LONDON MARKET OPEN: Europe tumbles on open and Reckitt shares dive

(Alliance News) - Stock prices in Europe opened lower on Tuesday, with a slate of corporate updates doing little to lift the cautious mood as traders have one eye on US Federal Reserve's policy-making committee as its latest meeting begins later.

Only a small number of London blue-chip stocks were in the green early on Tuesday, speciality chemicals firm Croda International the best of the lot, while disinfectant maker Reckitt Benckiser plunged after posting a swing to loss.

The FTSE 100 index was down 94.05 points, or 1.3%, at 6,931.38 early Tuesday. The mid-cap FTSE 250 index was down 229.41 points, or 1.0%, at 22,703.78. The AIM All-Share index was down 4.94 points, 0.4%, at 1,228.74.

The Cboe UK 100 index was down 1.3% at 690.58. The Cboe 250 was down 1.0% at 20,447.88, but the Cboe Small Companies was down 0.2% at 15,180.53.

The CAC 40 in Paris was down 0.9%, while the DAX 30 in Frankfurt was 1.0% lower.

Consumer goods firm Reckitt said revenue for the first half ended June 30 fell 4.5% yearly to USD6.60 billion, but rose 1.5% like-for-like at constant currency. The Dettol disinfectant maker swung to a first half pretax loss of GBP1.94 billion from a GBP1.44 billion profit a year earlier.

The stock plunged 8.7%.

Reckitt suffered a GBP3.00 billion hit related to the remeasurement of IFCN China, the infant nutrition business that it has agreed to sell to Beijing-based investment firm Primavera Capital Group for USD2.2 billion.

Reckitt declared a 73 pence payout, in line with a year earlier.

"Against a challenging environment, I am encouraged by the progress we have made in the first half of the year. Around 70% of our revenue, excluding IFCN China, is from brands growing by mid-single digits in the period, in line with our strategic vision. The remaining 30% includes our disinfection brands, which are structurally rebasing, as well as our cold and flu brands, which are now starting to show positive momentum," Chief Executive Laxman Narasimhan said.

"The markets are dynamic, reflecting several factors which we are closely monitoring, including the prevalence of Covid strains and government guidelines such as new lockdowns and social distancing. Although the third quarter will be slower due to strong prior year comparators, as the world gradually opens up and socialisation returns, cold and flu trends indicate a moderate season which should strengthen performance in the fourth quarter."

Narasimhan expects like-for-like net revenue growth within the 0% and 2% range the company set out in February. The Reckitt CEO cautioned, however, that cost inflation accelerated during the second quarter.

"It will take time to offset this headwind with productivity and pricing actions being implemented in the back half of the year and early next year," Narasimhan added.

interactive investor analyst Richard Hunter commented: "While the stock held up well during the pandemic given its defensive nature, the spectre of the IFCN business loss and a transformation carrying execution risk has weighed heavily on the shares more recently. Even prior to today's negative reaction to the numbers, the shares had seen a decline of 19% over the last year, as compared to a gain of 15% for the wider FTSE 100. Even so, Reckitts is still seen by many as a core portfolio constituent, with the market consensus of the shares as a strong buy reflective of a company still being seen as one generally trending in the right direction."

Croda rose 3.6% after hailing "record" first half profit. Sales in the six months ended June rose 39% to GBP934.0 million from 672.9 million a year earlier. Pretax profit was 41% higher at GBP204.1 million from GBP144.9 million, while adjusted pretax profit jumped by more than 50% to a record GBP229.5 million.

Croda raised its payout by 10% to 43.5p, "continuing an unbroken trend of increasing returns over nearly 30 years". It had paid a 39.5p dividend for the first half of 2020.

The FTSE 100 company now expects adjusted pretax profit in 2021 to "significantly" top expectations.

"The first half year has seen a strong performance across the group, reflecting the global recovery in demand, the accelerated implementation of our strategic priorities and increased investment," Croda added.

It said it expects adjusted profit after tax in 2021 to be "significantly ahead" of current market expectations.

Among mid-caps, convenience foods firm Greencore was the best performer, up 2.7%. Pro forma revenue in the third quarter ended June 25 was 53% higher annually, sitting just 2.8% lower than pre-virus levels.

The pandemic shuttered the food-to-go category, a large revenue generator for convenience foods companies such as Greencore.

Food-to-go revenue was 91% higher annually in the quarter, 9.3% below pre-virus levels.

Greencore added: "Revenue momentum has remained encouraging in the first three trading weeks of July. Notwithstanding the supply chain and labour challenges impacting the broader UK food industry at present, the group is confident in its ability to deliver strong year on year profit and cashflow progression in the second half of the year."

At the other end of the mid-caps, Ascential fell 5.3%, as the business-to-business media and events firm launched a share placing. It raised GBP153 million, offering it "balance sheet flexibility" and extra cash to flex its muscles in the M&A space.

It said 35.5 million new shares were placed at 432 pence each, a 4.9% discount to its closing price on Monday.

Ascential had unveiled plans for the placing alongside interim results late Monday, which showed revenue jumped 37% to GBP175.1 million from GBP127.9 million a year ago.

Elsewhere in London, shares in newspaper publisher Reach surged 6.7%. The Daily Mirror and Daily Express owner's revenue in the first half ended June 27 rose 4.0% year-on-year to GBP302.3 million, from GBP290.8 million.

Pretax profit inched up 2.0% to GBP25.7 million from GBP25.2 million. Reach declared a 2.75p interim dividend, having not paid one in the first half of the prior financial year.

Looking ahead, Reach expects comparatives to get tougher in the second half.

The company explained: "Trading during H1, specifically Q2, benefited from relatively soft comparatives due to the impact of the first UK lockdown during spring last year. This benefit will unwind during H2 as we begin to annualise a more normal pattern of trading. Despite this, we expect underlying momentum will continue."

The pound was quoted at USD1.3793 on Tuesday morning in London, down from USD1.3820 at the local equity market close on Monday. The euro fell to USD1.1782, from USD1.1809. Against the yen, the dollar was trading at JPY110.02, down from JPY110.31 late Monday in London.

Brent oil was quoted at USD74.28 a barrel early Tuesday, up from USD73.99 at the London equities close on Monday. Gold was priced at USD1,798.02 an ounce, down from USD1,799.56.

The Shanghai Composite fell 2.5%. The Hang Seng index in Hong Kong was a hefty 4.6% lower in late trade, as shares in Chinese technology companies were sold again amid regulatory pressure. Both the Nikkei 225 in Tokyo and the S&P/ASX 200 in Sydney closed up 0.5%.

The international economics calendar has US durable goods at 1330 BST.

By Eric Cunha; ericcunha@alliancenews.com

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