LONDON BRIEFING: M&S has "wind in our sails"; Severn Trent profit up

Wed, 22nd May 2024 07:54

(Alliance News) - London's FTSE 100 is set to open lower on Wednesday, after a higher than expected UK inflation reading which boosted the pound.

The consumer price index rose by 2.3% in April from a year before, slowing from a 3.2% annual increase in March, according to the Office for National Statistics. Though inflation was hotter than market consensus of 2.1%, which would have been only a hair above the Bank of England's 2% target, the latest figure is the coolest rate of inflation since July 2021.

Quilter Investors analyst Lindsay James commented: "The fact the headline rate begins with a two is incredibly symbolic given the events since the pandemic and the fact inflation was over 11% less than two years ago (October 2022). Investors will not want the Bank of England to be as cautious on the way down with rates as they were on the way up, when inflation was spiking, and this simply ratchets up the pressure come its next meeting in June.

"The Bank of England will be incredibly cautious of further inflationary spikes in the second half of the year, particularly given UK wage growth is running at 6% - well above the headline CPI rate. Pay deals and rises are going to come under intense scrutiny should that figure not begin to fall in line with the overall rate of inflation. Furthermore, the global picture shows no sign of helping the BoE in its task, with geopolitical risks still very much present and US inflation proving stickier than many would like."

In early UK corporate news, retailer Marks & Spencer and utility firm Severn Trent reported annual earnings growth. Pub and restaurant company Mitchells & Butlers expects yearly results at the top end of consensus.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: called down 0.5% at 8,373.35

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Hang Seng: down marginally at 19,213.07

Nikkei 225: down 0.9% at 38,617.10

S&P/ASX 200: down marginally at 7,848.10

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DJIA: closed up 0.2% at 38,872.99.

S&P 500: closed up 0.3% at 5,321.41

Nasdaq Composite: closed up 0.2% at 16,832.62

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EUR: up at USD1.0861 (USD1.0856)

GBP: up at USD1.2753 (USD1.2715)

USD: up at JPY156.41 (JPY156.10)

GOLD: down at USD2,416.00 per ounce (USD2,425.40)

(Brent): down at USD82.13 a barrel (USD82.66)

(changes since previous London equities close)

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ECONOMICS

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Wednesday's key economic events still to come:

09:05 BST eurozone European Central Bank president Christine Lagarde speaks

11:00 BST Ireland wholesale prices

13:45 BST UK Bank of England Deputy Governor Sarah Breeden speaks

15:00 BST US existing home sales

19:00 BST US FOMC meeting minutes

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The rate of UK consumer price inflation was hotter than expected last month, but still eased to the tamest in almost three years, official figures showed. The consumer price index rose by 2.3% in April from a year before, slowing from a 3.2% annual increase in March. On a monthly basis, consumer prices rose 0.3% in April, after they climbed 0.6% in March from February. The monthly reading topped the consensus of 0.2%, according to FXStreet. The annual rate of core consumer price growth, so excluding items such as food and energy, cooled to 3.9% in April from 4.2% in March. The figure landed ahead of the consensus of 3.6%. Numbers from the ONS showed annual services inflation, a gauge on which the BoE has been keeping a close eye, remained stubbornly high at 5.9% in April, easing slightly from 6.0% in March. Separate numbers showed producer prices fell year-on-year in April. Producer prices declined 1.6% on-year last month, following a 2.5% fall in March. The April figure was more deflationary than expected, with only a decline of 1.2% in the producer price index forecast by market consensus, according to FXStreet. Producer prices rose 0.6% in April from March, topping expectations of a 0.4% rise. In March, prices fell 0.2% from February.

