LONDON MARKET PRE-OPEN: Ashtead raises dividend after strong half

(Alliance News) - Stock prices in London are seen opening higher on Tuesday as investors take heart from a strong close on Wall Street overnight, amid hope the newest coronavirus variant will prove less severe than earlier strains.

In early company news, British American Tobacco expressed confidence in meeting annual guidance, amid progress on its New Categories of product. Plumbing and heating products supplier Ferguson enjoyed a strong first quarter and equipment rental firm Ashtead raised its dividend after robust interim results.

IG futures indicate the FTSE 100 index is to open 24.32 points higher at 7,256.60. The blue-chip index closed up 109.96 points, or 1.5%, at 7,232.28 on Monday.

British American Tobacco said its performance was benefiting from strong momentum in New Categories which is now a "sizeable" contributor to revenue growth. Further, BAT highlighted it was making "excellent progress" towards its GBP5 billion revenue target for New Categories by 2025, supported by a clear focus on tobacco heating products.

New Categories include BAT's glo tobacco heating brand, as well as its Vuse and Vype vapour products and Velo modern oral products.

BAT maintained its 2021 guidance at mid-single-figure constant currency adjusted diluted earnings per share growth. The company said this will allow it to absorb a GBP260 million profit hit from excise changes and competitive pricing in Australia and New Zealand, an increase from the GBP170 million profit hit guided at the interim results.

BAT also expects gross capital expenditure of GBP700 million, in-line with adjusted depreciation and amortisation.

Looking ahead, the Dunhill and Lucky Strike cigarette maker said it expects annual revenue growth at constant currency to be above 5% and is confident in delivering on 2021 financial guidance.

Ferguson said supportive end-markets and continued market share gains drove substantial sales growth during the first quarter of its financial year.

For the three months to October 31, net sales were USD6.80 billion, up from USD5.37 billion in the first quarter last year and pretax profit rose to USD711 million from USD422 million.

Ferguson's US business grew net sales by 27% which comprised 25% organic growth and a further 1.9% from acquisitions. Price inflation was in the low teens during the quarter, it noted.

"Since the start of the second quarter, Ferguson has generated revenue growth similar to that of [first quarter] 2022. We continue to expect a tapering of growth in the second half on tougher prior year comparatives and we remain mindful that the recent tailwinds from inflation on gross margins will likely moderate, although the timing and extent remain uncertain. Given the strong momentum in the business and the agility of our business model, our full year expectations have increased," the company said.

Ashtead said it delivered a record first-half performance with clear momentum across the business.

For the six months to October 31, revenue increased by 19% to USD3.88 billion from USD3.26 billion last year and pretax profit jumped by 38% to USD889.8 million from USD645.8 million. In the US alone, revenue rose by 13% to USD3.12 billion from USD2.75 billion a year ago.

Ashtead declared an interim dividend of 12.5 US cents, up 28% from 9.76 cents paid last year.

"Our business has strong momentum in supportive markets. The benefit we derive from the diversity of our products, services and end markets, our investment in technology and ongoing structural change, enhanced by the environmental and social aspects of ESG, enables the board to look to the future with confidence. Notwithstanding the volatility that continues to arise from Covid, the fundamentals of our business are strong and we now expect full year performance to be ahead of our previous expectations," the company said.

London shares were seen opening higher on Tuesday following a higher close in the US on Monday.

The Omicron variant has been detected across the globe, but no deaths have yet been reported, with authorities worldwide racing to determine how contagious it is and how effective existing vaccines are.

In New York on Monday, the Dow closed up 1.9%, S&P 500 up 1.2% and Nasdaq Composite up 0.9%.

"Futures in the US and Europe are up after the Dow Jones Industrial Average jumped as investors reassessed risks associated with the Omicron variant while accounting for a more hawkish Federal Reserve. Looking at new cases, it does not appear that the Omicron variant is particularly severe, as the number of hospitalizations did not significantly ramp up, as South African authorities had previously indicated. As a result, investors' appetite for riskier assets returned, fuelling the rise in stock market indices," said AvaTrade analyst Naeem Aslam.

The Japanese Nikkei 225 index closed up 1.9% on Tuesday. In China, the Shanghai Composite ended up 0.2%, while the Hang Seng index in Hong Kong was up 2.5%. The S&P/ASX 200 in Sydney closed up 1.0%.

Export growth in China lost some steam in November as holiday demand from abroad faded, official data showed, but demand for overseas fuel pushed up imports to spike above expectations.

Strong exports have helped to boost growth in the world's second-largest economy since mid-2020, with China containing domestic outbreaks through tough lockdowns and mass testing - after the coronavirus was first detected in the central city of Wuhan.

Despite recent power outages caused by emissions-reduction targets, the surging price of coal, and supply shortages, factories kept the goods flowing and the power crisis has been winding down.

But experts have warned that the export boom is likely to fade as the world gradually returns to normalcy. In November, exports rose 22% on-year, better than analysts expected but below the 27% growth clocked in October, according to the latest customs data.

Imports, however, rose an unexpected 32% - well above the 22% increase tipped by a Bloomberg consensus poll.

The pound was quoted at USD1.3281 early Tuesday, up from USD1.3253 at the London equities close Monday.

The euro was priced at USD1.1295, higher against USD1.1278. Against the Japanese yen, the dollar was trading at JPY113.71, up from JPY113.46.

Brent oil was quoted at USD74.26 a barrel, up sharply from USD71.92 late Monday. Gold stood at USD1,784.15 an ounce, up from USD1,780.00.

The international economic calendar on Tuesday has the Germany ZEW indicator and eurozone GDP at 1000 GMT and US trade data at 1330 GMT.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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