LONDON MARKET MIDDAY: BoE hikes, expects UK recession in 4th quarter

(Alliance News) - London shares price made some gains on Thursday morning, though these fell well short of the market rise seen on mainland Europe, as traders in London showed signs of trepidation leading up to the Bank of England's interest rate decision.

As had been increasingly expected, the BoE's Monetary Policy Committee voted for half-percentage-point rate hike, taking the bank rate to 1.75%. It was the first 50-basis-point rise since 1995. The MPC voted 8-1 in favour of the the 50-point hike, with the sole dissenter being Silvana Tenreyo, who wanted a smaller 25-point rise.

The BoE tightened credit conditions to combat inflation, despite saying it expects the UK to enter recession in the fourth quarter of this year.

Sterling fetched USD1.2129 midday Thursday in London, up from USD1.2110 late Wednesday, though down from USD1.2188 just prior.

The FTSE 100 was up 13.51 points, 0.2%, at 7,459.19 midday Thursday. Pre-central bank nerves and a trio of poorly received updates from Rolls-Royce, Hikma and Mondi hit the index.

The FTSE 250 index had a more convincing morning, bolstered by promising corporate updates. The midcap benchmark was up 114.20 points, 0.6%, at 20,133.04. The AIM All-Share index was up 2.39 points, or 0.3%, at 922.70.

The Cboe UK 100 index was up 0.2% at 744.59. The Cboe 250 was up 1.0% at 17,602.95. The Cboe Small Companies was up 0.2% at 13,985.43.

In Paris, the CAC 40 stock index jumped 1.0%, while in Frankfurt, the DAX 40 was 1.4% higher.

The euro stood at USD1.0195 on Thursday afternoon, up from USD1.0125 at the European equities close on Wednesday. Against the yen, the dollar was trading at JPY134.15, down slightly from JPY134.30.

The weaker dollar was a tailwind for gold. The precious metal stood at USD1,780.89 an ounce midday Thursday, up strongly from USD1,757.20 late Wednesday.

Brent oil was quoted at USD97.27 a barrel, down from USD98.50 at the London equities close on Wednesday. Oil prices came under pressure as US data showed weekly crude stockpiles increased.

The latest US Energy Information Administration figures showed weekly oil stockpiles increased by 4.5 million barrels in the seven days to July 29. They had been expected to decline by more than 600,000 barrels, according to FXStreet-cited consensus.

Hitting the FTSE 100, Rolls-Royce tumbled 9.5% after a wild swing to an interim loss.

For the half-year ended June 30, the engineering group reported a pretax loss of GBP1.75 billion, swinging from a profit of GBP114 million a year before. The company said the loss was due to GBP2.1 billion of net financing costs.

Revenue rose 8.5% to GBP5.60 billion from GBP5.15 billion a year earlier.

"For a one-time champion of British engineering, the company is at a pretty low ebb. Today's results demonstrate the size of the task facing the newly appointed chief executive, Tufan Erginbilgic," AJ Bell analyst Russ Mould commented.

"If even a well-regarded figure like Warren East, who will hand over to Erginbilgic at the beginning of next year, can't fix the business, then what hope is there for anyone else?"

Hikma was the second-weakest blue-chip performer, sliding 7.1%.

Hikma said revenue in the first half of 2022 inched down 0.2% year-on-year to USD1.21 billion from USD1.22 billion. Pretax profit fell by a third to USD215 million from USD319 million.

Worse, it cut its forecast for its Generics arm. It now guides for annual revenue there between USD650 million and USD675 million, down from the previous USD710 million to USD750 million range. The unit's core operating margin will land between 15% and 16%, down from 20%.

Hikma blamed this on the "persistent challenges of the US generics market".

Also hurting the FTSE 100, Mondi gave back 4.7%. The paper and packaging firm reported a strong rise in revenue in the first half, but warned inflation could hurt its costs in the second half of 2022.

In the six months to June 30, pretax profit surged to EUR933 million from EUR354 million, as revenue jumped 37% to EUR4.51 billion from EUR3.28 billion.

Looking ahead, however, Chief Executive Andrew King said: "Pricing remains strong going into the second half, although we do anticipate continued inflationary pressures on our cost base and ongoing supply chain challenges."

Boosting the FTSE 250s, ConvaTec jumped 10%, as it reported weaker first-half profit but backed annual guidance as revenue trended upward.

In the first half of the year, the Reading, England-based medical products and technologies company's pretax profit fell 59% to USD46.1 million from USD112.1 million a year before. This was as its gross margin fell to 53.1% from 55.1%, and the operating margin dropped to 8.3% from 13.4%.

Revenue edged up by 3.6% to USD1.05 billion from USD1.01 billion.

ConvaTec said it is on track to report organic revenue growth of 4.0% to 5.5% for the full year.

Investment trust Pantheon International added 4.3%. Its net asset value per share amounted to 451.63 pence at its May 31 year-end, up 31% year-on-year.

That NAV increased compared favourably to just an 8.3% total return for the FTSE All-Share index and a 7.8% return for the MSCI World index.

Pantheon invests in a wide-range of listed and unlisted firms, with its holdings including Oslo-based software company Visma and onshore Caribbean, Hispanic American and European-focused natural resources company Ascent Resources, a London listing.

Adding some M&A impetus to London, Mediclinic rose 3.3% to 499.80p, giving it a market cap of GBP3.69 billion.

It backed a consortium's takeover offer, which values the hospital chain's share capital at GBP3.7 billion. On an enterprise value basis, including debt, it values it at GBP6.1 billion.

SAS Shipping Agencies Services and Remgro will pay 504p per Mediclinic share. The consortium made the latest proposal in July.

Mediclinic at the time said it would be "minded" to recommend a bid of that sum to its shareholders. Mediclinic in July said it had received three further takeover offers from the consortium, after it rejected the first offer in June.

Go-Ahead rose 2.5% to 1,538.00p. The board backed a slightly improved takeover offer from a consortium consisting of Kinetic Holding and Globalvia Inversiones. Go-Ahead has a market value of GBP664.1 million.

Kinetic and Globalvia agreed to raise the takeover offer for Go-Ahead shares to 1,550p per share, comprising of 1,450p in cash, plus a 100p special dividend.

In June, Newcastle, England-based Go-Ahead agreed to a takeover offer from the consortium at 1,500 pence per share, valuing the company at GBP647.7 million.

Stocks in New York were called higher ahead of the latest batch of jobless claims data at 1330 BST, before the monthly US jobs report on Friday.

The Dow Jones Industrial Average is called up 0.2%, the S&P 500 up 0.3% and the Nasdaq Composite up 0.5%.

The economic events calendar on Thursday has a construction PMI reading from the UK at 0930 BST.

By Eric Cunha; ericcunha@alliancenews.com

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