LONDON MARKET OPEN: Flat start after China warning; Serco up 9%

(Alliance News) - Stocks in London opened flat on Thursday, as equities were faced with opposing forces: a warning about the health of China's economy set against a rally on Wall Street after a largely unsurprising set of US Federal Reserve minutes.

Investors in mainland Europe opted to focus on the positives, with Paris and Frankfurt opening solidly higher, outperforming London's blue-chip benchmark.

The FTSE 100 index was up just 0.36 of a point at 7,523.29 early Thursday. The mid-cap FTSE 250 index was up 12.04 points, or 0.1%, at 19,946.08. The AIM All-Share index was up just 0.86 of a point, 0.1%, at 953.79.

The Cboe UK 100 index was down 0.1% at 749.59. The Cboe 250 was up 0.1% at 17,692.30, and the Cboe Small Companies was 0.1% lower at 14,549.00.

In mainland Europe, the CAC 40 in Paris and the DAX 40 in Frankfurt rose 0.3% early Thursday.

In Tokyo on Thursday, the Nikkei 225 ended down 0.3%. The Shanghai Composite ended up 0.5%, while the Hang Seng in Hong Kong was 0.5% lower. The S&P/ASX 200 lost 0.7%.

China's premier sounded an unusually stark warning about the world's second-largest economy, saying it must return to normal as the country's zero-Covid strategy bites into growth.

In some ways, the challenges now are "greater than when the pandemic hit hard in 2020", Premier Li Keqiang told a State Council meeting on Wednesday, according to a readout by the official Xinhua news agency.

"We are currently at a critical juncture in determining the economic trend of the whole year," Xinhua quoted Li as saying. "We must seize the time window and strive to bring the economy back onto a normal track."

In New York on Wednesday, the Dow Jones Industrial Average closed up 0.6%, the S&P 500 up 1.0% and the Nasdaq Composite up 1.5%.

Equities in New York climbed after the US Federal Reserve's latest meeting minutes offered little in the way of surprises.

Fed officials highlighted that interest rates need to rise quickly to rein in inflation and that hikes similar to the 50-basis-point one agreed at the May meeting may be necessary in the imminent future, minutes from the meeting showed.

Policy makers reaffirmed their determination to restore price stability and agreed that the Federal Open Market Committee should "expeditiously" move the stance of monetary policy toward a neutral posture. This would be achieved through both increases in the target range for the federal funds rate and reductions in the size of the Federal Reserve's balance sheet.

Further, most participants were of the view that 50-basis-point increases in the target range "would likely be appropriate at the next couple of meetings", the meeting minutes showed.

"The Fed's minutes were hawkish but as expected with policymakers sounding optimistic and in control. Having hiked its benchmark federal funds rate by half a percentage point this month, it looks like two further 50 basis point hikes in quick succession are likely followed by further 25 basis point hikes in autumn," Interactive Investor analyst Victoria Scholar commented.

The pound was quoted at USD1.2589 early Thursday in London, firm on USD1.2547 at the London equities close on Wednesday. The euro stood at USD1.0684, up from USD1.0678. Against the yen, the dollar was trading at JPY126.91, down on JPY127.31.

In London, BT shares tumbled 5.0%. BT said the UK government is probing a recent investment in the telecommunications operator on national security grounds.

In December, billionaire telecom tycoon Patrick Drahi's Altice lifted its stake in BT to 18% from 12% previously. The transaction has been referred to the UK's National Security & Investment Act 2021.

"BT Group will fully cooperate with this review," the company said.

Intermediate Capital Group topped the large cap index, up 5.4%.

The London-based asset manager hailed a "defining year". Net asset value per share climbed 23% to 696 pence at its March 31 year-end from 566p 12 months earlier.

Total assets under management surged 26% to USD72.06 billion from USD59.59 billion a year earlier. It posted USD23.38 billion of additions, but USD8.69 billion in realisations and a USD2.38 billion hit from foreign exchange and other moves.

ICG lifted its payout by 36% to 76.0 pence from 56.0p.

Johnson Matthey was among the worst mid-cap performers, the stock fell 5.4%. It set out a series of strategic objectives after a "very challenging" financial year and also announced terms of a sale of most of its Battery Materials arm.

The London-based specialty chemicals firm recorded an annual revenue increase but profit came under pressure.

Results for the financial year that ended March 31 were in line with expectations, however.

Revenue climbed 3.8% to GBP16.03 billion from GBP15.44 billion. Pretax profit fell 13% to GBP195 million GBP224 million.

The company posted "major impairments and restructuring" costs of GBP440 million, up sharply from GBP154 million. It noted GBP325 million of these costs stemmed from the sale of its Battery Materials business.

Johnson Matthey had initially booked GBP314 million in impairments related to the unit, but added GBP11 million "based on fair value less costs to sell".

It said Thursday it has sold part of the unit to EV Metals Group, a global battery chemicals and technology business, for GBP50 million cash. It will also receive a "minority equity stake in EV Metals Group".

Johnson Matthey upped its payout by 10% to 77.0 pence from 70.0p.

The one-time FTSE 100 constituent said it was a "very challenging year".

"We took important and necessary strategic decisions with the business portfolio, with the exit from Battery Materials and divestment of Health. I know many of our stakeholders were very disappointed, but these were essential actions to enable us to focus on attractive, high growth opportunities that have a vital role to play in the acceleration towards net zero. I, the rest of the board and the executive team are determined that we will restore value to our shareholders," Chair Patrick Thomas said.

The company set out a series of strategic objectives on Thursday, hailing its platinum group metals services arm as its "backbone". It also targets GBP150 million of cost savings by financial 2025.

A leaner Johnson Matthey will focus on "four businesses enabling the automotive, chemical and energy industries transition to net zero".

At the other end of the FTSE 250, Serco rose 9.1%. The outsourcer lifted its financial guidance in an impromptu trading update.

In the first four months of 2022, Serco has seen "stronger than expected trading" and favourable foreign exchange movements.

It now expects underlying trading profit at actual currency rates of GBP225 million, up about GBP30 million from prior guidance and with favourable currency movement contributing GBP10 million of that. This result would represent a 1.7% reduction from GBP229 million in 2021.

Revenue is expected to land between GBP4.3 billion and GBP4.4 billion, up from previous guidance between GBP4.1 billion and GBP4.2 billion. It now expects an organic sales fall of 5%, better than previous guidance of a 10% decline.

Revenue in 2021 amounted to GBP4.4 billion and organic sales then surged 10%.

Hospitality group Hostmore, which owns the Fridays American food chain, warned its margin will fall short of medium-term guidance. Shares slumped 11%.

Hostmore expects an adjusted earnings before interest, tax, depreciation and amortisation margin in the low double-digits range for 2022, compared with its medium-term aim which targets a level in the mid-teens.

This is due to cost increases and lower volumes.

Like-for-like revenue in the 20 weeks to May 22 was 6% lower than years earlier.

"We believe this is primarily a result of consumer confidence weakening significantly since Russia's invasion of Ukraine on 24 February 2022 which is contributing to the current cost of living crisis," Hostmore explained.

Brent oil was quoted at USD114.41 a barrel, up from USD113.93. Gold stood at USD1,847.59 an ounce, down from USD1,850.30.

The economic events calendar on Thursday has US economic growth figures and the latest jobless claims numbers at 1330 BST.

By Eric Cunha; ericcunha@alliancenews.com

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