LONDON MARKET OPEN: AB Foods Surges On US Expansion Plans

(Alliance News) - London stock prices edged into the green early Tuesday, adding to Monday's advance, as optimism the world's two largest economies are closer to a mini trade deal continues to boost investor sentiment.

The FTSE 100 index was 4.02 points higher, or 0.1%, at 7,373.71 early Tuesday. The FTSE 250 was up 4.09 points at 20,254.72, with the AIM All-Share up marginally at 889.60.

The FTSE 100 index ended Monday at its best closing price in over a month.

The Cboe UK 100 index was up 0.2% at 12,503.92. The Cboe UK 250 was up 0.1% at 18,158.98 and the Cboe UK Small Companies was down slightly at 11,242.55.

CMC Market's David Madden commented: "Global trade tensions melted away a little yesterday which lifted equity markets around the world. The comments from Wilbur Ross, US commerce secretary were welcomed in Europe as well as the US. Ross claimed that 'very shortly' the government will issue licences to US firms seeking to do business with Huawei. The tech company in question was at the centre of concern for the Trump administration on the ground of national security. So a thawing of the relations acted as a boost to equities."

In European equities, the CAC 40 index in Paris and the DAX 30 in Frankfurt were both flat in early trade Tuesday.

The US is considering rolling back levies on USD112 billion worth of Chinese imports that were introduced on September 1, the Financial Times reported on Monday. The 15% tariffs targeted Chinese consumer goods including televisions, books, nappies and sports shoes for the first time.

Five people briefed on discussions said the White House was considering dropping the levies as a concession to cement a partial deal to end the ongoing trade war between the two countries, according to the FT report.

In recent days, both Beijing and Washington have spoken positively about negotiations, including on trade in agricultural goods and poultry.

London Capital Group analyst Ipek Ozkardeskaya added: "Trade-optimism led purchases should continue boosting the risk appetite, especially if China shows interest in latest US comments. Chinese President Xi Jinping spoke at the opening of China International Import Expo in Shanghai today. He reiterated his endeavour for 'breaking the wall' instead of building one for the best interest of humanity.

"Investors bought into the idea of international collaboration to promote global growth. For now, though, China remains one of the world’s hardest to penetrate markets, especially for web services."

Xi addressed an audience including French President Emmanuel Macron at the import exhibition in Shanghai, staged annually by China to show its willingness to open up its vast domestic markets in the face of criticism that they remain too closed.

The world community must "continue to knock down walls instead of building walls, resolutely oppose protectionism and unilateralism, (and) continuously reduce trade barriers", Xi said.

Continuing the positive news from Asia, both manufacturing and services in China expanded in October, Caixin showed Tuesday, with the best growth in six months.

The composite output index for October reached 52.0 from the 51.9 registered in September, the best reading since April. This was driven by manufacturing, Caixin said. The services business activity index eased to 51.1 from 51.3 in September, meaning although there was still expansion in the sector, the pace slowed.

In Asia on Tuesday, the Nikkei 225 closed up 1.8% in Tokyo, catching up with other markets after being closed for a holiday on Monday. In China, the Shanghai Composite closed up 0.5%, while the Hang Seng index in Hong Kong is up 0.5% in late trade.

In the US on Monday, Wall Street ended higher, with the Dow Jones Industrial Average and the S&P 500 adding 0.4% while the Nasdaq Composite gained 0.6%.

In London, AB Foods surged to the top of the FTSE 100, up 4.3%, after the owner of the Primark store chain boosted its dividend on rising revenue, despite annual profit dipping amid an impairment to its bakery business.

For the year ended September 14, pretax profit fell 8.6% to GBP1.17 billion from GBP1.28 billion the year prior. This was despite revenue rising 1.6% to GBP15.82 billion from GBP15.57 billion the year before.

Profit performance was hurt by a GBP79 million exceptional charge related to the impairment of its Allied Bakeries unit, amid low bread prices and rising competition.

"The group delivered a resilient performance this year, with strong profit growth from Grocery and Primark which more than offset the profit decline in Sugar," Chief Executive George Weston said.

