- FTSE 100 ends below session peak
- Wall Street maintains gains but off early highs
- AB Foods firmer after guidance upgraded
4:45p: FTSE 100 got back on front foot
The FTSE 100 ended a positive day in London moving 56 points or 0.72% higher, closing at 7.935.
3.50pm: Mood music improves
The FTSE 100 index held off session highs but remained firmer in late afternoon trade on Monday as the mood recovered after last week's poor performances.
Around 3.50pm, the FTSE 100 index was ahead 56 points, or 0.7%, at 7,934, below the session peak of 7,949.97.
Craig Erlam, senior market analyst, UK & EMEA, OANDA: "Equity markets ended last week on a negative note but they're bouncing back once more in trade on Monday.
"Interest rate fears are front and centre, following a terrible month of data from the US in January, as far as the Fed is concerned at least. That was further compounded on Friday by the PCE, income, and spending data which didn't come as a major surprise given what preceded it but it didn't offer any relief either.
"Thankfully, January is likely to be an anomaly month driven by unseasonably warm weather and the data over the next few weeks prior to the next Fed meeting will confirm to what extent that is the case. For now, bond investors are fearing the worst, something that is much less evident in equities."
Erlam added: "Another hot jobs report next week could put seriously test the enthusiasm we've seen so far this year in equity markets as it would cast major doubt over the extent to which January was a blip and cement expectations for more rate hikes for longer, perhaps even reverting back to 50 basis point moves.
"In the interim, while this week offers an abundance of economic data and events, the vast majority is tier two or worse and so will not likely be hard-hitting. But as we've seen today, investors clearly don't need much of a catalyst to get things moving."
3.05pm: Now it's Lidl
Lidl has become the latest supermarket chain to introduce limits on sales of certain fruit and vegetables due to shortages of fresh produce, the BBC News website has reported.
The retailer is putting limits of three per customer on sales of peppers, tomatoes and cucumbers, due to "a recent increase in demand".
A Lidl spokesperson told the BBC that "adverse weather conditions in Spain and Morocco" had impacted the availability of certain salad items.
"Whilst we still have good availability across the majority of our stores, due to a recent increase in demand we have taken the decision to temporarily limit the purchase of peppers, tomatoes and cucumbers to three items per person," said Lidl. "This will help to ensure that all of our customers have access to the products they need."
It follows similar moves recently by Tesco, Aldi, Asda and Morrisons. Sainsbury's, Co-op, M&S and Waitrose have not announced any limits - yet.
2.50pm: US stocks manage to rebound
The FTSE 100 index held firm but drifted further off highs as attention turned to Wall Street where US stocks moved higher at the open after steep losses last week, with investors eyeing results from retailers such as Costco and Macy’s that are set to round out the US 4Q earnings season.
Around 20 minutes after the US market open, the Dow Jones Industrial Average had added 254 points or 0.8% at 33,070, while the S&P 500 was also up 0.8%, and the Nasdaq Composite had gained 1.0%.
On the US data front, new orders for manufactured goods fell more than expected to 4.5% in January, below the consensus expectation of 4% and after a downwardly revised 5.1% in December. Orders excluding transportation rose 0.7%, above the consensus of 0.1%, and core capital goods orders rose 0.8%, also above the consensus of 0.0%.
Pantheon Macroeconomics chief economist Ian Shepherdson noted that the core gains were likely due to favorable weather, and they would not persist, with reversion likely to be spread across February and March.
“Headline orders were depressed by a steep drop in orders for civilian aircraft, reversing the December jump, and clearly signalled by Boeing’s orders data,” he said.
“The increase in orders ex-transportation was the biggest since March last year but it follows a 0.4% decline in December and, like most of the other activity data for January, it likely was boosted by the much warmer-than-usual weather in January.”
2.25pm: Half-term retail boost fades
Retail footfall fell across most of the UK last week, according to industry data from retail consultancy MRI Springboard, as children returned to school following the half-term break.
