LONDON MARKET PRE-OPEN: Euromoney takeover; Deliveroo cuts outlook

(Alliance News) - Stock prices in London are seen opening higher on Monday, as Europe looks ahead to a key week on the political, monetary policy and energy market fronts.

IG futures indicate the FTSE 100 index is to open 36.1 points, or 0.5%, higher at 7,195.11. The blue-chip index closed up 119.20 points, or 1.7%, at 7,159.01 on Friday.

In early UK corporate news, Euromoney backed a GBP1.61 billion private equity takeover, insurer Direct Line said it will not launch a second portion of a GBP100 million share buyback, and Deliveroo lowered annual guidance as it faces "increased consumer headwinds".

Elsewhere in London, Haleon, the consumer healthcare product arm of GSK will start trading on Monday, becoming effectively by far the biggest new listing in London in 2022.

Haleon will go straight into the FTSE 100 index, where GSK also will remain. As a result, the lowest ranked FTSE 100 stock based on closing prices on Monday will be demoted to the FTSE 250 to make room for Haleon, index provider FTSE Russell said last week.

A consolidation of GSK shares will be implemented on Monday, after the market close. The ratio for the consolidation depends on "fluctuations in the volume and price of the GSK shares" on Monday.

Business media and events group Euromoney accepted a takeover tilt from a consortium of Luxembourg-based private equity firm Astorg Asset Management Sarl and London-based private equity firm Epiris LLP.

The offer from Becketts Bidco values the FTSE 250 listing at GBP1.61 billion on a fully diluted basis and GBP1.66 billion on on an enterprise value basis.

Becketts will pay 1,461 pence per Euromoney share, a 10% premium to its 1,328.00 close price on Friday. The bid is a 34% premium to Euromoney's last "undisturbed" stock price of GBP10.94 on June 17, the final trading day before Euromoney confirmed the takeover approach on June 20.

"The board believes the offer represents value for shareholders and reflects the attractions of Euromoney's business model and performance," Euromoney Chair Leslie Van de Walle commented.

In addition, Euromoney said it now expects annual results to top board expectations.

Revenue in the nine months to June 30 surged 30% to GBP304.3 million, it said. Euromoney's financial year ends in September.

Insurer Direct Line cautioned on "heightened volatility across the UK motor insurance market".

"We have seen claims inflation in motor in the first half of 2022 spike above the levels assumed in our pricing. As a result, we are revising our combined operating ratio target range for 2022 to 96% to 98%," Chief Executive Officer Penny James commented.

It had previously targeted a combined operating ratio range of 93% to 95%. A ratio below 100% indicates an insurer is making underwriting profit.

James said the firm has already undertaken measures to increase prices and "restore margins". It expects its 2023 combined operating ratio to improve to around 95% and reiterated its medium-term target range of 93% to 95%.

Direct Line added: "The motor insurance market experienced significant levels of severity inflation in H1, primarily resulting from higher used car prices, and amplified by higher third-party claims costs, longer repair times and inflation in the cost of car parts. Market premium inflation has continued to lag the increases in claims inflation. Whilst the group has been pricing claims inflation over the last 12 months, experience has been in excess of the levels assumed. The group now estimates overall motor claims severity inflation for 2022 of around 10%.

"The group's other business units are performing largely in line with expectations, demonstrating the benefit of the group's diversified business model."

For the first half of 2022 alone, Direct Line expects a combined operating ratio of 96.5%, worsened from 84.2% a year prior, and gross written premiums of GBP1.52 billion, down from GBP1.56 billion.

In addition, the company said it will not proceed with a second GBP50 million tranche of a GBP100 million buyback. It expects an unchanged interim payout of 7.6p.

Deliveroo lowered annual gross transaction value growth guidance, as the takeaway delivery firm has been hit by tumbling consumer confidence and pandemic tailwinds unwind.

Total GTV climbed just 2% at constant currency in the second quarter of 2022, slowing markedly from 12% growth in the first quarter. For the whole of the first half, it grew 7%. GTV had more than doubled in the first half of 2021.

For the full year, it expects GTV growth in the range of 4% to 12%, its guidance cut from a previous range of 15% to 25%.

Deliveroo affirmed margins guidance, however. It expects an adjusted earnings before interest, tax, depreciation and amortisation margin between minus 1.5% and minus 1.8% for 2022, improved from 2.0% in 2021.

In China, the Shanghai Composite was up 1.3% in late trade, while the Hang Seng in Hong Kong was 2.4% higher. In Sydney, the S&P/ASX 200 closed up 1.2%. Financial markets in Tokyo are closed for Marine Day.

The euro stood at USD1.0087 early Monday in London, up from USD1.0074 at the European equities close on Friday. Last week, the single currency briefly fell below the USD1 mark for the first time in 20 years.

A key risk event for markets this week is Thursday's European Central Bank interest rate decision.

The ECB has said it will lift its key interest rates by 25 basis points at its July 21 meeting. It would be the ECB's first rate hike since 2011.

Last month, the Frankfurt-based central bank kept the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50% respectively.

The ECB makes its decision as Europe faces a potential energy supply crisis.

Since last week Monday, Nord Stream 1 has not been delivering gas due to scheduled maintenance work. The work is scheduled to last until Thursday. Several Western politicians have expressed scepticism about whether Gazprom will deliver gas again afterwards.

The EU will discuss tightening sanctions against Russia on Monday, as Moscow is accused of using the continent's largest nuclear power plant to store weapons and launch missiles on the surrounding regions of southern Ukraine.

The situation at the captured Zaporizhzhia nuclear plant is "extremely tense", Ukraine's atomic energy agency chief Petro Kotin said, adding that the Russians had installed missile launchers and used the facility to shell the Dnipro region.

The pound was quoted at USD1.1886 early Monday, up from USD1.1853 late Friday. Against the yen, the dollar was trading at JPY138.25, down from JPY138.56.

Barbs flew and derisive laughter rang out as the Conservative contenders battling to succeed UK Prime Minister Boris Johnson clashed in a live TV debate Sunday, heading into a pivotal week for the acrimonious race.

The debate came after a survey of Tory members gave a surprise double-digit lead to outsider Kemi Badenoch.

Truss was second, narrowly ahead of former grassroots favourite Penny Mordaunt and Sunak, according to the unscientific poll by the ConservativeHome website.

European market focus also will be on political developments in Italy, Swissquote analyst Ipek Ozkardeskaya commented.

"Mario Draghi will address lawmakers on Wednesday, when he'll declare his intention to either give his coalition another chance or quit government," Ozkardeskaya explained.

Last week Thursday, Draghi's offer to resign after a populist coalition ally refused to support a key government bill was rejected by the nation's president.

Sergio Mattarella told Draghi to see if he can find a majority in Parliament willing to support him.

Brent oil was quoted at USD102.60 a barrel early Monday in London, up from USD101.57 late Friday. Gold stood at USD1.717.80 an ounce, up from USD1,704.08.

By Eric Cunha; ericcunha@alliancenews.com

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