LONDON MARKET PRE-OPEN: Downcast Greggs Warns Profit Hurt Until 2022

Wed, 06th Jan 2021 07:45

(Alliance News) - Stock prices in London are seen opening higher on Wednesday, as votes continue to be counted in the crucial US Senate runoff in Georgia and as investors in Europe remain focused on the health crisis and a raft of services PMI data released later in the morning.

Democrat Raphael Warnock ousted an incumbent Republican in the first of two critical runoff elections in Georgia that will decide control of the US Senate at the outset of Joe Biden's presidency, networks projected.

Warnock, a Black pastor with deep roots in Georgia, narrowly ousted his rival Senator Kelly Loeffler, CBS, NBC and CNN reported, in what is an embarrassment for Donald Trump as he wraps up his four years as president.

The outcome of the second runoff, which is coming down to the wire, will now determine which party controls the Senate in the first two years of the Biden era.

IG futures indicate the FTSE 100 index is to open 58.7 points higher at 6,670.95 on Wednesday. The blue-chip index closed up 40.37 points, or 0.6%, at 6,612.25 on Tuesday.

On the London Stock Exchange, Informa affirmed its annual results will be in line in with guidance and the events firm also laid out chair succession plans. Automotive marketplace Autotrader hailed its "strong balance sheet" despite warning of monthly losses of up to GBP7 million while it allows customers to advertise for free on its platform.

Mid-cap baker Greggs meanwhile, cautioned that profits will not return to pre-health crisis levels until "2022 at the earliest".

Greggs said total sales in the 53 weeks ended January 2 slumped 31% to GBP811 million from GBP1.17 billion. On average, fourth-quarter company-managed shop like-for-like sales were at 81% of the prior year's levels.

Greggs expects a full-year pretax loss of up to GBP15 million, swinging from a GBP108.3 million profit the year before.

The baker was hit hard by the virus crisis which has emptied high streets and offices across the UK. The company did, however, note that it has ramped up its home delivery offering.

"With customers spending more time at home we have successfully developed our partnership with Just Eat to offer delivery services and have also seen strong sales through our longstanding partnership with Iceland, offering our products for home baking," Chief Executive Roger Whiteside said.

Greggs said 600 of its shops now provide delivery services, and it expects this to rise to 800 in 2021.

"Looking ahead, the significant uncertainty over the duration of social restrictions, along with the impact of higher unemployment levels, makes it difficult to predict performance. However, we do not expect that profits will return to pre-COVID levels until 2022 at the earliest," Greggs said.

Elsewhere among UK consumer stocks, Topps Tiles fared better. The tile retailer said its retail like-for-like sales climbed 20% in the 13 weeks to December 26.

Topps Tiles noted sales growth "across both of our main customer groups, professional fitters and homeowners".

Among the FTSE 100, Informa said John Rishton will replace Derek Mapp as chair. Rishton is currently chair-elect at London-listed security services firm Serco.

Rishton takes over as chair at Informa in June.

For 2020, Informa expects to report revenue in the range of GBP1.65 billion and GBP1.68 billion, in line with guidance provided back in September. This would be at best down 42% from GBP2.89 billion in 2019.

Adjusted operating profit will tumble to between GBP250 million and GBP270 million, from GBP933.1 million.

The company did note that it delivered GBP600 million in cost savings by year end, and it has seen a "continued return and recovery of physical events in mainland China and other parts of Asia".

Elsewhere in the FTSE 100, Auto Trader said demand for car buying in its third quarter ended December was "remained strong". Visits to its marketplace were 20% higher than a year earlier.

However, sales volumes are expected "to be impacted in January and February". Auto Trader said it will book monthly operating losses between GBP5 million and GBP7 million due to being free for customers in December 2020 and February this year.

"The group's balance sheet remains strong. At the end of December, we had drawings of GBP45 million on our GBP400 million revolving credit facility and remain substantially below our covenant requirements for both debt and interest cover," Auto Trader added.

Turning back to the US election results, the focus now shifts to the second Senate race between Republican David Perdue and Democrat Jon Ossoff. That contest was too early to call as votes were still being counted.

If Democrats win both seats they win back the Senate, effectively handing Biden all levers of political power in Washington and helping him enact his ambitious legislative agenda. The split will be 50-50 but Vice President Kamala Harris will have a tie-breaking vote.

"The markets have finally started to react to the potential for Democratic control of the Senate. As expected, the US 10-year is trading above 1% (for the first time since last March), up five basis points today and 8 basis points so far this year," Axi analyst Stephen Innes said.

The pound was quoted at USD1.3650 early on Wednesday, up from USD1.3611 at the London equities close.

In the UK, MPs will return to Westminster to vote on regulations enforcing England's national lockdown as the stringent restrictions entered into force overnight amid spiralling coronavirus cases.

Data from the Office for National Statistics suggested 1.1 million people in private households in England had Covid-19 between December 27 and January 2.

Prime Minister Boris Johnson said that, so far, more than 1.3 million people have been vaccinated against Covid-19 across the UK, including 23% of all the over 80s in England. In the same televised address, he noted that one in 50 people had coronavirus last week.

The euro stood at USD1.2329 on Wednesday morning, up from USD1.2280 at the European equities close on Tuesday. Against the yen, the dollar was trading at JPY102.69, down from JPY102.75.

The economic events calendar on Wednesday has services PMI readings from Germany, eurozone and the UK at 0855 GMT, 0900 GMT and 0930 GMT respectively. There is also US ADP employment change figures at 1315 GMT.

In Asia, Japan's Nikkei 225 closed down 0.4% on Wednesday. Eyes in Tokyo are on the government as it prepares to declare a state of emergency on Thursday that will focus largely on bars and restaurants in the greater Tokyo region to fight the fast spread of coronavirus infections.

In China, the Shanghai Composite closed up 0.6% and the Hang Seng Index in Hong Kong was 0.3% higher in late trade.

The pace of growth in China's service industry slowed in December, data from Caixin showed Wednesday, mirroring the country's manufacturing sector.

The headline seasonally adjusted business activity index fell to 56.3 in December from 57.8 in November. The dip was blamed on softer new business growth with only a "modest" rise in new export sales.

Brent oil was quoted at USD53.94 on Wednesday morning UK time, up from USD53.01 a barrel at the London equities close on Tuesday.

Gold fetched at USD1,945.25 an ounce early on Wednesday, down from USD1,947.54 at the London equities close Tuesday.

By Eric Cunha; ericcunha@alliancenews.com;