LONDON MARKET OPEN: Royal Mail falls despite raising guidance

(Alliance News) - Stock prices in London opened higher after the US Federal Reserve pointed to a reduction in monthly bond purchases, while Royal Mail shares slipped after its latest update failed to impress investors.

The Fed on Wednesday said a tapering of economic stimulus may "soon be warranted" as the US economy edges closer to its employment and price stability goals.

The Fed left its benchmark rate unchanged in the range of 0.00% to 0.25%. Chair Jerome Powell said the US economy has made progress towards the Fed's goals, and if things continue to advance at a speed that the Federal Reserve Open Market committee expects, a "moderation in the pace of asset purchases" may occur.

The Fed is currently buying at least USD80 billion in Treasury securities and USD40 billion in agency mortgage‑backed securities every month as part of its stimulus efforts.

Powell said that if the US economy continues to improve, "a gradual tapering process that concludes around the middle of next year is likely to be appropriate".

Still, the economy will be "well away" from passing the lift-off test when stimulus tapering happens, Powell said.

The FTSE 100 index was up 18.11 points, or 0.3%, at 7,101.48 early Thursday. The mid-cap FTSE 250 index was up 109.72 points, 0.5%, at 23,894.69. The AIM All-Share index was up 5.25 points, 0.4%, at 1,273.38.

The Cboe UK 100 index was up 0.3% at 706.40. The Cboe 250 was up 0.3%, at 21,674.30. The Cboe Small Companies was 0.1% higher at 15,562.80.

In mainland Europe, the CAC 40 stock index in Paris was up 0.5% and the DAX 40 index in Frankfurt was up 0.7%.

In the FTSE 100, Rolls-Royce was the best performer, up 2.4%, at 125.15 pence, after Berenberg raised its price target to 160p from 150p and reiterated its Buy rating.

Reckitt Benckiser was up 0.3% after the household hygiene and home products firm said trading since its half-year results in July has been in line with management expectations.

Reckitt said it continued to be confident in delivering 2021 like-for-like net revenue growth in a range of 0% to 0.2% and adjusted operating profit margins between 22.7% to 23.2%. Reckitt posted like-for-like net revenue growth of 12% and an adjusted operating profit margin of 23.6% for 2020.

At the other end of the large-caps, Hargreaves Lansdown was the worst performer, down 1.9%, after the stock went ex-dividend, meaning new buyers no longer qualify for the latest payout.

Royal Mail was down 0.6%, despite the postal operator raising its profit guidance and expressing confidence in its outlook.

In the five months to the end of August, total revenue grew by 8.2% year-on-year and by 18% compared to the same period in 2019.

In the domestic Royal Mail arm, revenue increased by 7.2% year-on-year and by 12% against the same period in 2019. The company said domestic parcel volumes are up by around third compared to pre-Covid levels and that it is maintaining its share of the UK market.

At its GLS international logistics unit, revenue rose 9.3% from the same time last year and by 31% versus the same period in 2019.

Looking ahead, Royal Mail expects adjusted operating profit for the six months to the end of September to be around GBP395 million to GBP400 million, with at least GBP230 million from the Royal Mail unit. This compares to profit of just GBP37 million a year ago, and would even exceed the GBP165 million posted for the same period in 2019.

Richard Hunter, head of Markets at interactive investor commented: "The current accord with the [Communication Workers Union] leaves management free to concentrate on the next steps in driving the business forward, most notably with a significant technology modernisation programme alongside a strong focus on reducing non-staff costs.

"However, in the meantime costs are a providing something of a headwind. Labour shortages in several of Royal Mail's markets and general inflationary pressures are having an impact, while at the same time the GLS business is up against the forces of increased customs processing and reduced air freight capacity, also affecting volumes. As such, the group is mindful of these factors in an outlook which is understandably cautious and which will become clearer as the effects of the Delta variant wane."

GlaxoSmithKline was down 0.3% after Bloomberg reported on Wednesday that activist investor Bluebell Capital Partners has bought a stake in GlaxoSmithKline and criticised Chief Executive Officer Emma Walmsley.

In a letter seen by the news outlet, Bluebell called for a "thorough and robust process to identify the best (internal or external) candidate" to lead the company after it spins off its consumer division to focus on pharmaceuticals.

"The lack of Walmsley's industry knowledge was also very evident during the latest investor update," the letter said, echoing criticism from Elliott Investment Management.

In the FTSE 250, Investec was up 2.0%. The Anglo-South African bank reported a strong start to the first five months of its current financial year, enough to guide for sharp rise in profit for the first half.

For the six months ending September 30, pretax profit is expected to range from GBP265 million to GBP293 million, up from GBP142.5 million the year before. In addition, for the year ending March 2022, Investec is expects adjusted earnings per share to rise above the upper end of guidance, set at between 36 pence and 41p.

In China on Thursday, the Shanghai Composite closed up 0.4%, while the Hang Seng index in Hong Kong was up 0.9%, reopening after a holiday on Wednesday. Financial markets in Japan were closed for the Autumn Equinox Day holiday. The S&P/ASX 200 in Sydney ended up 1.0%.

Evergrande on Wednesday said it had agreed to a deal with domestic bondholders that should allow it to avoid missing one of its interest payments.

The dollar was higher in the wake of the Fed's rate decision. The pound was quoted at USD1.3646 early Thursday, down from USD1.3659 at the London equities close Wednesday.

The euro was priced at USD1.1712, down from USD1.1738. Against the Japanese yen, the dollar was trading at JPY109.85, up from JPY109.57.

Brent was quoted at USD76.22 a barrel Thursday morning, higher against USD75.44 a barrel late Wednesday. Gold stood at USD1,764.22 an ounce, down from USD1,778.80.

On Thursday, the Bank of England announces its latest interest rate decision at 1200 BST. The central bank is widely expected to keep rates unchanged.

Elsewhere, a slew of flash PMIs are set to be released, including the eurozone at 0900 BST, the UK at 0930 BST and the US at 1445 BST.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.