LONDON MARKET PRE-OPEN: Barratt expects annual profit ahead of views

(Alliance News) - Stock prices in London are set to open higher on Thursday as investors await the start of earnings season in the US, alert to any sign that the economy is slowing against a backdrop of high inflation.

Due before the US market open on Thursday are earnings from banks JPMorgan Chase and Morgan Stanley. They are followed by investment manager BlackRock and lender Wells Fargo on Friday.

"We think it is unlikely the market sells off further merely on weaker earnings or guidance cuts as those are now widely expected. The market has usually (75%) rallied during earnings season, especially following a sell-off and when investor positioning is very low going into the earnings season as is the case presently," said Deutsche Bank.

However, it added: "Rather, what could drive a market selloff in our view are signs of corporate risk aversion, in particular large cost-cutting measures or changes in capital spending plans."

In early UK company news, housebuilder Barratt Developments expects to report annual profit ahead of forecasts. Water utility Severn Trent said it made a positive start to its financial year. Travel concessions operator SSP welcomed the return of passengers to railway stations.

IG says futures indicate the FTSE 100 index of large-caps to open 22.03 points higher at 7,178.40 on Thursday. The FTSE 100 index closed down 53.49 points, or 0.7%, at 7,156.37 on Wednesday.

Barratt Developments said it delivered an "excellent" performance for its recently ended financial year, reflecting strong customer demand for homes and the productivity of its sites.

For the financial year that ended June 30, adjusted pretax profit is anticipated to be in the range of GBP1.05 billion and GBP1.06 billion, slightly ahead of current market consensus expectations at GBP1.048 billion, and up from GBP919.7 million in financial 2021.

Barratt said total home completions returned to pre-pandemic levels, with 17,908 homes completed in the year, up from 17,243 homes the year before.

Looking ahead, Barratt said it has significant net cash balances, a well-capitalised balance sheet, and a strong forward sales position. It also said it has "clear plans" to secure both incremental home completion growth and further operating efficiencies in the year ahead.

Severn Trent said it has made a good start to the financial year operationally and continues to expect at least GBP50 million in customer outcome delivery incentives outperformance payments in financial 2023.

As expected, Severn Trent said it was seeing an increase in operating costs, particularly energy and chemicals.

SSP said its revenue continued to strengthen in the third quarter as rail travel bounced back from the pandemic.

For the three months to June 30, SSP said revenue was at 87% of 2019 levels driven by a recovery in passenger numbers.

SSP said it also benefited from "longer passenger dwell times in some markets", without explaining this further. The UK in recent months has suffered both train strikes and flight cancellations and delays, leaving passengers stuck in airports and train stations.

The Upper Crust and Millie's Cookies owner said recovery has been led by domestic and leisure travel in both the air and rail sectors. Further, rail commuter travel continued to recover well, albeit at a slower pace than leisure travel, SSP said.

Looking ahead, SSP said its medium-term expectation for a recovery of the like-for-like business to 2019 levels of profitability remains unchanged. It also expects to deliver sales in the region of GBP2.1 billion and an earnings before interest, tax, depreciation and amortisation margin of around 6%, which is at the upper end of the previous full-year guidance range.

On Wednesday, New York ended modestly lower, with the Dow Jones Industrial Average down 0.7%, the S&P 500 down 0.5% and the Nasdaq Composite down 0.2%

Even though Wall Street's main indices ended in the red, they were off their intraday lows.

In Asia on Thursday, the Japanese Nikkei 225 index closed up 0.6%. In China, the Shanghai Composite was down 0.2% and the Hang Seng index in Hong Kong was down 0.7%. In Sydney, the S&P/ASX 200 finished 0.5% higher.

CMC Markets analyst Michael Hewson commented: "Equity markets are struggling to make sense of what comes next when it comes to valuations, with the first test coming later today with JPMorgan Chase second-quarter earnings numbers.

"The second puzzle to navigate is how many more rate hikes are coming down the pipe before we see central banks cutting rates again. With US markets closing off their lows, and Asia edging higher, markets in Europe look set for a modestly positive open."

Sterling was quoted at USD1.1845 early Thursday, down from USD1.1929 at the London equities close on Wednesday.

The euro traded at USD1.0020 early Thursday, lower against USD1.0089 late Wednesday. Against the yen, the dollar was quoted at JPY138.64 in London, rising from JPY137.35.

Gold stood at USD1,724.48 an ounce early Thursday, lower than USD1,739.37 on Wednesday.

Brent oil was trading at USD99.60 a barrel early Thursday, down from USD100.80 late Wednesday.

Thursday's economic calendar has Irish inflation at 1100 BST and US jobless claims at 1330 BST. The European Commission will release economic growth forecasts.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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