MRI Springboard said footfall was down 5.3% week-on-week in the seven days beginning 19 February 2023. A week earlier, when it was half-term for most of the country, footfall jumped by 7.6%.
Of the UK's ten geographies, only Wales and the West Midlands - which had their half-terms last week - recorded increases, MRI Springboard said.
Footfall declined across all three destination types last week, with the largest drop, 7.1%, seen in shopping centres, where it had risen the most in the previous week. In retail parks footfall was down 2.8% and by 5.6% on high streets.
Year-on-year, footfall was ahead 3.9% but it remains sharply below pre-pandemic levels, down 14.4% when compared to the same week in 2019. In the previous week, footfall was down 10.9% when compared to 2019.
In the report, Diane Wehrle, insights director at MRI Springboard, said: "Somewhat inevitably, footfall fell back once again last week. Footfall declined across all the range of town types. However, the drop in central London and other city centres was more modest than the rise in the week before last, clearly cushioned by employees to their offices. In contrast, in coastal towns - which are attractive for day visits - and in smaller high streets, the reverse was true."
2.10pm: HSBC could downsize global HQ
HSBC Holdings PLC may downsize from its current headquarters, a Canary Wharf skyscraper, as the shift to flexible working continues to leave its offices unused.
According to news reports, the global bank is looking for a new headquarters of around 400,000-500,00 square feet, with the 45-storey tower it currently occupies totaling 1.1mln square foot.
Already close to ten floors have been left empty in the building in response to the bank's relaxed attitude to working from home, the Telegraph reported.
The tower in Canary Wharf is owned by Qatar’s sovereign wealth fund which agreed to lease the building to the FTSE 100 constituent in 2002. Now, with the agreement set to expire in 2027 HSBC could either move away to a smaller office in London or make renovations and reductions to the existing workspace in Canary Wharf.
1.25pm: London's movers
A quick look at some of London’s movers today.
Risers
Begbies Traynor (AIM:BEG)- up 3% to 136p
Begbies Traynor said its third-quarter performance was in line with that seen in its first half and that it remains “confident” of meeting market expectations for the full year.
Analysts’ forecasts for the current year are for revenue of £117.7mln-£121.4mln and adjusted pre-tax profit of £19.7mln-£20.6mln, the business recovery, financial advisory and property services consultancy said.
Elixirr- up 23% 520p
Shares jumped higher on Monday after the global award-winning challenger consultancy said that trading for full-year 2022 was "strong with all metrics in line or above market expectations".
Fallers
Dechra- down 11% to 2,740p
Shares went tumbling after the veterinary products group said operating profit fell 22% to £44.6mln year on year, resulting in diluted earnings per share of 19.86p
However, this was largely due to the £13mln increase in research and development expenditure following the acquisition of Piedmont Animal Health in July 2022.
1.00pm: US seen higher
Wall Street is set to open higher following a tough week for US equities after hotter-than-expected inflation data increased expectations that the Federal Reserve will continue raising interest rates for longer than previously hoped.
Futures for the Dow Jones Industrial Average (DJIA) rose 0.4% in Monday pre-market trading, while those for the broader S&P 500 index gained 0.5%, and contracts for the Nasdaq-100 also added 0.5%.
Markets finished lower on Friday after the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, increased 0.6% in January and 5.4% for the past 12 months, above the consensus expectation of an annualized increase of 4.9% and up from December’s annualized reading of 5%.
The DJIA ended 1% lower at 32,817, enduring its fourth losing week in a row, while the Nasdaq Composite dropped 1.7% to 11,395 and the S&P 500 fell 1.1% to 3,970. The small-cap Russell 2000 index declined 1.3% to 1,884.
