LONDON MARKET OPEN: Resource Stocks Support Flat FTSE 100

LONDON (Alliance News) - Stocks in London were flat after the open Thursday, with mining and oil stocks firmly in the green, following a surge in crude prices overnight after a fall in US oil inventories on Wednesday.

Majors were reading essentially flat in early trade. The FTSE 100 was up 3.23 points at 6,266.08. The FTSE 250 was up 6.27 points at 17,226.37 and the AIM All-Share was up 0.03 point at 733.47.

Miners were leading the gainers in the FTSE 100, with BHP Billiton up 2.7%, Glencore up 2.6% and Anglo American up 2.4%. Oil producers were rising, with Royal Dutch Shell 'A' shares up 0.9% and BP up 0.7%.

Brent oil surged above the USD50 a barrel mark early Thursday, as official data confirmed late Wednesday a significant draw down in US oil inventories. The US Energy Information Administration reported that US crude supplies fell by 4.2 million barrels for the week ended May 20. Economists expected a decline of 2.5 million barrels.

Brent crude is quoted at USD50.01 a barrel soon after the London equities open Thursday, compared to USD49.81 at the equities close on Wednesday.

CMC Markets chief market analyst Michael Hewson said the surge in oil prices is creating "a positive feedback loop" into the oil and gas sector pulling the big cap oil companies higher, pulling equity markets higher along with them.

"We do now appear to be seeing the effects that the decline in US output is having, and while supplies remain elevated, the glut does now appear to be diminishing, ahead of next week's OPEC meeting in Vienna," Hewson said.

Marks & Spencer Group shares were down 0.9%, after price target cuts by Goldman Sachs, HSBC, Barclays and Jefferies, among others. The decline Thursday was adding the stock's decline on Wednesday, when M&S shares fell by 6.7% after the retailer warned its profit will take a short-term hit from new Chief Executive Steve Rowe's plan to revive its Clothing & Home division.

United Utilities Group was another decliner Thursday, down 0.7%, after saying profit fell in line with its expectations in its recent financial year, as the water company accelerated its investment plans.

The FTSE 100 utility said its operating profit for the year to the end of March was GBP567.9 million, down 13% from GBP653.3 million. Underlying operating profit was GBP604.1 million, down from GBP664.3 million and in line with the company's expectations. Revenue rose 0.6% to GBP1.73 billion from GBP1.72 billion the year before.

United Utilities will pay a total dividend for the year of 38.45 pence, compared to 37.70p a year earlier.

In the FTSE 250, B&M European Value Retail was the best mid-cap performer, up 3.3%. The discount retailer reported growth in profit in its recently ended financial year as sales grew on the back of new store openings and it announced payment of a special dividend.

B&M said its pretax profit in the year ended March 26 more than doubled to GBP154.5 million from GBP61.7 million the year before, as revenue grew to GBP2.04 billion from GBP1.65 billion. B&M said revenue was driven by new store openings, including the annualisation of revenue from the 52 stores opened in the UK in financial 2015 as well as the 74 new stores opened in the UK in financial 2016. B&M now trades from 499 stores in the UK.

B&M will pay a total dividend of 4.8 pence, which is up on the 3.4p it paid the year before, as well as a special dividend of 10p.

Sophos also was in the green, up 3.2%, after saying it had seen a strong performance in its first year as a publicly listed company, as it reported a widened loss for the year.

For the financial year to end-March, the security software firm reported a pretax loss of USD68.4 million, widened from a pretax loss of USD54.3 million the previous year, as a rise in revenue to USD478.2 million from USD446.7 million was offset by higher operating costs and exceptional expenses related to the company's initial public offering last July.

Additionally, Sophos recorded one-off litigation costs of USD19.8 million related to settling an intellectual property lawsuit with Fortinet. It proposed a final dividend of 1.1 cents, taking its total dividend for the year to 1.8 cents.

Ibstock was the biggest decliner in the FTSE 250, down 8.6%. The clay bricks manufacturer said it has seen good trading momentum in the first four months of 2016, but said its UK clay business made a slower start to the year than expected.

Ibstock said UK brick sales to the new residential sector grew, but the UK clay business was hit by destocking in the builders' merchant supply chain, itself driven by softness in the repair, maintenance and improvement market. This has improved, Ibstock said, but a shift in its sales mix in the first four months will mean overall average pricing will take a hit. Ibstock added its US clay business and its UK concrete arm both continued to perform well.

UK preliminary first-quarter GDP data are due at 0930 BST, with consensus estimates expecting the economy to grow by 0.4% quarter-on-quarter, unchanged from the fourth quarter's pace, according to FXStreet.com. On a yearly basis, GDP is expected to match the previous reading of 2.1%.

Also in the economic calendar Thursday, UK British Bankers Association mortgage approvals data are due at 0930 BST.

"BBA figures on house purchase loans will also be watched to gauge the impact of UK Chancellor [George Osborne]'s stamp duty levy on second homes which began in April. Markets are looking for a fall to 44.700 from 45.100 in March," said Lloyds Bank analyst Hann-Ju Ho.

In the US economic calendar, initial and continuing jobless claims are at 1330 BST, as well as durable goods. US pending home sales are due at 1500 BST, while EIA natural gas storage data are at 1530 BST.

Wall Street ended higher Wednesday, with the Dow 30 up 0.8% and the S&P 500 and Nasdaq Composite both up 0.7%.

In Asia on Thursday, the Japanese Nikkei 225 index in Tokyo ended up 0.1%. In China, the Shanghai Composite finished up 0.3%, while the Hang Seng index in Hong Kong is flat.

By Daniel Ruiz; danielruiz@alliancenews.com

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