LONDON MARKET PRE-OPEN: Reckitt Boosted As Virus Drives Dettol Demand

(Alliance News) - Stock prices in London are set to drop at the open on Wednesday, with investors remaining concerned about the prospect of rising inflation and interest rates, despite soothing words overnight from US Federal Reserve Chair Jerome Powell.

In early UK company news, Reckitt Benckiser said the pandemic brought about a strong year for its disinfectant brands, while Lloyds Banking Group beat market forecasts for 2020 and Synthomer confirmed it is not in takeover talks.

IG says futures indicate the FTSE 100 index of large-caps to open 39.94 points, or 0.6%, lower at 6,586.00 on Wednesday. The FTSE index closed up 13.70 points, or 0.2%, at 6,625.94 on Tuesday.

"Wall Street was saved by a very dovish Jerome Powell overnight, whose testimony managed to reverse the aggressive sell-off that was sweeping US equity markets," said Jeffrey Halley, senior market analyst for Asia Pacific at Oanda.

US Fed Chair Powell Tuesday attempted to play down rising inflation concerns and pledged to keep benchmark lending rates low until jobs recover and prices have risen consistently.

The Covid-19 pandemic remains the key factor determining how quickly the world's largest economy can recover, but Powell said vaccine rollouts offer hope things can return to normal quickly and the Fed has the tools to deal with price increases.

Amid growing fears in markets that a quick recovery from the pandemic - fuelled by more government stimulus on top of nearly USD3 trillion last year - will lead to higher interest rates and hinder the ability of companies to borrow, Powell tried to reassure skittish investors during the first day of his semi-annual testimony before Congress.

He insisted that the Fed will keep rates at the current level near zero until the economy reaches "maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time".

Powell's testimony helped stocks in the US recover from their session lows on Tuesday. The Dow Jones Industrial Average ended up 0.1% and the S&P 500 up 0.1%. The Nasdaq Composite finished 0.5% lower as highly valued technology stocks have taken the brunt of the selling this week.

Fed Chair Powell's Congressional testimony continues on Wednesday.

Oanda's Halley added: "European stocks are unlikely to gain much of a Powell tailwind, given that his comments merely stopped the rot on Wall Street overnight. Further retreats in the short-term by global equities cannot be ruled out as markets remain fixated on inflation."

A surging pound is also likely to hold back the FTSE 100's dollar earners on Wednesday. Sterling was quoted at USD1.4178 in the morning, higher than USD1.4103 at the London equities close on Tuesday and having crossed the USD1.42 mark briefly overnight.

The euro, meanwhile, traded soft even after some upwards revisions to German GDP growth.

Gross domestic product rose by 0.3% quarter-on-quarter in the final three months of 2020. This latest reading beat the initial estimate, released in January, of just 0.1% growth.

After slumping a historic 9.7% in the second quarter of 2020, the German economy recovered in the third quarter to post 8.5% growth. However, a resurgence in coronavirus infections and subsequent restrictions imposed saw the rebound slow sharply towards the end of the year.

For 2020 as a whole, the economy contracted 4.9%. This, again, was improved from January's reading of a 5.0% decline in 2020.

The euro traded at USD1.2154 early Wednesday, soft on USD1.2160 late Tuesday.

In early UK company news, Lloyds Banking Group posted a slump in profit and net income for 2020, though still managed to beat market expectations.

For 2020, the high-street and commercial lender saw pretax profit plunge 72% to GBP1.23 billion from GBP4.39 billion but was able to outperform market expectations of profit of GBP905 million.

Driving the drop in profit was the sharp increase in impairments, rising to GBP4.25 billion from GBP1.29 billion in 2019. Market consensus had predicted the credit loss charge at GBP4.71 billion.

Net income slumped 16% to GBP14.40 billion from GBP17.14 billion, after a 13% drop in net interest income to GBP10.77 billion from GBP12.38 billion. Despite the double-digit percentage fall, Lloyds net income was ahead of market consensus, which had called for GBP14.24 billion.

Consumer health and hygiene giant Reckitt Benckiser swung to profit for 2020 as its disinfectant brands got a boost from the virus pandemic.

Net revenue for 2020 increased 8.9% to GBP13.99 billion from GBP12.85 billion the year before, with the firm swinging to a pretax profit of GBP1.87 billion from a loss of GBP2.11 billion in 2019. In 2019, Reckitt took impairments totalling GBP5.12 billion, which reduced to just GBP985 million in 2020.

Like-for-like net revenue growth was 12%, with the company noting the "very strong, volume-led growth in a Covid environment". Reckitt said it saw "sustained" strong demand for disinfectant product Dettol throughout the year.

"Our category-leading germ protection/disinfection brands have all seen substantial market growth, with around 80% of our consumers expecting to retain many of their new improved habits post pandemic. We capitalised on these new behaviours with Dettol and Lysol entering 41 markets, with plans to enter a further 29 markets in 2021," said Chief Executive Laxman Narasimhan.

Narasimhan described 2020 as a "turning point" for the company, expecting further strategic progress in the year ahead.

Separately, Reckitt said it has agreed to sell its Scholl brand and will be buying the Biofreeze brand.

Reckitt said it will sell footcare brand Scholl to Yellow Wood Partners, with the deal marking a "step forward in RB's plan to bring greater focus to its portfolio". The sale is subject to consultation with Reckitt's works council in France, which the company will now initiate, and the deal is expected to complete in the third quarter of this year.

Separately, Reckitt has agreed to buy the Biofreeze brand from Performance Health, a company owned by Madison Dearborn Partners. Reckitt said that Biofreeze is the number one clinically recommended topical pain relief brand in the US, and has delivered "robust double-digit sales growth".

The Biofreeze buy is expected to complete in the second quarter of 2021. No financial details were disclosed for either deal.

Insurer Aviva said it has agreed to sell its entire 40% stake in its Tukey joint venture, AvivaSA Emeklilik ve Hayat, to Ageas Insurance International for GBP122 million.

Vodafone confirmed its plans for an initial public offering of mobile phone tower operator Vantage Towers. The IPO will be in Frankfurt before the end of March and will consist entirely of existing shares held by Vodafone GmbH. Vodafone said it is targetting a meaningful minority free float for Vantage Towers.

Synthomer, noting press reports, confirmed it is not in talks over a possible offer for the company.

Late Tuesday, Bloomberg said CVC Capital Partners has been exploring a bid for chemicals firm Synthomer. CVC made an initial approach to gauge Synthomer's interest in a deal, Bloomberg said, citing people with knowledge of the matter, though the parties are not currently in negotiations.

In Asia on Wednesday, the Japanese Nikkei 225 index closed down 1.6%. Against the yen, the dollar rose to JPY105.51 versus JPY105.11.

In China, the Shanghai Composite closed down 2.0%, while the Hang Seng index in Hong Kong is down 3.0%.  

Gold was quoted at USD1,806.73 an ounce early Wednesday, higher than USD1,803.05 on Tuesday. Brent oil was firmed a touch to USD65.33 from USD65.07.

By Lucy Heming; lucyheming@alliancenews.com

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