LONDON MARKET PRE-OPEN: Next upgrades annual profit guidance

(Alliance News) - Stock prices in London are seen opening marginally higher on Thursday ahead of the Bank of England's interest rate decision at midday, as voters head to the polls across the UK for local elections.

In early company news, clothing and homewares retailer Next raised its full-year profit guidance on a strong first quarter. Housebuilder Barratt Developments said it expects an increase in annual completions. Industrial turnaround specialist Melrose Industries said it was encouraged by recent trading.

IG futures indicate the FTSE 100 index is to open 8.20 points higher at 7,047.50. The blue-chip index closed up 116.13 points, or 1.7%, at 7,039.30 Wednesday.

Next said full price sales were down 1.5% in the 13 weeks to May 1 on two years ago, before the Covid-19 pandemic, which the company said was a more "meaningful" comparison.

The retailer said it had assumed full-price sales during period would be down 10%, but beat this forecast by GBP75 million. Next raised its central guidance for full-year pretax profit by GBP20 million to GBP720 million.

Next explained the profit upgrade accounts for the GBP75 million sales beat in the first quarter. It has not raised sales growth guidance for the rest of the year, which remains at 3% higher against two years ago.

Next said first-quarter online full-price sales were up 65% from the same time in 2019, while Retail sales in the UK & Ireland were down 76%. That left total product sales down 0.6%, while finance interest income was down 12%.

Looking ahead, Next said it expects the recent post-lockdown sales surge to be short lived - based on the experience of last year - with sales to settle back toward guidance levels within the next few weeks.

Barratt Developments said it has performed well since the start of the calendar year reflecting underlying market strength and strong customer demand for "high-quality sustainable new homes".

For the period from January 1 to this past Sunday, total forward sales were GBP3.7 billion, up 31% from GBP2.83 billion at the same time in 2020 and delivered 4,481 home completions, up 28% from 3,504.

The increase in completions in the period reflected the delivery of customers' homes in line with the UK government's original Help to Buy scheme and the stamp duty holiday deadlines, Barratt said.

Looking ahead, the UK's largest housebuilder by volume said it is in a strong position with substantial net cash, a well-capitalised balance sheet and a healthy forward sales position.

Barratt said it expects wholly owned completions for financial 2021 to be between 16,000 and 16,250 homes and to deliver around 650 joint-venture home completions. As a result, it now expects an outturn for the full-year modestly above previous expectations.

"We remain focused on delivering both operational improvements across our business and high quality, sustainable homes and developments across the country. However, we remain mindful of the continued economic uncertainties," Barratt said.

Melrose Industries said in the four months to April 30, trading was modestly ahead of expectations.

Melrose said the momentum seen in the second half of 2020 has continued into 2021, with sales in the period being 8% higher than in the same period in 2020. Excluding Nortek Air Management, group sales grew by 4%.

Further, Melrose said operating margins achieved in the first quarter of the year continued to improve faster than expected, and cash generation has been encouraging, with Melrose "being cash neutral in the first quarter, in what is traditionally a cash outflow period".

Melrose expects the improvements in trading to continue, but noted the growth rate will be hindered to a degree by the well publicised supply issues on semi-conductors in the global automotive supply chain.

"We are pleased with our start to the year and hopefully will see this momentum continue for the rest of the year. We are encouraged by the significant improvements made to the GKN businesses being reflected in their financial performance. We are confident that GKN will be as successful as previous acquisitions, a track record illustrated recently by the announced sale of Nortek Air Management," Chief Executive Officer Simon Peckham said.

In the UK, voters head to the polls in what has been dubbed 'Super Thursday'. Ballots will be cast across the UK in the largest test of political opinion outside of a general election, with the future of the Labour Party and the state of the Union among the issues at play.

Scottish National Party leader Nicola Sturgeon's push for a second independence referendum means the stakes are high in the Holyrood contest.

In England, as well as local council and mayoral contests, the Hartlepool parliamentary by-election will indicate what progress - if any - Labour has made in regaining votes in its former northern heartlands.

For Labour, success is expected in the form of Sadiq Khan winning a second term as mayor in London.

"The main focus is on sterling today as local and regional elections get under way across the country, with a lot of attention set to be on the Scottish vote and whether the SNP will be able to obtain a majority to claim the right to hold another independence vote," said CMC Markets analyst Michael Hewson.

The pound was quoted at USD1.3905 early Thursday, little changed from USD1.3910 at the London equities close Wednesday.

The BoE will announce its latest monetary policy decision, alongside the release of the Monetary Policy Committee meeting minutes and Monetary Policy Report, at midday on Thursday.

The Bank of England is set to leave its policy unchanged, but could potentially hint at tapering bond buys.

"No changes to monetary policy are expected, but we could start to see some taper talk. The recent pause in 10-year gilt yields is likely to have prompted a sigh of relief, however given the improvements that might be seen in the data in the coming months we might see some early discussions about reining back on the bond buying program in the form of modest tapering," said Hewson.

The euro was priced at USD1.2009, flat from USD1.2000 at the London equities close on Wednesday. Against the yen, the dollar was trading at JPY109.33, up slightly from JPY109.26.

Brent oil was trading at USD69.11 a barrel, down from USD69.89 late Wednesday. Gold was quoted at USD1,793.58 an ounce, higher against USD1,781.79.

The Japanese Nikkei 225 index closed up 1.8% on Thursday. In China, the Shanghai Composite was up 0.1%, while the Hang Seng index in Hong Kong was up 0.3%. Markets in Tokyo and Shanghai reopened after being closed for holidays since last week. The S&P/ASX 200 in Sydney ended 0.6% lower.

China said it has suspended an economic agreement with Australia, in an apparent tit-for-tat response to Canberra's scrapping of a Belt & Road infrastructure pact and threat to undo a deal leasing Darwin Port to a Chinese company.

Relations between the two sides have collapsed into acrimony after Canberra called for an independent probe into the origins of the coronavirus pandemic and banned telecoms giant Huawei from building Australia's 5G network.

Australia described China's decision to freeze regular bilateral trade talks as "disappointing," but insisted Canberra was still willing to talk despite ties reaching a new low.

Trade Minister Dan Tehan said the now-suspended China-Australia Strategic Economic Dialogue provided an "important forum" for the two countries "to work through issues", but noted no such talks had taken place since 2017.

The economic events calendar on Thursday has UK services PMI at 0930 BST, eurozone retail sales at 1000 BST, and US jobless claims at 1330 BST.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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