LONDON MARKET OPEN: boohoo sinks after warning on profit margins

(Alliance News) - Stock prices in London opened higher on Thursday with the internationally exposed FTSE 100 supported by sterling weakness, while on AIM fashion retailers were lower after boohoo cut its guidance.

The UK flagship index was up 38.30 points, or 0.5%, at 7,146.46. The mid-cap FTSE 250 index was up 121.81 points, or 0.5%, at 23,272.78. The AIM All-Share index was down 3.02 points, or 0.2%, at 1,250.54.

The Cboe UK 100 index was up 0.6% at 710.40. The Cboe 250 was up 0.6% at 21,049.30. The Cboe Small Companies was 0.1% higher at 15,695.60.

In mainland Europe, the CAC 40 stock index in Paris was up 0.7% and the DAX 40 index in Frankfurt was up 0.4%.

The pound was quoted at USD1.3430 early Wednesday, lower from USD1.3434 at the London equities close Wednesday. Sterling fell to its lowest level since January against the dollar on Wednesday.

"The recent economic challenges resulting from supply chain blockages have weighed on sterling, exacerbated by US dollar strength as some investors have sought haven investments. This in turn has boosted the FTSE 100, largely reliant as it is on overseas earnings," said interactive investor's Richard Hunter.

In the FTSE 100, Diageo was up 2.5% after the distiller said it made a strong start to financial 2022, with organic net sales momentum across all regions.

The company said this reflected "excellent execution" as it benefited from resilience in retail and continued recovery in bars and restaurants. However, Diageo said it expects near-term volatility to remain, including the effect of potential future waves of Covid-19.

The Guinness brewer said its North American business was performing strongly, despite some supply chain constraints, reflecting resilient consumer demand. Further, its business in Europe was recovering ahead of expectations, it added.

Pearson was up 1.6% after Kepler Cheuvreux upgraded the education publisher to Hold from Reduce.

At the other end of the large-caps, Barratt Developments and British American Tobacco were among the worst performers, down 2.6% and 2.3% respectively. The stocks went ex-dividend meaning new buyers no longer qualify for the latest payout.

On AIM, boohoo Group was down 8.6% after the online fashion retailer warned of rising costs, amid consumer demand that is still being held back by the pandemic and the return of competition from high street stores.

For the six months to August 31, revenue was GBP975.9 million, up 20% from GBP816.5 million last year, but pretax profit fell to GBP24.6 million, down 64% from GBP68.1 million.

Looking ahead, boohoo expects full-year sales growth of 20% to 25%, which implies second half sales growth of 20% to 30%.

However, annual adjusted earnings before interest, tax, depreciation, and amortisation margins are now expected to be 9% to 9.5%, lower than 9.5% to 10% as previously guided. This reflects ongoing investments across technology, offices and infrastructure, boohoo said.

Further, boohoo warned cost pressure experienced in the first half is expected to continue in the second half, alongside recent freight cost increases and wage inflation in its distribution centres.

AIM-listed fashion retailers ASOS and Quiz were down 5.2% and 1.7% respectively in a negative read-across.

The dollar was higher. The euro was priced at USD1.1592, down from USD1.1618. Against the yen, the dollar was trading at JPY112.00, up from JPY111.85.

On the economic front, the UK economy posted robust growth in the second quarter of 2021 following the easing of coronavirus restrictions, the Office for National Statistics said.

In the three months to June, UK gross domestic product grew 24% year-on-year, reversing a 6.1% annual contraction in the first quarter. The latest reading beat market consensus, cited by FXStreet, of 22% economic growth. On a quarterly basis, UK GDP expanded 5.5% in the second quarter, which was revised up from a preliminary reading of 4.8%.

"These are favourable figures which in normal times would have signalled a confident state of affairs in the economy and would have supported the strengthening of the pound and the rise in the FTSE 100. But these statistics are now being taken as a look in the rear-view mirror, with a surge in imports due to rising energy prices and its potential impact on the economy in the coming months on the agenda. Strong figures in this case will only strengthen the base effect before weakening in the closing third quarter," said FXPro analyst Alex Kuptsikevich.

The Japanese Nikkei 225 index closed 0.3% lower. In China, the Shanghai Composite ended up 0.9%, while the Hang Seng index in Hong Kong was down 0.6%. The S&P/ASX 200 in Sydney ended up 1.9%.

China's manufacturing activity was steady in September, according to the latest Caixin purchasing managers' index figures.

The manufacturing PMI registered 50.0 points in September, improved from 49.2 points in August. The 50 point threshold is what separates growth from decline, so the latest figure suggests operating conditions in the Chinese manufacturing sector were stable in September.

The September reading was the second-lowest over the past 17 months, Caixin added. Inflationary pressures gathered pace, with input costs accelerating. It was the quickest rate of inflation seen in four months, the survey said.

Brent oil was quoted at USD78.56 a barrel Thursday morning, down from USD79.09 a barrel late Wednesday in London. Gold stood at USD1,730.41 an ounce, slightly lower against USD1,732.75.

Thursday's economic calendar has Germany inflation at 1300 BST followed by US GDP and jobless claims at 1330 BST.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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