LONDON MARKET MIDDAY: Paris shines in better day for European equities

(Alliance News) - European equities had a stellar morning on Thursday, some respite from what has been a shaky week so far, with the CAC 40 in Paris leading its peers thanks to a strong session for its industrial sector.

In London, jet engine maker Rolls-Royce and equipment rental firm Ashtead topped the FTSE 100 index, while a ringing endorsement from Barclays for electricity generator Drax helped boost the FTSE 250. Ryanair rose as it lifted its five-year traffic forecast, while THG fell after announcing separation plans.

The FTSE 100 index was up 31.00 points, or 0.4%, at 7,047.49. The mid-cap FTSE 250 index was up 127.08 points, 0.5%, at 23,559.89. The AIM All-Share index was down 1.42 points, 0.1%, at 1,272.14.

The Cboe UK 100 index was up 0.2% at 701.27. The Cboe 250 also was up 0.3%, at 21,304.99. The Cboe Small Companies advanced 0.2% to 15,509.85.

"The FTSE 100 started on the front foot on Thursday as investors faced competing catalysts from east and west," AJ Bell analyst Russ Mould commented.

"Some decent corporate news and an upbeat report from the US manufacturing sector outweighed continuing worries about China, which dragged down mining stocks."

Anglo American was down 2.5%, BHP was 1.3% lower and Rio Tinto fell 1.7%. In addition, Rio said it will be appealing an Australian tax ruling which saw the global mining heavyweight slapped with a fine worth around USD258 million. The penalty was related to borrowing it made to fund the payment of an internal dividend in 2015.

In mainland Europe, the CAC 40 stock index in Paris was up 1.0% and the DAX 30 in Frankfurt was 0.5% higher.

The CAC got a boost from train maker Alstom, which was 3.8% higher, spurred on by M&A activity in North America. Canadian Pacific Railway said Wednesday it has reached a USD27 billion agreement to buy US freight company Kansas City Southern Railway, bringing an end to a bidding war with competitor Canadian National Railway.

Aerospace company Safran also helped lift the Paris market, rising 2.8%. In London, Rolls-Royce topped the FTSE 100, up 4.4%.

Ashtead was the next best FTSE 100 performer, rising 4.1%.

The equipment rental firm tipped its full-year results to be "ahead of its earlier expectations". In the financial first quarter to July 31, revenue rose 21% year-on-year to USD1.85 billion from USD1.51 billion. Rental revenue alone rose 22% to USD1.67 billion from USD1.35 billion a year earlier.

Pretax profit surged 74% to USD415.8 million from USD240.6 million.

Two years earlier, Ashtead posted pretax profit of GBP319.0 million, which amounts to about USD440.9 million, so ahead of the recent quarter at current exchange rates. Revenue at the time was GBP1.28 billion, about USD1.77 billion, below its revenue result for the first quarter of financial 2022.

"The group delivered a strong quarter with rental revenue up 22% over the prior year, but more importantly up 12% when compared with the first quarter of 2019-20, both at constant currency. This reflects continued market outperformance across the business," Chief Executive Brendan Horgan said.

Drax topped the FTSE 250 index, surging 7.7% to 472.40 pence as Barclays predicted a promising future for the power station operator.

Barclays hiked its price target for Drax by 75% to 960p from 550p. It retained its Overweight rating. The investment bank drew particular attention to Drax's bioenergy carbon capture and storage, or BECCS, negative emissions offering.

"BECCS to us has the feel of offshore wind in 2005 – marginal current economics and a large niche area but with significant potential. We see Drax becoming a global leader in developing and operating these complex BECCS projects both in the UK and globally, and we estimate a long-term upside scenario valuation of 3,800p," Barclays said.

The investment bank noted 3,800p is about eight-times higher than Drax's current share price.

Ryanair hiked its traffic growth forecast, eyeing a strong re-emergence from Covid-19. Its stock was up 7.8%

Ryanair is targetting annual traffic of 225 million passengers by March 2026, up from its previous target of 220 million and the 149 million it carried before the Covid-19 pandemic. It has lifted its five-year traffic growth forecast to 50% from 33% previously.

Ryanair also plans to take delivery of 210 Boeing 737 "gamechanger" aircraft over the next five years.

"These aircraft will deliver industry lowest costs, reduced emissions, and will enable Ryanair to accelerate its post-Covid growth, as opportunities open up at primary and secondary airports all over Europe, particularly where legacy carriers have failed or reduced fleet sizes as a result of Covid and state aid," Ryanair added.

THG fell 4.3%, as it reported interim results and plans to spin-out its beauty arm. In the first half of 2021, THG's revenue grew 42% year-on-year to GBP958.8 million from GBP675.7 million. But its pretax loss stretched to GBP81.3 million from GBP49.9 million.

THG Beauty, the company's biggest unit by revenue and which includes brands such as ESPA and retailer Lookfantastic, will go public in the first half of 2022. What's more, separations may not end there. THG said a "decision on whether to separately list THG Nutrition and the timing will remain under consideration", and it also hinted that an IPO might be in the future for its Ingenuity arm.

Back in May, THG said it secured a financial and trading partnership with SBM, a SoftBank Group unit, under which the two will explore potential commercial arrangements between each other. The deal included an option for SBM to snap up just shy of a 20% stake in THG Ingenuity.

THG said on Thursday: "Whilst immediately following the exercise of the SBM option, Ingenuity will be a majority owned subsidiary of THG, the group retains ultimate discretion and flexibility to determine any subsequent IPO, or other structural option for Ingenuity."

THG has operations within its Beauty, Nutrition, OnDemand and Ingenuity arms. It owns brands such as wellness unit Myprotein and its Ingenuity e-commerce technology platform has served blue-chip customers such as Nestle, Walgreens Boots Alliance and Procter & Gamble.

"A corporate divorce looks to be on the cards at e-commerce firm THG but rather than expensive or messy, the company will be looking for this break up to generate a windfall in the form of enhanced valuations for its individual businesses," AJ Bell's Mould commented.

"THG is banking on these businesses being ascribed more value by the market as separate entities, and this is perhaps most pertinent to the Ingenuity arm which has generated a lot of the excitement around the stock since its 2020 listing.

The dollar was mixed. The pound was quoted at USD1.3825 midday Thursday, down from USD1.3840 at the London equities close on Wednesday. The euro dropped more significantly to USD1.1763 from USD1.1817. Against the yen, the dollar faded to JPY109.33, down from JPY109.38.

UK Prime Minister Boris Johnson has insisted Britain's new defence pact with the US and Australia is not intended as an "adversarial" move against China.

In a ground-breaking agreement, dubbed Aukus, the three allies agreed to co-operate on the development for the first time of a fleet of nuclear-powered submarines for the Australian navy.

The move, widely interpreted as an attempt to check China's growing military assertiveness in the Indo-Pacific, was swiftly condemned by Beijing as a "geopolitical gaming tool".

The economic events calendar on Thursday has eurozone trade figures at 1000 BST and US retail sales numbers and latest jobless claims figures at 1330 BST.

Ahead of the data, New York stock market futures were lower. The Dow Jones Industrial Average and S&P 500 were called down 0.1% and the Nasdaq Composite is called 0.2% lower.

Brent oil was quoted at USD75.39 a barrel midday Thursday, down from USD75.75 late Wednesday. Gold was trading at USD1,778.92 an ounce, down from USD1,792.85.

By Eric Cunha; ericcunha@alliancenews.com

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