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BROKER RATING CHANGES

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Berenberg reinitiates Weir Group with 'buy' - price target 2,600 pence

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Berenberg raises Atalaya Mining price target to 480 (410) pence - 'hold'

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COMPANIES - FTSE 100

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Marks & Spencer reported annual earnings growth, hailing "market-leading" progress at both its Food and Clothing & Home offerings. The retailer said statutory revenue in the year to March 30 rose 9.3% to GBP13.04 billion from GBP11.93 billion a year prior. Pretax profit jumped 41% to GBP672.5 million from GBP475.7 million. M&S, which recently restored its dividend after a four-year hiatus, declared a 2.0 pence per share final payout. It means its total dividend for the year amounts to 3p, having not paid one in financial 2023. Chief Executive Stuart Machin said: "Two years into our plan to Reshape for Growth we can see the beginnings of a new M&S. Food and Clothing & Home grew volume and value share ahead of the market and sales increased across stores and online. Both businesses have now delivered 12 consecutive quarters of sales growth and this trading momentum gives us wind in our sails, and confidence that our plan is working. We are becoming more relevant, to more people, more of the time." Looking to the new year, it said it will make a "further significant investment in colleague pay". M&S added: "This will be funded by structural cost reductions and other efficiencies. Other cost inflation will largely be offset by reduced energy costs. Given our track record of delivering volume growth, market share and free cash flow we are confident that we will make further progress in 2024/25 and beyond."

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Utility Severn Trent said annual earnings improved, as it looks ahead to "record levels of investment in the coming years". Revenue in the year ended March 31 rose 8.0% on-year to GBP2.34 billion from GBP2.17 billion. Pretax profit was 20% higher at GBP201.3 million from GBP167.9 million. Severn Trent lifted its final dividend by 9.4% to 70.10p from 64.09p, giving a total dividend of 116.84p, also rising 9.4%, from 106.82p. It expects a total dividend of 121.71p for the new year. Its dividend policy is inflation-linked. CEO Liv Garfield said: "We are planning record levels of investment in the coming years, while also keeping bills the second lowest in the country. Our customers and the communities in which they live are at the heart of our business and we're doing more than ever to ensure we have a positive economic, environmental and social impact across our region."

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COMPANIES - FTSE 250

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Mitchells & Butlers predicted a full-year outturn at the top end of consensus, after reporting interim growth. The operator of restaurants and pubs, including Harvester and All Bar One, said revenue in the half year ended April 13 rose 8.9% to GBP1.40 billion from GBP1.28 billion a year prior. Pretax profit jumped to GBP108 million from GBP40 million. "Continued like-for-like sales outperformance against the market coupled with easing inflationary costs and focus on efficiencies has resulted in very strong profit recovery for the period," CEO Phil Urban said. "We remain focused on our Ignite programme of initiatives and our successful capital investment programme, driving further cost efficiencies and increased sales. We have confidence that continued focus on effective delivery of our strategic priorities will generate further value from our enviable estate portfolio and customer offers, enabling us to build further momentum throughout the year, with a strong foundation for long term outperformance." The firm predicted full-year results at the "top end of consensus".

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OTHER COMPANIES

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Raspberry Pi confirmed plans for a float, in a boost to the London market. Cambridge, England-based Raspberry Pi, known for its cheap and cheerful computers, expects to raise USD40 million from the issue of new shares in connection with the initial public offering. Existing shares will be sold by Raspberry Pi Foundation, the firm's majority investor. In addition, it said that cornerstone investors Arm and Lansdowne Partners have agreed to purchase USD35 million and up to USD20 million in the IPO, respectively. The company expects to be eligible for inclusion in the FTSE UK indices. Raspberry Pi makes low-cost single board computers and compute modules for industrial 'internet-of-things' uses, as well as for enthusiasts and educators. Non-Executive Chair Martin Hellawell said: "We are delighted to confirm our intention to float on the London Stock Exchange, underscoring our confidence in the UK as the home for innovative and growing global businesses. Raspberry Pi is a British computing success story, and this marks the next stage in the evolution of the company."

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By Eric Cunha, Alliance News news editor

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