LONDON MARKET PRE-OPEN: Sainsbury's backs outlook; AstraZeneca buys

(Alliance News) - Stock prices in London are seen opening higher on Tuesday, continuing a somewhat confident start to the third quarter for equities, despite inflationary and recessionary fears showing little sign of fading.

IG futures indicate the FTSE 100 index is to open 24.5 points higher, 0.3%, at 7,257.15. The blue chip index closed up 64.00 points, or 0.9%, at 7,232.65 on Monday.

In early corporate news, grocer Sainsbury's posted a first quarter sales fall, lapping tough comparatives, and AstraZeneca said it will part with up to roughly USD1.3 billion to buy Hodgkin lymphoma treatment developer TeneoTwo.

Sainsbury's said grocery sales in the first quarter ended June 25 fell 2.4% yearly "against last year's elevated Covid-19 driven levels". On three years earlier, prior to the onset of the pandemic, grocery sales were 8.7% higher.

Total retail sales, excluding fuel, were down 4.5% yearly. Including fuel, they were down 4.0%.

Consumers in the UK have come under pressure from an inflation-driven cost of living crisis.

Sainsbury's Chief Executive Simon Roberts said the company is doing all it can to keep prices on shelves as low as possible.

"We really understand how hard it is for millions of households right now and that's why we are investing GBP500 million and doing everything we can to keep our prices low, especially on the products customers buy most often. We're working hard to reduce costs right across the business so that we can keep investing in these areas that customers care most about. The progress we are making on improving value, quality, innovation and service is reflected in our improved grocery volume market share," Roberts said.

"The pressure on household budgets will only intensify over the remainder of the year and I am very clear that doing the right thing for our customers and colleagues will remain at the very top of our agenda."

Sainsbury's backed its profit outlook. It continues to expect an annual underlying pretax profit between GBP630 million and GBP690 million. It had reported underlying pretax profit of GBP730 million in financial 2022, so it expects a decline of as much as 14%.

In addition, the company said Kevin O'Byrne is to retire from his role as chief financial officer in March 2023, the conclusion of its financial year.

It has promoted Commercial & Retail Finance Director Blathnaid Bergin as its new CFO, following a "thorough" external and internal search. He joins the board on March 6 next year.

Elsewhere in the UK retail sector, B&M European also named a new CFO. The value retailer has picked Mike Schmidt as its new finance chief, a role he currently holds at DFS Furniture.

Schmidt has been at the sofa seller for eight years, the last three of which as CFO. A start date for Schmidt at B&M is to be confirmed, though it is expected to be no later than January 3.

Schmidt succeeds Alex Russo, who will be stepping up to chief executive officer to replace Simon Arora. DFS said Schmidt will stick around to oversee its year-end results and ensure an "orderly transition".

In addition, it lifted its outlook. It now expects underlying pretax profit before brand amortisation at the upper half of a GBP57 million to GBP62 million guidance range.

Fashion retailer Quiz, meanwhile, posted a sharp annual revenue hike but profit fell on the absence of one-off gains.

Revenue in the year ended March 31 surged 97% to GBP78.4 million from GBP39.7 million. Pretax profit fell to GBP800,000 from GBP6.0 million, however.

In financial 2021, Quiz benefitted from a GBP10.4 million gain stemming from a subsidiary disposal, as well as a GBP5.2 million gain from a "bargain purchase arising on acquisition".

On an underlying basis, which does not include these gains, it swung to a pretax profit of GBP800,000 from a GBP9.6 million loss.

It has started the new year relatively strongly. Revenue in the three months to June 30 is up 62% annually and on a like-for-like basis is "consistent" with levels seen before Covid-19 disruption.

AstraZeneca said it has struck a deal to acquire TeneoTwo, the developer of the TNB-486 clinical stage T-cell candidate to treat relapsed and refractory B-cell non-Hodgkin lymphoma.

Hodgkin lymphoma is a cancer that begins in the lymphatic system. Relapsed cancer is when the disease has reoccurred, while refractory means it has been resistant to treatment.

Astra will pay USD100 million upfront, make additional contingent R&D-related milestone payments of up to USD805 million, plus extra contingent commercial-related milestone payments of up to USD360 million to TeneoTwo's shareholders.

It means the deal could be worth up to USD1.27 billion.

"The transaction is expected to close in the third quarter of 2022, subject to customary closing conditions and regulatory clearances. The transaction does not impact AstraZeneca's financial guidance for 2022," the company said.

Elsewhere in London, Young & Co's Brewery said it has made a decent start to its new financial year.

The pub chain had ended its previous financial year on March 28.

In the first 13 weeks of the new year, revenue was up 40%.

"The board feels that Young's is well placed to manage the impact of the current inflationary environment on our cost base, but are very mindful of the potential impact that the inflationary environment could have on consumer sentiment and ultimately spending in our pubs," Young's said.

Also on Tuesday, Simon Dodd officially takes over as CEO, replacing Patrick Dardis as planned. Dardis will remain on the board to aid the transition process until September.

The pound was quoted at USD1.2109 early Tuesday, down from USD1.2114 late Monday. The euro stood at USD1.0433, up slightly from USD1.0430. Against the yen, the dollar was trading at JPY136.15, up from JPY135.72.

Brent oil was quoted at USD112.99 a barrel, down from USD113.66. Gold stood at USD1,809.13 an ounce, up from USD1,808.30.

Kicking off a busy few days on the central banking front, the Reserve Bank of Australia lifted its key interest rate by 50 basis points, as expected.

The RBA raised its cash rate target by a half-point to 1.35% from 0.85%.

"Inflation is forecast to peak later this year and then decline back towards the 2–3 per cent range next year," Governor Philip Lowe said.

"Today's increase in interest rates is a further step in the withdrawal of the extraordinary monetary support that was put in place to help insure the Australian economy against the worst possible effects of the pandemic. The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed. The board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead."

Lowe continued: "The size and timing of future interest rate increases will be guided by the incoming data and the board's assessment of the outlook for inflation and the labour market. The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time."

Later this week, minutes from the latest European Central Bank and US Federal Reserve meeting are released.

Elsewhere, the economic calendar on Tuesday has a slew of services PMI readings from France, Germany, the eurozone and the UK.

The service sector in China rebounded strongly in June, according to the Caixin general services purchasing managers' index.

The seasonally adjusted headline business activity index came in at 54.5 points for the month, overshooting expectations of 47.3 as cited on FXStreet. The index posted a reading of 41.4 in May, when services activity had contracted.

Having crossed back over the 50 point no-change mark, the data shows the sector has returned to growth.

Services activity in Japan expanded at the quickest pace since October 2013 in June, meanwhile.

The seasonally adjusted Japan services business activity index rose to 54.0 points in June from 52.6 points in May.

In Tokyo on Tuesday, the Nikkei 225 closed 1.0% higher. In China, the Shanghai Composite was 0.5% lower, while the Hang Seng in Hong Kong was up 0.4%. The S&P/ASX 200 ended 0.3% higher.

By Eric Cunha; ericcunha@alliancenews.com

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