(Alliance News) - Stock prices in London are seen opening slightly lower on Tuesday following a mixed close in the US overnight, as investors prepare for tapering of economic stimulus by the Federal Reserve.
In early company news, plumbing and heating products supplier Ferguson posted annual results that beat market expectations. Engineering firm Smiths Group signed the previously announced agreement to sell its medical arm. Goldman Sach's Petershill Partners priced its initial public offering on the Main Market of the London Stock Exchange,
IG futures indicate the FTSE 100 index is to open 7.00 points lower at 7,070.40. The blue-chip index closed up 11.92 points, or 0.2%, at 7,063.40 Monday.
Ferguson said it saw strong annual profit growth which beat consensus estimates, prompting the plumbing supplies specialist to raise its dividend by 15%.
For the financial year that ended July 31, revenue was USD22.79 billion, up 14% from USD19.94 billion in financial 2020, and pretax profit was USD1.89 billion, up 46% from USD1.29 billion.
Annual trading profit, which excludes exceptional items and amortisation of acquired intangible assets, was USD2.18 billion, up 31% from USD1.66 billion. The figure beat company-compiled consensus estimates of USD2.09 billion on revenue that had been forecast at USD22.50 billion.
Ferguson lifted its total dividend per share to USD2.394 from USD2.082 in financial 2020.
Looking ahead, the company said it started the new financial year with strong momentum. Organic revenue growth is at similar levels to the fourth quarter of financial 2020.
"We expect a year of good growth overall, but we anticipate a tapering in the second half on tougher prior year comparatives," said Chief Executive Officer Kevin Murphy.
"We are mindful that the recent tailwinds from inflation on gross margins could moderate but for the full year ahead we expect operational improvements to broadly offset headwinds from inflation in the cost base. Given the strong momentum in the business and the agility of our business model, we are well positioned to have a year of good growth and the board continues to look forward to the medium term with confidence," Murphy added.
Smiths Group reported what it considered a robust annual performance, as the engineer raised its dividend and completed the sale of its medical unit.
For the financial year ended July 31, revenue was down 5.5% to GBP2.41 billion from GBP2.55 billion in financial 2020, but pretax profit almost doubled to GBP240 million from GBP133 million. Revenue slightly pipped the market consensus estimate of GBP2.40 billion.
Annual operating profit, adjusted for strategic restructuring programme costs and write-downs, was GBP372 million, up 14% from GBP327 million. The figure beat the consensus forecast for operating profit of GBP357 million.
Smiths declared a total dividend of 37.7p, up 7.7% from 35.0p.
Smiths also said it completed its restructuring programme, with savings delivered ahead of schedule and signed a binding agreement with ICU Medical to sell its Smiths Medical business for USD2.7 billion.
The London Stock Exchange got a big new listing on Tuesday. Petershill Partners announced the pricing of its initial public offering at 350 pence each, giving the investment firm created by Goldman Sachs a market capitalisation of GBP4.0 billion.
Petershill Partners said the IPO consisted of 156.3 million new shares, with 176.3 million existing shares. It raised GBP1.0 billion in total, or up to GBP1.2 billion if the greenshoe option is taken in full.
Conditional dealings are expected to commence on Tuesday, with unconditional trading to follow on Friday.
Chair Naguib Kheraj said: "We are delighted that Petershill Partners will begin trading on the London Stock Exchange, giving public market investors a unique opportunity to gain diversified access to the rapidly growing alternative investment industry. We experienced a high degree of interest from investors, who recognised the unique strength and track record of the Goldman Sachs operator team, the attractive profile and prospects of our alternative asset manager partner firms and the benefit of a fully independent board. We are very happy with the mix of shareholders participating in the offering. We look forward with confidence to delivering long-term value for all our stakeholders."
In the US on Monday, Wall Street ended mostly lower, with the Dow Jones Industrial Average up 0.2%, but the S&P 500 down 0.3% and the Nasdaq Composite down 0.5%.
The Japanese Nikkei 225 index closed down 0.2% on Tuesday. In China, the Shanghai Composite was up 0.4%, while the Hang Seng index in Hong Kong was up 1.6%. The S&P/ASX 200 in Sydney ended down 1.5%.
A drawn-out debt limit fight in Washington is causing unease among stock-market investors. Republicans have blocked a Democrat move to raise the US borrowing limit, meaning the US government will likely run out of cash at the end of the week.
Several top officials including Treasury Secretary Janet Yellen have urged politicians to step back from the brink and lift the limit.
Meanwhile, US Federal Reserve Chair Jerome Powell, in remarks prepared for Tuesday's Congressional appearance, said inflationary pressures have lasted longer than anticipated but should fade.
Powell flagged that the economy has continued to recover, and gross domestic product is expected to grow at a "strong pace" in the second half of this year after a robust showing in the first.
On inflation, price pressures remain elevated and "will likely remain so in coming months" before softening, he said.
AvaTrade analyst Naeem Aslam said: "Futures in the US and Europe are lower today as investors pay attention to soaring Treasury yields. It seems that hawks have convinced the Federal Reserve to begin tapering in November 2021, and this is creating a drama in the markets. The rise in yields is compelling investors to abandon growth stocks like Microsoft and Amazon in favour of stocks that are positively linked to economic recovery.
"A number of Fed officials are slated to speak today, and it is highly likely that it may rattle the markets today. In addition to this, we also have the US consumer confidence data which is likely to bring higher volatility in the markets."
The pound was quoted at USD1.3710 early Tuesday, steady from USD1.3706 at the London equities close Monday.
The euro was priced at USD1.1700, essentially unchanged from USD1.1698. Against the yen, the dollar was trading at JPY111.20, up from JPY110.98.
The price of Brent crude oil jumped above USD80 for the first time in almost three years on expectations for surging demand and concerns about supplies as the world slowly emerges from the virus pandemic.
Brent oil was quoted at USD80.10 a barrel on Tuesday morning in London, up from USD79.48 late Monday.
Gold stood at USD1,750.65 an ounce, marginally lower from USD1,752.17 late Monday.
Tuesday's economic calendar has German consumer confidence at 0700 BST, Irish retail sales at 1100 BST and US consumer confidence at 1500 BST. Fed Chair Powell appears before the US Congress at 1500 BST.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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Ferguson (FERG)
Smiths Group (SMIN)