“A slew of better-than-forecast US data recently has caused a shift in the market’s expectations regarding Fed policy,” commented TickMill Group market analyst James Harte. “These better data points, along with a fresh uptick in inflation, have fuelled an increase in pricing for a larger 0.5% hike in March along with the view that the Fed will push ahead with tightening for longer than initially expected this year.
"Looking ahead this week, there will be more US data releases and Fed speakers to keep an eye on kicking off with durable goods and Fed’s Jefferson today," Harte added.
With the fourth-quarter 2022 earnings season drawing to a close, Harte highlighted results from Zoom Video Communications today. The company is due to report against Wall Street forecasts of EPS of $0.81 on revenues of $1.1 billion.
“However, there has been some market chatter regarding the potential for a negative EPS which, if seen, would be a heavy blow for the company and likely see shares come off sharply today,” he said. “Given the weak expectations, however, any surprise upside today will be strongly bullish for the stock.”
Also reporting this week are retailers Target and Dollar Tree, home improvement group Lowe and drinks group Monster Beverage.
The upbeat mood across the pond is supporting equities in London where the FTSE 100 is at 7,936.18, up 57.52 points, or 0.73%.
12.50pm: Lloyds tipped by Barclays, UBS
Lloyds Banking Group PLC (LSE:LLOY) shares could still show investors a massive 43% return, that’s according to analysts at Barclays which retain an upbeat view despite last week’s disappointing results.
Analysts at Barclays today published a note trimming its earnings forecast for this year, reflecting the conservatism shown by Lloyds last week though its price target stays untouched at 75p per share (versus the current price of 52p).
“While Net Interest Margin (NIM) [which is the amount the bank makes on lending versus what it pays out in interest] has likely peaked, earnings are building toward a higher and more sustainable level, underpinned by lower deposit risks and receding provision concerns,” the bank commented.
“Given sector leading capital returns and compelling value (at 6-7 times PE), we remain overweight," Barclays said.
UBS was also upbeat on Lloyds despite cutting its price target to 61p from 70p. It said the rating was too lowand reiterated a 'buy' rating.
“For a bank with a history of beating guidance, of paying all excess capital to shareholders via dividends and buybacks, investing to produce a >15% return on total equity in 2026, in a UK market trading at 10.9x 2024 estimated EPS, we think that's too low,” the broker said in a note.
"The outlook for earnings and payouts is more stable than the NIM guidance would suggest we think", UBS said.
Shares in the bank were 1% higher at 52.16p.
12.33pm: Gas prices fall as temperatures are forecast to rise
The impending rise in household energy bills comes as European natural gas prices fell today toward an 18-month low
Dutch front-month futures, the European benchmark, dipped 2.1% to €49.95MWh while UK prices were 2% lower at 124.90p/therm as temperatures were forecast to rise after a brief cold snap, denting demand.
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UK hit a nine-month bottom of 119p/therm on February 21, as cold weather and lower wind power generation supported prices. Britain's wind power output dropped to 9.8 gigawatts on Saturday from 13.5 GW on Friday, Elexon data showed.
12.00pm: Breakthrough in NI talks positive for equities/sterling - Berenberg
Kallum Pickering senior economist at Berenberg thinks the widely reported breakthrough in talks between the UK and the EU on Northern Ireland would be positive for the markets.
He pointed out a deal could mark a line in the sand when six and a half years of damaging Brexit uncertainty finally comes to an end.
“Lifting the threat of a tit-for-tat trade war with the UK’s biggest market, the EU, is exactly what its businesses and financial markets need,” he suggested, adding, “it would improve confidence and unlock business investment which has been badly held back by the risk of a UK-EU trade dispute.”
He accepted the UK will suffer a lasting impact on its growth potential following its decision to increase the barriers of trade with the EU but this agreement would lift a major uncertainty.
“If this comes to an end, we expect the UK’s healthy fundamentals – well capitalised banks, cash flush households and firms, and well-regulated markets – to re-assert themselves,” he said.
“A breakthrough deal would suit our above consensus real GDP calls for the UK over the next three years,” he added.
