(Alliance News) - Stock prices in London are seen opening sharply lower on Monday, after the International Monetary Fund warned the coronavirus could put the global economy at risk.
Investors are becoming more concerned the virus outbreak could have a much longer-term impact on the world economy and company earnings as it spreads further outside China.
In company news, distribution firm Bunzl lifted its dividend after reporting positive annual results. Primark clothing chain owner Associated British Foods highlighted it does not expect any short-term effects from the coronavirus outbreak, despite having factories in China.
IG futures indicate the FTSE 100 index is to open 96.72 points lower at 7,307.20. The UK blue-chip index ended down 32.72 points, or 0.4%, at 7,403.92 on Friday.
Residential property services provider LSL Property Services and estate agency Countrywide confirmed they are in discussions regarding a possible all-share combination. LSL and Countrywide said discussions between the two companies are ongoing, but "there can be no certainty that any offer will ultimately be made".
Bunzl said it delivered a "resilient performance" for 2019 in the face of mixed macroeconomic and market conditions across the countries and sectors it operates in.
For 2019, revenue was GBP9.33 billion, up 2.8% from GBP9.08 billion in 2018, up up 1.0% at constant currency. Pretax profit was up 6.7% to GBP453.3 million from GBP424.8 million.
Bunzl declared a total dividend for the year of 51.3 pence, up 2.2% from 50.2p in 2018.
"Looking forward, although we continue to see challenging trading conditions in many of our markets, our strong competitive position, diversified and resilient businesses and ability to consolidate our fragmented markets further should lead to improved growth at constant exchange rates principally due to the impact of the good level of recent acquisition activity. Bunzl has a strong balance sheet with significant financial capacity and acquisitions remain a key element of our strategy. The acquisition pipeline is promising, and a number of discussions are ongoing," said Chief Executive Frank van Zanten.
Associated British Foods said it expect sales growth and expects adjusted operating profit to be ahead of last year on both a lease-adjusted and reported basis in the half-year to this coming Saturday.
The company said on a lease-adjusted basis it expects adjusted earnings per share to be ahead of last year, with lower net financial expenses offsetting an increase in the effective tax rate. However, on a reported basis, the dilutive effect of the adoption of accounting standard IFRS 16 on earnings will result in a "small reduction in adjusted earnings per share in the first half".
AB Foods said it anticipates strong growth in adjusted operating profit in the second half, driven by profit growth for retailer Primark and a second half weighting of an expected AB Sugar profit recovery.
"As a result, our outlook for the full year for the group is unchanged with progress expected, on both a reported and a lease-adjusted basis, in adjusted earnings per share," the company said.
In its Retail unit, AB Foods expects sales at fast-fashion store chain Primark to be 4.2% ahead of last year at constant currency and 2.5% ahead at actual exchange rates, driven by increased retail selling space and level like-for-like sales.
AB Foods added, as a result of an expected decline in margin, operating profit at Primark is expected to be marginally down on last year at constant currency and on a lease-adjusted basis. On a reported basis, operating profit will be ahead of last year, it said.
AB Foods said its AB Mauri, AB Agri and Ovaltine factories in China are operating at reduced capacity due to labour and logistics constraints as a result of the coronavirus.
"Primark sources a broad assortment of its product from China. We typically build inventories in advance of Chinese New Year and, as a consequence, are well stocked with cover for several months and do not expect any short-term impact. We are working closely with our suppliers in China to assess the impact on their factories and supply chains and their ability to fulfil our current orders. If delays to factory production are prolonged, the risk of supply shortages on some lines later this financial year increases. We are assessing mitigating strategies, including a step up in production from existing suppliers in other regions," AB Foods added.
The COVID-19 disease has killed nearly 2,600 people and infected 80,000. Investors had been optimistic the outbreak was being contained outside China; however a spike in infections and deaths in other countries including South Korea, Italy and Iran have prompted fears of a pandemic.
The coronavirus epidemic could put an already fragile global economic recovery at risk, the IMF warned Sunday, as G20 financial chiefs voiced "real concern" over its economic ripple effects.
Global growth was poised for a modest rebound to 3.3% this year, up from 2.9% last year, International Monetary Fund chief Kristalina Georgieva said after a two-day meeting of G20 finance ministers and central bank governors in Riyadh.
Georgieva told the Riyadh gathering that the outbreak would shave about 0.1 of a percentage point from global growth and constrain China's growth to 5.6% this year, in a baseline scenario.
CMC Markets analyst Michael Hewson said: "With further outbreaks likely to continue across the world, and Iraq and Turkey closing their borders to Iran after cases being reported there, financial markets could well have to get used to an extended period of uncertainty, as consumer behaviour globally starts to change."
Gold was quoted at USD1,662.26 an ounce Monday morning, up from USD1,643.10 late Friday, as demand for the safe-haven asset increased amid the coronavirus concerns.
In China, the Shanghai Composite closed down 0.2%, while the Hang Seng index in Hong Kong is down 1.6%. Financial markets in Japan were closed on Monday for the Emperor's Birthday holiday.
The pound was quoted at USD1.2963 early Monday, marginally lower from USD1.2970 at the London equities close Friday.
The UK is preparing to detail its demands for a post-Brexit trade deal with the EU. Ministers are expected to recommit to seeking to obtain a Canada-style agreement in the negotiating mandate scheduled for publication on Thursday.
However, this could set up a clash with the EU after its chief negotiator Michel Barnier ruled out the possibility the UK can have the same deal as the North American nation. The government is expected to publish its negotiating mandate for a desired free trade agreement with the US the following week.
The euro was quoted at USD1.0817 early Monday, down from USD1.0863 late Friday. Against the yen, the dollar was trading at JPY111.57, down from JPY111.72 late Friday.
Oil was quoted at USD57.08 a barrel Monday morning, down from USD57.80 late Friday.
The economic events calendar on Monday has UK mortgage approvals figures at 0930 GMT.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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Bunzl (BNZL)
AB Foods (ABF)