LONDON MARKET OPEN: Kingfisher Leads Fallers On Weak Sales Report

LONDON (Alliance News) - UK stocks opened mostly lower Tuesday, with shares in Kingfisher sold after it reported a drop in sales, while Babcock International Group led a handful of gainers in the FTSE 100 on improved profit and revenue.

The FTSE 100 index was down 0.8% at 6,255.96 points, the FTSE 250 off 0.5% at 17.027.77 and the AIM-All Share flat at 730.21.

DIY retailer Kingfisher said sales fell in the third quarter amid continued subdued markets in France and internationally, both hit by currency translation effects, which offset a solid performance in the UK and Ireland.

The FTSE 100 owner of B&Q in the UK and Castorama in France, along with the tradesman-focused Screwfix business, said its total sales in the quarter to the end of October fell 2.5% to GBP2.65 billion, hit hard by tough conditions and currency translation issues for its international businesses.

Analysts at Davy Research said Kingfisher's results were both below both the broker's own and market consensus expectations.

"The third-quarter performance...confirms that trading conditions across key end markets remains mixed with a 'more encouraging macro-economic backdrop in the UK offset by a softer market in France'," said Davy. "While the market is currently more focused on the upcoming ONE Kingfisher investor event in the New Year than the group's quarterly performance, difficult end-markets nonetheless present a key risk to the investment thesis."

Pearson was another faller, down 2.3% at 797.50 pence, after Berenberg cut its price target on the publishing company to 730p from 800p, keeping a Sell stance.

At the other end of the index, Babcock International was by far the best blue-chip performer, up 4.5%. The engineering support services company said its pretax profit and revenue both improved in the first half thanks to a robust performance in its marine and technology division.

The FTSE 100-listed company said its pretax profit for the half to the end of September was GBP146.3 million, up from GBP137.0 million a year earlier. Revenue for the period rose to GBP2.35 billion from GBP2.10 billion.

Revenue growth was robust in its marine and technology business, with good trading in its defence and commercial markets, which offset a tougher environment for its defence and security arm, which was hit by aircraft deliveries phasing effects and by some major contracts coming to a close.

The group will pay an interim dividend of 6.05 pence per share, up from 5.50p a year earlier.

UK-listed oil stocks were adding to the losses seen on Monday, when they failed to benefit from a sharp rise in crude oil prices after Saudi Arabia signalled that it is ready to co-operate with OPEC and non-OPEC producers to preserve stability in oil markets.

"This is the first time the Saudis have shown a willingness to work towards a solution having previously opted to allow market forces to push out the higher cost producers, which was clearly aimed at the US shale industry which has since shown a real resilience, despite low prices," said Oanda senior market analyst Craig Erlam.

"Surprisingly, the rebound in oil has so far been small which may suggest that the markets are not yet ready to believe that all parties are willing to consider production cuts in an effort to resolve the massive oversupply issue. Still, ahead of the OPEC meeting on 4 December, this may bring some stability to oil prices around USD40," added Erlam.

Brent oil was quoted at USD45.26 a barrel Tuesday at the London open, while US benchmark West Texas Intermediate also was retaining Monday's gains at USD42.18 a barrel.

BG Group was down 1.0%, Royal Dutch Shell 'B' was down 0.6% and BP down 0.2%. In the FTSE 250, Tullow Oil was down 1.1% while Ophir Energy was off 1.0%.

Air carriers International Consolidated Airlines Group and Ryanair Holdings were down 2.0%, while easyJet was down 1.7%. Cruise operator Carnival was down 1.0%.

Rolls-Royce said its restructuring proposals will increase its revenue segmentation, its gross margin and its trading cash flow. It intends to simplify its organisational structure, reduce fixed costs in the business and add more pace and accountability to decision-making within the business.

The company said the changes it will make will deliver incremental gross cost savings of GBP150.0 million to GBP200.0 million per year, feeding through from 2017.

The jet engines and power systems manufacturer issued a profit warning earlier this month, its fifth in around 18 months, as ongoing problems in its defence and marine businesses were exacerbated by margin pressures on its aerospace unit, amid declining aftermarket revenue for business and regional jets and as its Trent engine programme transitions to a new model.

Following the most recent profit warning, Rolls-Royce said it would start a fundamental restructuring process to try to restore the health of the company, focusing on simplifying its structure and taking costs out of the business. Shares in Rolls-Royce were flat at 569.50p.

In China on Tuesday, the Shanghai Composite index ended up 0.2%, while the Hang Seng in Hong Kong finished down 0.4%. In Japan, the Nikkei 225 index closed up 0.2%, reopening after a holiday on Monday.

Japan's manufacturing activity expanded at the fastest pace in twenty months in November, as output growth quickened, the latest flash survey from Markit Economics showed Tuesday. The Markit/Nikkei Manufacturing Purchasing Managers' Index rose to 52.8 in November from 52.4 in October. Manufacturing output continued to grow sharply in November and the latest rate of increase was the fastest since March 2014.

Germany's economic growth slowed as estimated in the third quarter on weak foreign trade and investment, data published by Destatis showed Tuesday.

Gross domestic product advanced 0.3% from the prior quarter, in line with the preliminary estimate published on November 13. But the pace of growth eased from 0.4% expansion seen in the previous quarter. On a yearly basis, the calendar-adjusted GDP growth improved to 1.7% from 1.6%. Likewise, growth in price-adjusted GDP increased to 1.8% from 1.6%.

The DAX 30 index in Frankfurt opened down 0.8%, while the CAC 40 in Paris was down 1.1%.

Still ahead in the economic calendar, Germany's IFO business climate is expected at 0900 GMT. In the US, GDP for the third-quarter is due at 1330 GMT, alongside US goods trade balance. The US Redbook index is due at 1355 GMT, while US consumer confidence is expected at 1500 GMT.

At 1000 GMT, Bank of England Governor Mark Carney testifies to the Treasury Select Committee on the November UK inflation report.

By Daniel Ruiz; danielruiz@alliancenews.com

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