LONDON MARKET OPEN: Berkeley's strong trading lifts housebuilders

(Alliance News) - The FTSE 100 opened the day in London on Tuesday in the green, helped by a strong trading update from Berkeley, which was pulling fellow housebuilders along for the ride.

The FTSE 100 index was up 33.65 points, or 0.5%, at 7,320.85 early Tuesday. The mid-cap FTSE 250 index was up 274.95 points, or 1.5%, at 7,320.85. The AIM All-Share index was up 4.29 points, or 0.5%, at 865.43.

The Cboe UK 100 index was up 0.4% at 730.87. The Cboe 250 was up 1.6% at 16,290.57, and the Cboe Small Companies flat at 16,676.41.

In mainland Europe, the CAC 40 in Paris was up 0.3% while the DAX 40 in Frankfurt was 0.7% higher.

Sterling was stronger in morning trade in London, as Liz Truss started work as the new prime minister of the UK.

Sterling was quoted at USD1.1592 early Tuesday, up sharply from USD1.1507 at the London equities close on Monday.

"The pound rallied this morning on the back of some reports that the new UK Prime Minister Liz Truss has drafted a GBP130 billion plan to fix energy bills. The news appears to partially ease the market's concerns - that have weighed on sterling - that Truss' promised tax cuts would ultimately worsen the inflation picture," analysts at ING said.

ING feels the pound could still face further volatility as Truss's plans come under scrutiny.

"If tax cuts would likely argue in favour of larger BoE tightening, caps on energy bills might both reduce the risk of recession and trim inflation expectations: it will be interesting to see how the BoE addresses these policies. Yesterday, we heard some hawkish comments by MPC member Caroline Mann, and markets are closing in on pricing a 75bp move next week," ING said.

In London, Berkeley Group was one of the best blue-chip performers in early trade, adding 3.7%, after it said trading in the first four months of its new financial year was ahead of financial 2022.

"The good level of demand continues to support pricing above business plan levels, which is sufficient to cover cost increases on a blended basis across Berkeley's developments," it added.

Berkeley said it on track to meet annual profit guidance, guiding for financial 2023 pretax profit of GBP600 million and GBP625 million for financial 2024. In financial 2022, it recorded pretax profit of GBP551.5 million.

Looking ahead, the housebuilder said its forward sales will be "marginally above" the GBP2.17 billion booked as of April 30.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: "Berkeley Group has put in a resilient showing, despite soaring cost inflation, which is marring the entire sector. The reason profits have been left without too much bruising is because sale prices are high enough to offset the housebuilder's fatter bills.

"This is a dynamic being seen almost across the board, but the longevity of the pattern is a question mark for Berkeley. Its south-east focus, and more premium product, means starting prices for a Berkeley home are significantly more than for run of the mill developers."

Peers Taylor Wimpey, Barratt Development and Persimmon were up 3.2%, 3.1% and 2.8%, respectively.

DS Smith was 2.8% higher.

The packaging firm said its its overall trading in its first quarter, ended June 30, was in line with management expectations.

DS Smith said its corrugated box volumes in the quarter declined "slightly" on a like for like basis, as expected, but expects corrugated box volume growth of "at least" 2% for financial 2023.

Separately, it said Finance Director Adrian Marsh will retire once a successor is in place. The process to find Marsh's replacement is underway, and will announce his retirement date "in due course".

At the other end of the FTSE 100, Ashtead was down 1.7%, despite the industrial equipment rental company firm saying it has made a strong start to the new financial year. It warned that nterest costs are rising.

In the quarter ended July 31, pretax profit rose to USD527 million from USD416 million, with revenue up to USD2.26 billion from USD1.85 billion.

Chief Executive Brendan Horgan said: "The business is performing strongly, with revenue and operating profit ahead of our previous expectations. This performance is offset by increasing interest costs and therefore, we expect adjusted profit before taxation for the year to be in line with our previous expectations and the board looks to the future with confidence."

Brent oil was trading at USD95.51 a barrel, firm from USD95.49 late Monday.

The US said Monday that oil production must be kept up to bolster global economic growth after the OPEC+ cartel agreed to cut supply to lift falling prices.

US President Joe Biden "has been clear that energy supply should meet demand to support economic growth and lower prices for American consumers and consumers around the world", White House Press Secretary Karine Jean-Pierre said in a statement.

The US had pressed OPEC+ to increase output to bring down energy prices that have fuelled decades-high inflation.

The euro traded at USD0.9968 early Tuesday, higher than USD0.9919 late Monday. Against the yen, the dollar was quoted at JPY141.59, up from JPY140.53.

In Asia on Tuesday, the Japanese Nikkei 225 index closed up slightly. In China, the Shanghai Composite ended up 1.4%, while the Hang Seng index in Hong Kong was 0.1% higher in late trading.

Gold was quoted at USD1,714.70 an ounce early Tuesday, higher than USD1,710.56 on late Monday.

Still to come Monday, there is a UK construction PMI reading at 0930 BST, before US services PMI data at 1445 BST.

By Paul McGowan; paulmcgowan@alliancenews.com

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