LONDON MARKET PRE-OPEN: Centrica earnings strong; Renishaw profit up

Tue, 10th May 2022 07:56

(Alliance News) - Stocks in London were pointed to open higher on Tuesday, shaking off a heavy rout in New York on Monday, as investors worry about rising interest rates, China's strict Covid lockdown measures, and the looming risk of recession.

In early corporate news in London, Centrica said earnings will be towards the higher end of forecasts. Coats is leaving Brazil and Argentina, while Wizz Air is looking to enter Saudi Arabia.

IG futures indicate the FTSE 100 index will open up 35.22 points, or 0.5%, at 7,251.80 on Tuesday. The index closed down 171.36 points, or 2.3%, at 7,216.58 on Monday.

"The market is becoming increasingly non-investable. We could be nearing the capitulatory 'sell everything mode' as it is virtually impossible to construct a bullish argument for the broader market," SPI Asset Management's Stephen Innes said.

"US equities are setting the tone as traders continue to price in recession risk via the S&P 500. And it is all getting compounded by the broad-based decline in commodity prices, including a 7% decline in oil prices, which is crushing the S&P energy sector much to the chagrin of the commodity super-cycle folks."

In New York on Monday, the Dow Jones Industrial Average closed down 2.0%, the S&P 500 3.2% lower, and the Nasdaq Composite down 4.1%. Wall Street ended deeply in the red, as investors grapple with the US Federal Reserve's shift towards higher interest rates to contain surging inflation.

Brent oil was quoted at USD104.93 a barrel Tuesday morning in London, sliding from USD107.50 late Monday. Gold stood at USD1,862.10 an ounce, higher against USD1,861.75.

CMC's Michael Hewson added: "For a good part of this year, the rise in US bond yields has helped put downward pressure on stock markets over concerns that higher rates would tighten financial conditions, as well as putting upward pressure on real yields. Yesterday we saw both yields and stocks fall heavily in unison in a move that could be being driven by a fear that the global economy is heading for a sharp slowdown, stagflation or even recession.

"The price action yesterday shows that markets are becoming more concerned about one or all of these scenarios, than they are about rate rises, on the basis that any coming rate hikes could well soon be reversed by rate cuts."

Data already out on Tuesday is likely to reinforce this pessimistic view.

Figures showed UK retail sales declined for the first time since January 2021 in April, as the cost of living crisis tanked consumer confidence.

According to the latest tracker by British Retail Consortium and KPMG, retail sales decreased 0.3% annually in April, dropping from an enormous 51% rise in April 2021. The figure is below the 3-month average growth of 3.2%, and the 12-month average of 6.4%.

When compared to pre-Covid, sales in April were 3.9% higher than in April 2019.

On a like-for-like basis, sales decreased 1.7% year-on-year.

Power utility Centrica said its performance has been "strong" in the first four months of 2022.

As a result, the British Gas-owner said 2022 adjusted earnings per share will be around the top end of market expectations, which range from 6.7 pence to 10.8p. In 2021, Centrica recorded adjusted EPS of 4.1p.

Its British Gas Services & Solutions unit has seen "some" supply chain issues, which has hurt its cost base and customer demand. Centrica expects these issues to continue, which will "at least partially offset" underlying operational progress.

Centrica added: "However, volumes from our nuclear and gas production assets in the UK have been strong and our Energy Marketing & Trading business has both secured increased volumes of gas and renewable energy to improve the UK and Europe's security of supply and managed increased commodity price volatility well, supporting performance in British Gas Energy."

The firm also pointed to the "significant uncertainties" that lie ahead, which includes commodity prices movements, asset performance, and the potential for increased bad debt charges.

Coats Group said it plans to exit is businesses in Brazil and Argentina, which it said is in line with its strategic initiatives.

The industrial thread maker is offloading the South American businesses to Reelpar SA, an entity backed by a Sao Paulo-based private equity firm.

"As a result of the disposal, there will be a positive annualised impact of circa 50 [basis point] uplift to the group's adjusted operating margins. Under the terms of the disposal, Coats will fund USD10 million to Reelpar SA to support restructuring of the business," Coats said.

Budapest-based budget airline Wizz Air said on Tuesday it is looking to expand its operations into Saudi Arabia.

"The kingdom has launched a strategic and ambitious vision to triple passenger traffic in the kingdom by 2030 as part of the Vision 2030 programme. This will provide unprecedented opportunities for airlines and the aviation supply chain," Wizz said.

The airline has signed a memorandum of understanding with the Ministry of Investment, supported by the Saudi National Air Connectivity Programme, which is a Ministry of Tourism initiative.

"The purpose of the MoU is to explore airline market development opportunities in the kingdom," Wizz explained.

Renishaw said its total revenue in the first nine months of its financial year have exploded thanks to growth in all of its product lines.

For the nine months to March 31, total revenue is up 21% to GBP492.4 million from GBP407.4 million, with Manufacturing Technologies revenue up 22% to GBP467.4 million.

Pretax profit was up 13% in the period to GBP120.2 million.

"Strong demand for our encoder product lines has largely been driven by increased investments in industrial automation and the semiconductor and electronics capital equipment markets," Renishaw said. "We also experienced good growth in demand for our machine tool and co-ordinate measuring machine product lines, where we have benefited from a recovery in investments in metal cutting machinery and the need to measure the outputs from those processes."

It expects financial 2022 revenue to be between GBP655 million and GBP675 million, a rise from GBP565.6 million reported the year prior.

Construction firm Galliford Try, which is holding an investor day on Tuesday, said it is trading in line with management expectations.

Galliford also noted it is "making good progress" against its sustainable growth strategy and target operating margin.

AIM-listed FD Technologies said its annual performance was driven by each of its businesses hitting performance targets.

Pretax profit in the financial year that ended February 28 fell by 19% to GBP9.0 million from GBP11.1 million the year prior, even as total revenue rose 11% to GBP263.5 million from GBP237.9 million.

"We achieved our key target of a 25% increase in exit ARR during the year, driven by growth in both existing and new customers and across both financial services and industry," the company said.

In a "year of transformation", FD Technologies saw its R&D expenditure rise to GBP21.1 million from GBP15.9 million, while sales & marketing costs increased to GBP47.4 million from GBP39.3 million.

Chief Executive Seamus Keating added: "Across the group, our investment in systems and people positions us to scale our operations to meet our growth ambitions. The opportunities across the markets in which we operate are significant."

In Asia on Tuesday, the Nikkei 225 index in Tokyo closed down 0.6%. The Shanghai Composite was 0.9% higher. The Hang Seng index was down 2.0% as the Hong Kong market returned from a long weekend. The S&P/ASX 200 in Sydney ended down 1.0%.

The pound was quoted at USD1.2352 early Tuesday, higher than USD1.2320 at the London equities close Monday.

The euro was priced at USD1.0566, higher from USD1.0535. Against the yen, the dollar was trading at JPY130.42, marginally soft from JPY130.45 the evening before in London.

The economic events calendar on Tuesday has the Germany ZEW indicator of economic sentiment at 1000 BST.

By Paul McGowan; paulmcgowan@alliancenews.com