"The positive reception by US consumers to Primark, combined with our profitable store model, gives us confidence for further expansion in the US market. Two further US stores will open in the new financial year, at American Dream, the retail and entertainment complex in New Jersey which will now open in spring 2020, and Sawgrass Mills, Florida in summer 2020," Weston said.

For the new financial year, AB Foods expects its sugar unit to benefit from stronger prices and for the Grocery and Primark divisions to continue to boost profit and revenue.

Amongst other blue-chip stocks on the rise, mining firms continued to benefit from positive sentiment regarding US-China relations and the resulting improved outlook for demand for industrial metals.

Glencore was 2.3% higher, Antofagasta 1.8% and Anglo American 1.3%. Steel maker Evraz was 2.0% higher.

Imperial Brands shares recovered after slipping 1.1% at the open to trade flat. In the year the stock is down 27%.

The tobacco firm said it underperformed in its recent financial year after a tough trading period for its Next Generation Products and announced the appointment of a new chair.

For its year ended September 30, the tobacco company's pretax profit dropped 7.1% to GBP1.69 billion from GBP1.82 billion. The profit decline followed a rise in distribution, advertising & selling costs to GBP2.30 billion from GBP2.00 billion and an increase in administrative & other expenses to GBP1.75 billion from GBP1.60 billion. This took operating profit down 8.3% to GBP2.20 billion from GBP2.40 billion.

Revenue rose 5.1% to GBP31.59 billion from GBP30.07 billion after growth from both tobacco and NGP sales. NGP includes products such as Imperial Brands' Blu e-cigarette.

In the midcaps, Weir Group was 1.3% lower. The engineering firm said third-quarter sales rose overall year-on-year but warned on full-year profit in its Oil & Gas division after experiencing difficult trading conditions.

Orders from continuing operations in the quarter ended September 30 rose by 4% from last year, though Weir added they were flat on a like-for-like basis.

In the Oil & Gas division, orders were 32% lower year-on-year, with the FTSE 250 firm attributing this to a tough market conditions in North America.

Weir added: "As a result of lower volumes in North America, the division was only moderately profitable in the third quarter and is anticipated to be sequentially lower in the fourth quarter."

Peer Babcock International was down 3.3%. Barclays initiated the stock with an Underweight recommendation.

Euromoney Institutional Investor was up 2.2% after saying its financial 2019 results will be "slightly" above its own expectations.

Adjusted revenue for the year ended September 30 is guided to be about GBP401 million, with underlying revenue flat. Adjusted pretax profit is expected to be about 9% higher year on year at GBP104 million.

Euromoney said this reflects a continuation of "good" growth in the Pricing, Data & Market Intelligence segment, with underlying revenue up about 4% and about 10% growth in Fastmarkets subscriptions.

The company continued: "Asset Management continued to face challenges and saw revenue decline by about 4% on an underlying basis. Banking & Finance, our smallest segment which accounted for 15% of the group's revenues, was down by approximately 1%. BoardEx has now been fully integrated with strong underlying growth of approximately 11% year-on-year."

John Wood Group and Jupiter Fund Management were early gainers on the back of positive broker upgrades, gaining 3.0% and 2.0%, respectively.

Goldman Sachs upgraded John Wood to Neutral from Sell while Jefferies upped Jupiter to Hold from Underperform.

The pound was quoted at USD1.2892 early Tuesday, down slightly from USD1.2908 at the London close on Monday.

Still to come Tuesday, there is a services PMI from the UK at 0930 GMT and, later on, the same from the US at 1445 GMT.

Ozkardeskaya said: "Released last week, the UK's October manufacturing PMI surprised on the upside. Services PMI is more relevant for the health of the British economy, as services make up to 80% of its economy.

"A consensus of analyst expectations points at a reading of 49.7 for the services PMI today. This expectation is a touch below the 50 level which distinguishes expansion from contraction. Hence, a better-than-expected services PMI print, ideally a surprise expansion could reverse the pound sell-off and encourage an advance past the 1.29 level. A disappointment should flourish the sell-side and pressure the pair toward the 1.2820/1.2800 support zone."

There also are eurozone producer prices at 1000 GMT and the US trade balance at 1330 GMT.

By Paul McGowan; paulmcgowan@alliancenews.com

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