LONDON MARKET PRE-OPEN: BAT Sees Strong 2019 Despite US Vape Slowdown

(Alliance News) - Stocks in London are set to open slightly higher on Wednesday amid US-China trade optimism, while the pound remained subdued ahead of a closely watched UK voting intention poll to be published later in the day.

In early UK company news, British American Tobacco said it expects a strong 2019 despite a challenging regulatory environment in the US for vaping products, while Marston's turned to an annual loss and Britvic reported a fall in full-year profit.

IG says futures indicate the FTSE 100 index of large-caps to open 23.76 points higher at 7,426.90 on Wednesday. The FTSE 100 index closed up 6.85 points, or 0.1%, at 7,403.14 on Tuesday.

"European markets finished a rather dull and uneventful session more or less unchanged yesterday, while US markets continued to make new record highs. Optimism around trade discussions has once again helped to underpin sentiment after reports that China's negotiator Liu He and US trade negotiator Robert Lighthizer had reached a consensus on how to resolve a number of core issues, while keeping lines of communication open with a view to resolving other remaining issues," commented Michael Hewson, chief market analyst at CMC Markets.

He continued: "It still remains unclear what the timing is likely to be on the agreement of a phase one deal, however with three weeks until December 15th, it's not hard to imagine that it is highly unlikely that we'll get anything tangible before that. This is the date when the next round of tariffs is scheduled to kick in and would suggest that President Trump will want to keep that option open until the very last moment."

In the US on Tuesday, Wall Street ended higher, with the Dow 30 up 0.2%, the S&P 500 also 0.2% higher and the Nasdaq Composite gaining 0.2%.

US President Donald Trump on Tuesday offered tepid support to Hong Kong pro-democracy protesters, saying he trusts President Xi Jinping to resolve the crisis, as US-Chinese trade talks enter their "final throes."

"We're with them," Trump said of the protesters who delivered a landslide victory for pro-democracy candidates in local elections and have battled police for weeks in street demonstrations.

But Trump immediately back-pedalled, emphasizing his close ties to Xi and efforts to secure a long-delayed resolution to the trade war between the world's two biggest economies. "We're in the final throes of a very important deal, I guess you could say one of the most important deals in trade ever," Trump said.

In Asia on Wednesday, the Japanese Nikkei 225 index closed up 0.3%. In China, the Shanghai Composite ended down 0.1%, while the Hang Seng index in Hong Kong is 0.1% higher in late trade.

In early UK company news, British American Tobacco said it expects revenue and profit growth towards the upper end of target despite a slowdown in the US vaping market.

The Lucky Strike cigarette maker said it expects full-year currency-adjusted revenue growth in the upper half of its 3% to 5% guidance range, with an adjusted operating margin improvement of 50 to 100 basis points. Constant-currency adjusted operating profit is expected in the upper half of its 5% to 7% guidance range.

In Combustibles, global industry volumes are expected to be down around 3.5% for the full-year, with BAT's volumes to be broadly in line with the wider market.

In New Categories, Vuse and Vype vapour products have grown market share, though full-year constant currency revenue growth for the division is expected at the lower end of its 30% to 50% range, BAT said, reflecting a slowdown in the US vapour market.

"We expect to deliver a strong performance in 2019, building on the good progress we made in the first half. Our focus on our global strategic brands is delivering share gains and strong price mix in combustibles, both globally and in the US," said Chief Executive Jack Bowles.

He added that legal issues around vaping in the US should "lead to a better and stronger regulatory environment", in which the company is "well placed to succeed".

Massachusetts became the first American state to issue an outright ban on all e-cigarette devices in September amid a spate of deaths and injuries linked to vaping across the country, with the prohibition to last for four months.

Hikma Pharmaceuticals said it has submitted its response to deficiencies in its abbreviated new drug application for a generic version of GlaxoSmithKline's Advair Diskus to the US Food & Drug Administration.

The submission addresses the outstanding questions raised by the FDA in its complete response letter.

