(Alliance News) - Stock prices in London are seen opening higher on Wednesday despite a sharp sell off in US and Asian equity markets overnight against backdrop of surging energy prices and inflation generally.
In early company news, clothing and homewares retailer Next raised its profit guidance. Station food outlet operator SSP Group welcomed the recovery in travel. Electricity utility SSE expanded into Japan.
IG futures indicate the FTSE 100 index is to open 12.20 points higher at 7,040.30. The blue-chip index closed down 35.30 points, or 0.5%, at 7,028.10 Tuesday.
Next said it intends to declare a special dividend, as the retailer raised its profit guidance.
For the six months to July 31, revenue was GBP2.12 billion, up 5.2% from GBP2.01 billion at the same time in 2019, and pretax profit was GBP346.7 million, up 5.9% from GBP327.4 million. Compared to last year, Next swung to a pretax profit from a loss of GBP16.5 million.
Next explained it is providing direct comparisons against the relative period two years ago as disruption to last year from Covid meant that "one year comparisons are generally not meaningful".
The retailer said full price sales in the past eight weeks were up 20% versus 2019, "materially exceeding" expectations. This was higher than with its previous guidance for the second half of its financial year of 6%.
Turning to shareholder payouts, Next did not declare an interim dividend. However, it said it remained committed to its long-term policy of returning surplus cash.
"It is our intention to distribute any remaining surplus cash generated this year as a second special dividend at the end of January 2022. Any further dividends will be announced in our Christmas trading statement on Thursday 6 January 2022. We currently plan to return to ordinary dividends in the year to January 2023," it said.
Looking ahead, Next said it is increasing its full price sales guidance for the year ending January 2022, to be up 10% against 2019. The company added that the longer-term outlook "appears to be more positive than it has been for many years".
Next said it now expects a pretax profit for the full year of GBP800 million, up 6.9% versus 2019 and GBP36 million ahead of its previous guidance.
Upper Crust-owner SSP Group expressed confidence in its prospects amid signs that the travel sector is now starting to recover.
SSP said third quarter revenue improved to 27% of 2019 levels and fourth quarter revenue is expected to be at 47%, resulting in second half revenue of 37% of 2019 levels.
SSP highlighted that domestic travel, which accounts for around 60% of revenue, and leisure travel, also 60%, is recovering more rapidly than international and business travel. This has meant recovery in the fourth quarter has enabled it to re-open 60% of its outlets, up from 30% at the end of the first half of 2021. It continues to open its outlets selectively and in line with the recovery in passenger numbers. It said the travel sectors in North America and continental Europe are recovering faster than travel in the UK.
Looking ahead, SSP noted stronger trading and cash flow performance in the second half of the 2021 financial year was "encouraging". Its medium-term outlook of a return to pre-Covid levels of like-for-like revenue and of earnings before interest, tax, depreciation and amortisation margins by 2024 remain unchanged.
However, SSP noted the pace of the recovery remains uncertain, and as such it anticipates a slightly slower recovery in sales during the 2022 financial year.
SSP said "our expectation for profit conversion on reduced sales in 2022 compared to 2019 continues to be at the upper end of a range of 25% to 30%."
Electricity distributor SSE said its Renewables unit has signed an agreement with Pacifico Energy, one of Japan's largest developers of renewable energy, to create a joint ownership company that will pursue offshore wind energy development projects in Japan.
SSE explained the creation of the joint ownership company involves the acquisition by SSE Renewables of an 80% interest in an offshore wind development platform from Pacifico Energy for USD208 million.
Separately, SSE said it remains focused on long-term, sustainable financial performance and remains confident about delivery of solid financial performance for the full year. It expects to report adjusted earnings per share in the range of 7.5p to 10p for the half-year to September 30.
SSE also expects to pay interim dividend of 25.3p, in line with 80p plus RPI annual inflation.
"The successful reshaping of the group through our disposals programme has sharpened the focus on our core renewables and electricity networks businesses, and those businesses that are truly complementary to them. We are creating significant growth opportunities, most recently with our Japanese announcement today," said Finance Director Gregor Alexander.
In the US on Tuesday, Wall Street ended significantly lower, with the Dow Jones Industrial Average down 1.6%, S&P 500 down 2.0%, and Nasdaq Composite down 2.8%.
The Japanese Nikkei 225 index ended down 2.1% on Wednesday. In China, the Shanghai Composite was down 1.3%, while the Hang Seng index in Hong Kong was up 0.4%. The S&P/ASX 200 in Sydney closed down 1.1%.
Asian markets were following the rout on Wall Street, as US investors fret over surging inflation, the end of the Federal Reserve's financial support for the economy, and a standoff on Wall Street that could end with a US debt default.
The Fed last week indicated it would start winding down its massive bond-buying programme by the end of the year, while a gauge of future interest rates suggested a hike could come before 2023.
Further, a spike in US Treasury yields this week has sparked fear that the Fed could tighten much earlier and quicker than initially thought as inflation rises.
In addition, worries about the potential collapse of Chinese property company Evergrande Group, an energy crunch in China, and the ever-present threat of the Delta Covid variant were weighing on market sentiment.
"Once again it is fears about surging energy prices, supply chain disruptions, and concerns about more persistent inflation that is sparking a move out of the more highly valued areas of the stock market, as the volatility that we saw last week, continues into this week as bulls and bears indulge in a game of pass the parcel," said CMC Matkets analyst Michael Hewson.
"Despite yesterday's losses, markets in Europe look set to open slightly higher, with attention once again likely to be on various central bank speakers, as we get set to hear from the holy trinity of Christine Lagarde of the ECB, Andrew Bailey of the Bank of England and Fed chair Jay Powell at the ECB forum on central banking," Hewson added.
The pound was quoted at USD1.3542 early Wednesday, unchanged from USD1.3545 at the London equities close Tuesday.
The euro was priced at USD1.1680, little changed from USD1.1684. Against the yen, the dollar was trading at JPY111.40, up from JPY111.27.
Brent oil was quoted at USD77.75 a barrel Wednesday morning, down sharply from USD79.00 late Tuesday. Gold stood at USD1,739.40 an ounce, flat against USD1,739.12.
The economic calendar on Wednesday has eurozone consumer confidence at 1000 BST. US Fed Chair Jerome Powell, European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey all will be speaking at the ECB forum on central banking on Wednesday.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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SSP Group (SSPG)
SSE (SSE)
Next (NXT)