LONDON MARKET MIDDAY: Housebuilding stocks struggle amid sector slump

(Alliance News) - Stock prices in London were lower at midday on Wednesday, with the UK's struggling housebuilding sector and the renewed risk of higher interest rates at the forefront of investor's minds.

The FTSE 100 index was down 50.34 points, or 0.7%, at 7,387.59. The FTSE 250 was down 102.46 points, or 0.6%, at 18,388.96, and the AIM All-Share was down 2.55 points, or 0.3%, at 737.50.

The Cboe UK 100 was down 0.6% at 735.85, the Cboe UK 250 was down 0.7% at 16,032.74, and the Cboe Small Companies was down 0.6% at 12,879.63.

Housebuilders were among the worst performing stocks in the FTSE 100 at midday on Wednesday, weighed down by a poor data for the UK construction sector and gloomy annual results from Barratt Developments.

Barratt was down 2.2%, Persimmon down 2.3%, Berkeley down 1.6%, and Taylor Wimpey down 1.2%.

According to survey data from S&P Global, the UK construction sector saw a mild expansion in activity in August, but the slump in the housebuilding sector continued.

The S&P Global/CIPS UK construction purchasing managers' index fell to 50.8 points in August, from 51.7 in July. Falling closer towards the 50-point mark that separates expansion from contraction, it shows growth slowed during the month.

S&P Global noted "divergent trends" across the three main surveyed categories, however, with commercial building expanding at a "robust" pace and civil engineering growing at a somewhat slower pace.

Housebuilding, meanwhile, continued to contract, with a PMI of 40.7 - the second-fastest downturn since May 2020.

Adding to the downbeat mood, the UK's biggest housebuilder and sector bellwether Barratt reported lower adjusted profit in its recently concluded financial year, amid lower completions, and said there would be no further share buybacks at this stage.

In the year to June 30, Barratt reported pretax profit rose 9.8% to GBP705.1 million from GBP642.3 million a year before, as revenue edged up just 1.0% to GBP5.32 billion from GBP5.27 billion.

However, on an adjusted basis, pretax profit fell 16% to GBP884.3 million from GBP1.05 billion, as adjusted operating margin deteriorated to 16.2% from 20.0%.

Barratt explained that reduced profitability reflects a "fall in customer demand, overall house price inflation running below build cost inflation and the operational gearing impact as the market has slowed down."

Completions fell 3.9% to 17,206 from 17,908, which the firm said reflected the market slowdown experienced from September 2022.

In addition, Barratt proposed a final dividend of 23.5 pence per share, bringing the annual total to 33.7p, behind the previous year's payout of 36.9p. The company added there would also be "no further share buybacks at this stage".

ii's Richard Hunter said the cut to the dividend was "inevitably disappointing" but a "prudent move" given the tightening environment as it allows the company to retain its cash to buffer against any upcoming challenges.

In the FTSE 250, Bridgepoint was the index's top performer, up 7.2%.

Bridgepoint said it has added Energy Capital Partners to its platform, in a cash and shares acquisition worth GBP835 million, and announced plans for a new GBP50 million share buyback.

"Joining forces with the infrastructure specialist ECP is an important and powerful next step in Bridgepoint's strategic objective of building a globally-scaled, diversified platform in middle-market private assets investing. The transaction accelerates our scale, leadership and strategic development, enhances the quality of the group's earnings and margin profile, and provides greater diversification and earnings growth potential. It will be immediately accretive for Bridgepoint shareholders," said Bridgepoint Chair William Jackson.

Elsewhere in London, Halfords climbed 2.1% after Peel Hunter raised the motoring and cycling products retailer to 'buy' from 'add'.

Asos meanwhile lost 4.0% as Goldman Sachs cut the target price for the online clothing retailer's stock to 515 pence from 600p previously. The stock currently trades at 423.60p.

On AIM, Restore surged 20% after it announced it has won a significant communications contract from the UK's HM Revenue Customs department.

The digital and information management and lifecycle services provider said the contract is worth up to GBP140 million, depending on transactional volumes, and will cover between five and seven years, beginning in September 2023.

Restore will manage outbound print and messaging services - including SMS, email and rich messaging - which will be sub-contracted to two strategic partners.

In European equities on Wednesday, the CAC 40 in Paris was down 0.6%, while the DAX 40 in Frankfurt was down 0.3%.

Stocks in New York were called lower. The Dow Jones Industrial Average was called down 0.1%, the S&P 500 index down 0.2%, and the Nasdaq Composite down 0.3%.

Christopher Waller, among the most hawkish members of the rate-setting Federal Open Market Committee, said on Tuesday that the US central bank is well-positioned to proceed "carefully" in terms of further monetary tightening, following what he described as a "helluva good week of data".

Although he confirmed the Federal Reserve is preparing to hold its benchmark interest rate steady at its September policy meeting, he said he would need to see more data before saying the Fed is done raising rates.

Waller told CNBC: "There's nothing that is saying we need to do anything imminent anytime soon, so we can just sit there, wait for the data and see if things continue."

However, investors remain fearful that higher energy prices could renew inflationary pressures on the global economy, which in turn could prompt central banks to keep interest rates 'higher for longer' to tame inflation.

A barrel of Brent crude oil was quoted at USD89.60 a barrel at midday in London on Wednesday, down from USD90.31 late Tuesday. Over the past week, the North Sea benchmark price is up over 5%, and has risen 13% in 2023 so far.

Oil prices climbed after the Saudi Arabian energy ministry said on Tuesday that the kingdom's production cut of 1 million barrels per day, which first took effect in July, will continue "for another three months until the end of December 2023".

Russia's export cut of 300,000 barrels per day will continue for the same period, Deputy Prime Minister Alexander Novak said in a separate statement.

"So, while oil bulls are dancing in the street, the notable price uptick could prove challenging for central banks and financial markets, which were embellishing the current lower inflation groove," said Stephen Innes, managing partner at SPI Asset Management.

The dollar wobbled amid the uncertainty.

The pound was quoted at USD1.2553 at midday on Wednesday in London, down from USD1.2564 at the London equities close on Tuesday. The euro stood at USD1.0739, higher against USD1.0713. Against the yen, the dollar was trading at JPY147.32, lower compared to JPY147.66.

Gold was quoted at USD1,926.57 an ounce, slightly lower against USD1,926.63.

Still to come in Wednesday's economic calendar, there are two services PMI readings for the US from 1445 BST.

By Heather Rydings, Alliance News senior economics reporter

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