"As we continue to develop our pipeline of complex generics, respiratory products are a key strategic focus for Hikma and our generic Advair submission is an important milestone. We are confident in our ability to bring a generic version of Advair to the US market," said Hikma Chief Executive Siggi Olafsson.

Pub operator Marston's swung to an annual loss though said it is making good progress on reducing debt.

Revenue for the year to September 28 edged up to GBP1.17 billion from GBP1.14 billion the year before, but the company swung to a loss of GBP20.0 million from a GBP54.3 million profit.

The firm's results were hit by a GBP43.4 million impairment of underperforming Destination and Premium properties, and GBP48.7 million loss reflecting interest rate swap valuation movements.

Pub like-for-like sales growth was 0.8%, while brewing volumes were 1% ahead of the prior year. Marston's said its trading performance in 2019 was strong in wet-led pubs and brewing, with more subdued sales in food-led outlets.

Net debt at the financial year end was GBP1.40 billion, up slightly from GBP1.39 billion a year ago, which the company said reflected investment in new sites.

However, Marston's said it is ahead of schedule in its aim to reduce net debt by GBP200 million by 2023, having reduced growth capital spend on new-build pubs and lodges in 2019. The firm has raised its pub disposal target for the 2020 financial year to GBP70 million from GBP40 million.

"As a result of this good progress we are aiming to achieve the debt reduction target in a shorter timeframe. When we achieve the target, our aim is to operate a high quality pub and beer business generating sustainable and consistent net cash flow after dividends of at least GBP50 million per annum," said Marston's, as it held its final dividend at 4.8p.

Soft drinks maker Britvic reported growth in annual revenue though profit took a hit from a write down of French assets.

Revenue increased 1.4% in the financial year to September 29 to GBP1.55 billion, though pretax profit slid 24% to GBP110.3 million from GBP145.8 million.

This fall in profit was due to adjusting items of GBP84.6 million, related to its business capability programme, past pension costs, and the closure of the Fruit Shoot multi-pack operation in the US, as well as additional adjusting items in relation to the proposed sale of the juice manufacturing sites in France.

The company said it expects to make further progress in 2020 despite the current macro-economic environment remaining uncertain.

IT infrastructure firm Softcat said it maintained strong trading momentum in its first quarter.

During the quarter to October 31, the FTSE 250 constituent said it once again delivered year-on-year growth in revenue, gross profit and operating profit.

"We've performed well during the first quarter of our new financial year. Customer numbers and gross profit per customer were both up on the prior period, and we again saw growth across all areas of technology and customer segments," said Chief Executive Graeme Watt.

In the economic calendar on Wednesday, US personal consumption expenditures, alongside an estimate of third-quarter gross domestic product, are at 1330 GMT.

Consensus, according to FXStreet, sees the latest estimate of third-quarter US GDP unchanged at 1.9% growth year-on-year.

In UK political news, opposition leader Jeremy Corbyn will try to steer his Labour party's campaign back towards the NHS today after a bruising day in which he was accused of not being fit to be prime minister by the UK's Chief Rabbi.

The Conservatives will also want to move the focus onto their agenda again after the party was accused by the Muslim Council of Britain of "denial, dismissal and deceit" with regards to Islamophobia within its ranks.

Corbyn is set to make "a major statement" on the NHS in Westminister on Wednesday morning and later he will address a climate change rally in Falmouth as he attempts to move the debate away from accusations of anti-Semitism in Labour.

Meanwhile, visiting the south west on Wednesday, UK Prime Minister Boris Johnson will set out plans for a "shared rural network" which would lead to new phone masts being built and existing infrastructure shared between the four mobile phone providers – O2, Three, Vodafone and EE – to strengthen signals in rural areas.

At 2200 GMT, market research firm YouGov is expected to release a closely-watched MRP - multiple-level regression and post-stratification - poll, which correctly forecast a hung parliament in 2017.

The pound was quoted at USD1.2838 early Wednesday, soft compared to USD1.2845 late Tuesday.

By Lucy Heming; lucyheming@alliancenews.com

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