After a mild 0.8% contraction in 2023 Berenberg expects the UK to grow by 1.6% in 2024 and by 1.7% in 2025.
“On the announcement of a deal, and then again following any sign-off in UK parliament, we would expect to see modest positive moves for both sterling and UK equites,” he said.
11.35am: LSE results could sound the starting gun for share sales
Results from London Stock Exchange Group PLC (LSE:LSEG) this week could fire the starting pistol on the sale of as much as £4 billion of its shares by a consortium led by Blackstone, the American private equity group, and Thomson Reuters (NYSE:TRI).
A report in The Times said a lock-up arrangement preventing these owners from selling an initial 10% stake in the group expired in January, but in practice as insiders with seats on its board they can only begin to sell on Thursday, after the company’s closed period ends.
Shares in the company slipped 0.6% in a buoyant market to 7,492p. The FTSE 100 is up 63 points at 7,941.
11.00am: Full steam ahead for Trainline
Over in the FTSE 250 and Trainline PLC (LSE:TRN) is the top riser, up 4% after Deutche Bank upgraded its rating to ‘buy’ from ‘hold’ despite cutting its price target to from 350p to 287p.
The German bank noted while its financial year will have been a year of significant recovery post-COVID-19, it has been overshadowed by ongoing strike activity in the UK, which is set to drive forecasts to below the bottom of management's guidance range, when it updates on trading in mid-March.
But it feels the impact from strikes is well known and is by nature one-off and that the medium-term risk should be receding, as Railway has demonstrated its ability to get back to pre-pandemic passenger volumes.
The FTSE 250 is now over 100 points to the good at 19,802.63.
10.25am: Brokers upbeat on Rolls-Royce
Rolls-Royce Holdings PLC (LSE:RR.) continued to attract positive comment following last week’s results and strategic plans.
Jefferies has increased its price target to 170p from 125p while Bank of America is reported to have lifted its target to 175p from 97p and upgraded its rating to ‘buy’ from ‘underperform’.
Jefferies has a ‘buy’ rating on Rolls. It said new chief executive is off to a great start, presenting the first truly solid set of results for the group since the Trent 1000 issues started in 2018.
“The quality of the earnings and free cash flow beat was solid, with lower catch-ups than in H1, and on volumes which remained low.”
It noted guidance also pointed to the group's recovery unfolding a year ahead of expectations while management presentation allayed concerns on risks of a rights issue.
“But it does not end here: an H2 Capital Markets Day could provide further uplift to estimate by providing a path to mid-teens margin for the group,” it suggested.
Shares in Rolls-Royce were top of the FTSE 100 risers, up 4.4% at 142.09p each. The FTSE meanwhile has powered ahead, now 7,948.84, up 70.18 points, or 0.89%, close to its best levels for the day.
9.55am: UBS sees pound as undervalued, expects rally from second half onwards
UBS has raised its GBPUSD forecast to US$1.24 (from US$1.23) for end-June and thinks the pound will strengthen further to US$1.30 by the end of the year. It also predicts the rally in sterling will continue into 2024 with forecasting US$1.33 by end-March next year.
The US dollar is gaining currently as investors re-position for a prolonged rate hike cycle in the US but UBS thinks this is a temporary phenomenon and will change in the second half of the year.
Although in the near term, UBS expects cable to explore its lows it sees this as a good opportunity to build up positions.
UBS pointed out the economic outlook for the UK has seen a marked improvement, benefiting from lower energy prices amid a healthier fiscal position, and from improving global economic growth.
After a period of ongoing downgrades, economists are turning more positive on the economic outlook for this year.
But the economic challenges remain. The Bank of England is still in a dilemma, balancing an improving growth backdrop against a backdrop where still-high inflation is likely to fall a little quicker.
“As long as this situation persists, we think GBPUSD rallies will remain short lived.”
