LONDON MARKET PRE-OPEN: Fevertree raises dividend, reinstates guidance

(Alliance News) - Stock prices in London are seen opening higher on Thursday after the US Federal Reserve predicted the US economy will grow faster than previously forecast but reiterated its pledge to maintain its ultra-loose monetary policies for as long as needed.

In early company news, online grocer Ocado continued to see healthy sales as customers flocked to its platform during the pandemic. Accounting software provider Sage Group appointed a new chair. Tonic water maker Fevertree Drinks raised its dividend despite posting a drop in annual profit, amid a hit to On-Trade sales.

IG futures indicate the FTSE 100 index will open 33.93 points higher at 6,796.60. The blue-chip index closed down 40.94 points, or 0.6%, at 6,762.67 Wednesday.

Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, said retail revenue grew 40% in the 13 weeks to February 28, reflecting strong demand for online grocery during the latest lockdown. The average order size was GBP147 in the period, as a result of seasonal strength over the Christmas holiday and "a temporary reversal of the trend towards normalised shopping behaviour in response to further national lockdown measures in the UK".

The online grocer said M&S products consistently accounted for over 25% of the average basket size.

Looking ahead, Ocado Retail expects positive revenue growth in the second quarter compared to the corresponding period last year as it continue to ramp up its "mini" customer fulfilment centre in Bristol and as restrictions remain in place in the UK.

It said will open two standard size CFCs in financial 2021, while 12 new "micro" sites are being sought, primarily in London. These are to support the roll-out of the Ocado Zoom immediacy concept, which offers deliveries within one hour of ordering, the company said.

Ocado Group Chief Executive Officer Tim Steiner said: "Over the last twelve months, there has been a dramatic and permanent shift towards online grocery shopping around the world. Millions of customers have experienced online grocery shopping through the pandemic and many of them will not be going back to bricks and mortar.

"As we progress towards a new normal for grocery retail, and the focus for the industry shifts from meeting unprecedented demand to winning in a large and growing online channel, the need for a fulfilment solution that both delights a more knowledgeable customer, and enables profitable, sustainable growth, has never been more critical."

Sage has appointed Andy Duff to succeed Donald Brydon as chair when Brydon retires at the end of September. Duff, who is chair of speciality chemicals company Elementis, will join Sage as a non-executive director on May 1. Duff also served as chair of utility Severn Trent from 2010 until 2020.

Aveva said it has now received all antitrust and regulatory clearances required ahead of completion of its acquisition of real-time data management software proider OSIsoft, including clearance by the Committee on Foreign Investment in the United States. The deal is now expected to complete shortly.

Fevertree Drinks said it delivered a resilient performance in 2020, despite lockdown restrictions hurting on-trade sales by forcing the closures of bars and restaurants. Off-trade sales via convenience stores and supermarkets conversely benefited from the pandemic.

For 2020, revenue was GBP252.1 million, down 3% from GBP260.5 million in 2019, and pretax profit was GBP51.6 million, down 29% from GBP72.5 million.

Fevertree noted that it enjoyed a "very strong" second half performance in Europe, driven by strong off-trade sales, importer restocking and GDP portfolio brand revenue. Fevertree recently acquired Global Drinks Partnership, its sales agent in Germany.

Fevertree said it also saw significant momentum in the US as the brand continues to gain traction with retailers and consumers.

The London-based firm declared a full year 15.68 pence dividend, up 4% from 15.08p, which it said reflected its financial strength, confidence in the business and strong cash generation.

Looking ahead, Fevertree reintroduced guidance and anticipates revenue growth of 12% to 16% in 2021. Fevertree noted the first months of the year have seen a continuation of very positive trading in the off-trade across all regions. It acknowledged that some of the off-trade demand is likely to switch to the on-trade as the economy begins to re-open, but estimates that the off-trade will remain strong.

CEO Tim Warrillow said: "Our performance in the off-trade was especially strong, exceeding our expectations across all our regions. Numerous periods of lockdown during the year encouraged increased consumer interest in premium spirits and stimulated excitement about mixing drinks at home, attracting more households and new consumers to the Fever-Tree brand than ever before. Consequently, we have increased our penetration in the UK, driven value share gains in the US, and Europe, and gained real traction in Canada and Australia.

"Despite the restrictions and closures that impacted the on-trade for a large proportion of the year we didn't furlough any of our team enabling us to support our customers across the on-trade and off-trade, strengthening our relationships and securing new contracts."

London shares were set to open higher after the Fed on Wednesday signalled that US interest rates will remain at near zero through until 2023. The central bank also upped its median projection of US economic growth in 2021.

The policy-setting Federal Open Market Committee left its benchmark rate unchanged in the range of 0% to 0.25%, as widely expected. The US central bank also left its quantitative easing programme unchanged.

A median Fed projection tipped US gross domestic product to grow 6.5% as the country's Covid-19 vaccination programme continues apace.

The Fed's December prediction was for economic growth of 4.2% in 2021. Forecasts for 2022 have been raised to 3.3% from 3.2%, but the outlook for 2023 has been lowered to 2.2% from 2.4%.

While the outlook has improved due to rapid action by Congress, the US economy is far from a full recovery and the central bank will continue to provide stimulus, Fed Chair Jerome Powell said.

"The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved," he said at a press conference.

While some board members were edging towards a rate hike by 2023, investors were reassured by projections that borrowing costs will likely stay where they are until possibly 2024, even if inflation surges.

"The overarching message from the Summary of Economic Projections and Chair Powell's press conference was of greater optimism on the outlook but a central bank that is not in a hurry to raise rates," said Axi strategist Stephen Innes.

In Asia on Thursday, the Japanese Nikkei 225 index closed up 1.0%. In China, the Shanghai Composite ended up 0.5%, while the Hang Seng index in Hong Kong was up 1.7%. The S&P/ASX 200 in Sydney closed down 0.7%.

The dollar was weaker after the Fed's rate decision. The pound was quoted at USD1.3970 on Thursday morning, up sharply from USD1.3873 at the London equities close Wednesday.

Sterling rose as focus turns to the latest Bank of England interest rate decision at 1200 GMT. The BoE is set to leave rates unchanged and continue dismissing the chances of negative borrowing costs.

The euro was priced at USD1.1975, higher from USD1.1900. Against the yen, the dollar was trading at JPY109.00, down from JPY109.29.

Brent oil was quoted at USD67.73 a barrel Thursday, up from USD67.64 at the London market close on Wednesday. Gold was trading at USD1,741.88 an ounce, up from USD1,727.63.

Thursday's economic calendar has the latest US jobless claims data at 1230 GMT.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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