LONDON MARKET PRE-OPEN: AB Foods reports strong margins at Primark

(Alliance News) - London's key stock index is set to push further higher on Thursday despite another weak finish in the US overnight.

In early UK company news, Associated British Foods said Primark sales have jumped and the retailers profit margin has been ahead of expectations. Premier Foods raised its profit guidance after a bumper Christmas for Mr Kipling cakes. Food delivery firm Deliveroo reported 2021 gross transaction value at the top of guidance.

IG says futures indicate the FTSE 100 index of large-caps to open up 31.94 points, or 0.4%, at 7,621.60 on Thursday. The FTSE 100 closed up 26.11 points, or 0.4%, at 7,589.66 on Wednesday.

Stocks in London are seen shaking off another Wall Street tumble to build on recent gains.

In the US on Wednesday, Wall Street ended lower, with the Dow Jones Industrial Average ending down 1.0%, the S&P 500 down 1.0%, and the Nasdaq Composite down 1.2%.

A sharp rise in bond yields sparked the sell-off in stocks on Tuesday, which continued into Wednesday. The US 10-year Treasury yield touched 1.9% earlier on Wednesday, its widest since December 2019. The yield has narrowed a little to 1.85% early Thursday in London.

Naeem Aslam, chief market analyst at AvaTrade, said stock index futures were higher on Thursday as shares are "sending an oversold signal which has brought some bargain hunters into the market".

"Although many traders are still not convinced that markets are cheap, they are waiting for the stock indices to fall another 5% or so, which can happen if the current earnings season continues to disappoint," said Aslam.

In early UK company news, Associated British Foods said its outlook remains unchanged as input cost inflation has been offset by sales growth and strong margins at fast-fashion retailer Primark.

Total sales for the 16 weeks to January 8 stood at GBP5.57 billion, up 16% on a year ago. Driving the growth was AB Foods' retail arm, which houses Primark, where sales jumped 32% to GBP2.67 billion.

Grocery, Sugar, Agriculture and Ingredients revenue rose 5% in total to GBP2.90 billion.

"All businesses have experienced inflationary pressures in raw materials, commodities, supply chain and energy. Margins in Grocery and Ingredients were impacted where sales price actions have lagged the effects of input cost inflation," said AB Foods.

In Retail, however, operating profit margin was ahead of expectations and is expected to be over 10% at the half-year. Inflationary pressures were broadly mitigated by a favourable US dollar exchange rate and a reduction in store operating costs and overheads. AB Foods added that supply chain pressures have alleviated somewhat.

Taking all of its units into consideration, AB Foods said its outlook is unchanged.

The FTSE 100 firm expects reduced adjusted margins in Grocery and Ingredients at the half year, due to phasing in fully recovering cost but a recovery in the run rate of these margins by the financial year end. Primark sales from now to April should be "significantly better" than a year ago, when the estate was largely closed.

Premier Foods said it now expects annual trading profit of at least GBP145 million after a better-than-expected financial third quarter.

Sales in the 13 weeks to January 1 were up down 1.8% on a year ago but up 7.0% on a two-year basis. The firm said it significant outperformed the market and its Mr Kipling cake brand had its "biggest ever" Christmas.

"The strong momentum from the first half of the year continued into the key Q3 trading period, with our brands growing by 11.3% compared to two years ago. This was well ahead of the market across all our categories and resulted in very encouraging share gains," said Chief Executive Alex Whitehouse.

After "three strong quarters of trading", Premier Foods lifted its full-year profit expectations. It expects trading profit of at least GBP145 million and adjusted pretax profit of at least GBP125 million. It noted that current consensus for trading profit is GBP140.7 million and for adjusted pretax profit GBP119.3 million.

Food delivery platform Deliveroo said it finished 2021 on a strong note, with fourth quarter orders up 42%.

Gross transaction value in the final three months of 2021 stood at GBP1.73 billion, up 33% on a year before. A 42% rise in orders to 80.8 million helped to offset a 7% dip in gross transaction value per order to GBP21.4.

In the UK, gross transaction value rose 35% to GBP945 million, with orders up 41% at 40.4 million but gross transaction value per order down 4% at GBP23.4.

For 2021 as a whole, gross transaction value rose 67% to GBP6.62 billion on a reported basis. At constant currencies, gross transaction value rose 70%, at the top end of guidance for 60% to 70% growth.

"I am proud of what we achieved in 2021; despite a challenging backdrop, we continued to strengthen our customer proposition, widen our customer base and execute against our strategy. We are excited about the opportunity ahead and look forward to making further progress in 2022," said Founder & Chief Executive Will Shu.

In Asia on Thursday, the Japanese Nikkei 225 index ended up 1.1%. In China, the Shanghai Composite ended down 0.1%, while the Hang Seng index in Hong Kong soared 3.2%. The S&P/ASX 200 in Sydney rose 0.1%.

China further reduced bank lending costs Thursday in the latest move to boost its stuttering economy, providing some much-needed support to the country's beleaguered developers.

The People's Bank of China said it had lowered the one-year loan prime rate to 3.7%, from 3.8% in December.

It had reduced the LPR – which guides how much interest commercial banks charge to corporate borrowers – in December, for the first time in 20 months, as the economy was threatened by the real estate crisis and coronavirus flare-ups.

Property firm shares and bonds surged on the fresh rate cut.

"The rate cut together with the global easing in yields and stories that Chinese regulators are considering measures to support struggling developers have supported Asian equity sentiment this morning," said Danske Bank.

Sterling was quoted at USD1.3628 early Thursday, flat on USD1.3630 at the London equities close on Wednesday.

The euro traded at USD1.1350 early Thursday, firming on USD1.1345 late Wednesday. Against the yen, the dollar rose to JPY114.46 versus JPY114.25.

Gold was quoted at USD1,840.09 an ounce early Thursday, flat versus USD1,840.20 on Wednesday. Brent oil was trading at USD88.43 a barrel, easing from USD88.68 late Wednesday.

The economic events calendar on Thursday has eurozone inflation readings at 1000 GMT and the latest US jobless claims numbers at 1330 GMT.

By Lucy Heming; lucyheming@alliancenews.com

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