LONDON MARKET OPEN: Rolls-Royce And Strong Pound Hamper FTSE 100

(Alliance News) - The FTSE 100 lagged in early dealings on Thursday as the pound held firm above the USD1.26 mark following UK Chancellor Rishi Sunak's mini-budget and Rolls-Royce Holdings shares fell as it reported GBP3.0 billion of free cash outflow.

The rest of Europe, though, got off to a good start after a solid session in Asia overnight, shrugging off the deteriorating virus situation in the US.

The FTSE 100 index was down 5.86 points, or 0.1%, at 6,150.30 early Thursday. The mid-cap FTSE 250 index was up 71.26 points, or 0.4%, at 17,256.50. The AIM All-Share index was up 1.1% at 884.18.

The Cboe UK 100 index was down 0.1% at 613.02. The Cboe 250 was up 0.3% at 14,623.63, and the Cboe Small Companies up 0.2% at 9,287.55.

In mainland Europe, the CAC 40 in Paris was up 0.4% while the DAX 30 in Frankfurt was 1.0% higher early Thursday.

"Optimism surrounding the economic recovery and more stimulus is overshadowing a record daily increase in US Covid-19 numbers, the return to lockdown for 5 million Australians and elevated US – Chinese tensions," said Fiona Cincotta at City Index.

The US recorded 55,000 new coronavirus cases in 24 hours Wednesday, a tally by Johns Hopkins University showed, bringing its total to over 3.0 million infections since the pandemic began. Coronavirus cases are surging in several southern hotspots including Texas, Florida, Louisiana and Arizona, but the pandemic has almost entirely receded from its former epicenter in New York and the north-east.

In Asia on Thursday, the Japanese Nikkei 225 index closed up 0.4%. In China, the Shanghai Composite closed up 1.4%, while the Hang Seng index in Hong Kong is up 0.2% in late trade.

Leading London's FTSE 100 was Persimmon, up 5.6% after saying housing completions fell in the first half but it is entering the remainder of the year in a "strong position".

The housebuilder said it generated revenue of GBP1.19 billion in the first half of 2020, down from GBP1.75 billion a year ago, as completions fell to 4,900 from 7,584. The average selling price, however, rose to GBP225,050 from GBP216,942.

Persimmon said it has seen good activity in the six-week period since sales offices re-opened in mid-May following the UK's lockdown, with average weekly net private sales reservations of 278 new homes, around 30% higher than the same period last year.

Customer enquiries remained at "healthy levels" throughout the lockdown period, Persimmon added.

"We enter the second half in a strong position, with work in progress well advanced, forward sales about 15% ahead year-on-year, and cash holdings of about GBP830m. Our financial strength and the agility of the business in responding to Covid-19 has ensured Persimmon is in robust health, and fully able to play its part in delivering the new homes the country needs to support the UK's recovery, in a range of future economic scenarios," said Chief Executive Dave Jenkinson.

Fellow housebuilder, mid-cap Vistry, rose 4.2%. It warned margins are expected to be hit in the first half due to Covid-19 but it has seen improved demand over recent weeks.

For the past ten weeks, the mid-cap firm said it has seen a week-on-week increase in sales rates, and over the last four weeks the average private sales rate per site per week including Vistry Partnerships' mixed tenure operations has been 0.62.

Vistry said first half completions were 1,235, less than half of the 3,371 recorded a year ago, and warned margins are expected to take a hit.

"The wide-ranging effects of Covid-19 are expected to impact margin for the first half across the business. The business has incurred additional costs directly related to the period of lockdown, lower levels of operating efficiency from social distancing and the lengthening of development period expectations. Margin is also impacted by our policy of recognising the full sales and marketing costs across the financial year, similar to administrative expenses, rather than apportioning," said Vistry.

There has been a continued improvement in customer demand over recent weeks, while house prices have remained stable.

Peers such as Barratt Developments and Taylor Wimpey were up 3.2% in a positive read across.

Gold miner Fresnillo was up 1.5% in early trade with the safe haven metal quoted at USD1,813.20 an ounce early Thursday, firm on USD1,811.86 on Wednesday and still trading around its best levels since 2011.

Brent oil was trading at USD43.14 a barrel early Thursday, higher than USD42.86 late Wednesday.

At the bottom of the blue-chips was Rolls-Royce Holdings, down 6.1% as it said its free cash outflow was GBP3.0 billion in the first half.

This included GBP1.1 billion less in cash inflow due to lower receipts, with wide-body engine flying hours down 50% in the first half - and 75% lower in the second quarter - together with lower engine deliveries. A further GBP1.1 billion stemmed from a one-off adverse impact from the cessation of invoice factoring, and the firm also cited increased inventory and debtor balances.

"Our rate of cash outflow is expected to ease in the second half supported by increased benefits from cash mitigation actions, the timing of working capital movements and the anticipated ongoing recovery of commercial aviation from the trough reported in April," the jet engine maker said.

Rolls-Royce anticipates a gradual recovery in its end markets as travel restrictions ease over the coming months. Wide-body engine flying hours are expected to be down around 55% this year, and it continues to plan for about 250 wide-body engine deliveries in 2020.

The FTSE 100 constituent is targeting GBP750 million free cash flow in 2022.

"These are exceptional times. The Covid-19 pandemic has created a historic shock in civil aviation which will take several years to recover. We started this year with positive momentum and strong liquidity and acted swiftly to conserve cash and cut costs to protect Rolls-Royce during the pandemic," said Chief Executive Warren East.

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

The dollar was lower across the board on Thursday ahead of the data.

Sterling was outperforming, quoted at USD1.2643 early Thursday from USD1.2575 at the London equities close on Wednesday.

UK Chancellor Sunak on Wednesday unveiled measures worth up to GBP30 billion in a bid to support the economy through Covid-19. Firms which have furloughed staff will be given a GBP1,000 bonus to keep workers in jobs, diners will get a discount to support pubs and restaurants, and stamp duty is to be cut under plans to protect the economy from the coronavirus recession.

The euro traded at USD1.1350 early Thursday, up from USD1.1322 late Wednesday. Against the yen, the dollar was quoted at JPY107.26 versus JPY107.47.

By Lucy Heming; lucyheming@alliancenews.com

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