendation for that offer.
The ICU Medical deal values Smiths Medical at USD2.7 billion, with a further USD100 million up for grabs depending on Nasdaq-listed ICU's share price performance following the acquisition.
Minus debt and other liabilities, the deal is worth USD2.4 billion, about USD400 million higher than the TA agreement.
In addition, Smiths will also receive 2.5 million ICU shares, worth USD500 million at current market prices.
Smiths plans to return 55% of the sales proceeds, equal to GBP737 million, to shareholders through a buyback.
Among mid-caps, Dunelm rose 7.1% after it posted a sharp annual earnings hike, declaring a special payout too.
With more working and playing indoors due to lockdown measures, the homewares retail company saw sales jump, despite its store estate being hit by restrictions.
In the year ended June 26, revenue rose 26% to GBP1.34 billion from GBP1.06 billion. Pretax profit jumped 45% to GBP157.8 million from GBP109.1 million.
Digital sales accounted for 46% of all sales, compared to 27% a year earlier, signalling just how large the shift to online has been.
Promisingly, it also reported like-for-like sales turned positive again in the fourth quarter again, and by a comfortable margin too. Like-for-like sales doubled in the fourth quarter, albeit lapping easier comparatives. Like-for-like sales had tumbled 29% a year earlier.
In the third quarter, like-for-likes fell 16%.
Dunelm declared a full-year ordinary dividend of 35.0 pence per share, having not paid one a year earlier. It also declared a 65.0p special payout.
"Sales growth in the first ten weeks of the new financial year has been encouraging, including a positive response from customers to our Summer Sale in July and continued outperformance versus the homewares market," Dunelm said.
It expects pretax profit to be "modestly ahead" of current analyst expectations.
Morrisons was up 0.6%. It said it has begun talks with the Takeover Panel over the prospect of arranging an auction to decide who acquires the Bradford-based supermarket chain.
Clayton, Dubilier & Rice and Softbank-owned Fortress are the two suitors in the running to acquire the company, though Morrisons noted that neither have made final offers.
"Following completion of the auction procedure, the Morrisons board anticipates proceeding with either the Fortress meetings or the CD&R meetings depending on which offer it is recommending to Morrisons shareholders," the company added.
At the start of July, it agreed a GBP6.3 billion deal from a consortium of investment groups which included Fortress.
This sparked a bidding war, with Morrisons having most recently accepted a GBP7.0 billion takeover offer from CD&R, which aimed to win minds with the increased bid, and hearts by including Terry Leahy as an adviser. The Times reported in August that Leahy, a former Tesco chief executive, said during a video message that he "knew Sir Ken Morrison well" and understood the "values and vision" of the late former Morrisons chair.
Fortress on Wednesday continued to urge Morrisons shareholder to take no action in respect to the CD&R bid.
Morrisons - which has seen its share price surge in recent weeks due to the M&A prospects - will later this month re-enter the FTSE 100 just six months after a demotion in March.
Much like Dunelm, Frontier Developments has also benefitted from a boost in demand due to the pandemic. The Cambridge-based video games publisher was up 0.4% in early dealings after reporting record annual results.
Revenue in the year ended May 31 rose 19% to GBP90.7 million from GBP76.1 million. Pretax profit climbed 18% to GBP19.2 million from GBP16.2 million.
While financial 2021 saw record revenue, Frontier Developments has its sights set on even more growth.
"The board's projected revenue range for FY22 is GBP130 million to GBP150 million, implying an annual growth rate of 43% to 65% above the record revenue reported for FY21," the company said.
"Looking further out, for FY23, the board's projected revenue range is GBP160 million to GBP180 million, based on the anticipated performance of our current and future game franchises, together with a growing contribution from our games label for third-party publishing, Frontier Foundry."
Over in Zurich, shares in building materials firm Holcim fell 1.6% early on Wednesday, after dropping 3.1% on Tuesday.
France's top court on Tuesday overturned a decision by a lower court to dismiss charges brought against cement firm Lafarge for complicity in crimes against humanity in Syria's civil war. Lafarge merged with Holcim back in 2015.
The ruling by the Court of Cassation marks a major setback for Lafarge, which is accused of paying nearly EUR13 millions to jihadist groups including the Islamic State to keep its cement factory in northern Syria running through the early years of the country's war.
Lafarge has acknowledged that its Syrian subsidiary paid middlemen to negotiate with armed groups to allow the movement of staff and goods inside the war zone.
But it denies any responsibility for the money winding up in the hands of terrorist groups and has fought to have the case dropped.
Brent oil was quoted at USD71.82 a barrel early Wednesday, up from USD71.67 late Tuesday. Gold rose to USD1,799.45 an ounce, from USD1,794.50.
The pound was quoted at USD1.3764 early Wednesday, down from USD1.3780 at the London equities close on Tuesday. The euro stood at USD1.1841, flat from USD1.1840. Against the Japanese yen, the dollar was trading at JPY110.22, largely unchanged from JPY110.20.
By Eric Cunha; ericcunha@alliancenews.com
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