But looking into the second half of the year, “we expect the US dollar to see a new bout of weakness.”
“When investors have clarity on the end of the US interest rate hiking cycle, they are likely to position for rate cuts.”
The broker added a mild recession may hit the US, which could also encourage further selling of the USD.
UBS believes “that the fair value for GBPUSD is closer to the 1.50 level.”
“Thus, even if the currency pair were to move to 1.30, the pound would still look undervalued, in our view.”
Today, the pound has moved 0.25% higher versus the dollar but remains below US$1.20, at US$1.1976.
9.15am: Energy price cap falls to £3,280 from April
Consumers will pay an extra £500 on their annual household energy bills from April despite Ofgem cutting the amount suppliers can charge by nearly £1,000.
The energy regulator has dropped its price cap on the amount energy suppliers are able to charge to £3,280 from April 1 from £4,279 at present.
However, households will have to pay more as the Government raises its own cap on bills which it launched to help consumers through the energy crisis triggered by the war in Ukraine.
???? The #PriceCap is going down on the 1 April 2023
The Energy Price Guarantee is still in place, though the amount of support is reducing, and consumers will continue paying the price set by the government
Find out more here ⬇️https://t.co/Lr2aFofR8t pic.twitter.com/1er8tN0cex
— Ofgem (@ofgem) February 27, 2023
At the moment, the Treasury caps typical annual household bills at £2,500 under its energy price guarantee.
However, from April ministers will raise this cap to £3,000, meaning households have to pay an extra £500 a year on average, with the Treasury paying the £280 difference to suppliers.
Ofgem CEO Jonathan Brearley said: “Although wholesale prices have fallen, the price cap has not yet fallen below the planned level of the Energy Price Guarantee. This means, that on current policy, bills will rise again in April. I know that, for many households this news will be deeply concerning.”
He also warned, "prices are unlikely to fall back to the level we saw before the energy crisis."
Shares in Centrica were 0.6% higher at 104.49p while the FTSE 100 is at 7,941.35, up 62.69 points, or 0.80%.
9.05am: Deutsche Telekom could buy more of BT despite "biggest mistake"
Shares in British Telecom PLC rose 2.1% on Monday to 140.20p after Deutsche Telekom’s chief executive said it could increase its stake in its British rival BT, despite a hefty drop in the value of its initial investment.
Speaking to the Financial Times Tim Hoettges said an increased stake was one option for Deutsche to recoup some of those losses, vowing he "will get that money back".
"I am not nervous, I will stay quiet, and do the portfolio transaction when I'm ready to do so," he said, adding that BT had a lot of potential.
Hoettges called the deal his "biggest mistake", adding: "It was too early and I didn't understand all of the obstacles around BT.
Deutsche Telekom became BT's second-largest shareholder in 2015 when it sold its mobile joint venture EE, accepting part of the €16.7bn purchase price in shares.
Over the past eight years, the FTSE 100-listed telco has lost about two thirds of its market capitalization, shrinking the value of Telekom's 12% stake by around €4bn.
9.00am: Footsie powers ahead
Equities remained in favour in early exchanges with the FTSE 100 now at 7,935.19, up 56.53 points, or 0.72%. Gains in oil majors and housebuilders provided support while Rolls-Royce PLC continued its recent strength after last week's results and strategic plans.
Adding to the positive mood are hopes of a much-anticipated deal to end the dispute with the EU over post-Brexit trading arrangements in Northern Ireland.
But Susannah Streeter at Hargreaves Lansdown noted, “Dawn may be about to break on a new era of calmer relations between the UK and the European Union, but hopes still aren’t racing away that it will herald a significant post-Brexit boost for the economy.”
“The pound hasn’t powered up significantly,” she pointed out.
“Any deal would be a significant step forward, and this new consensual approach should help for other thorny political problems such as migration but in itself, it’s unlikely to move the dial much for a big uplift to UK trade immediately,” she felt.
“With no big fire lit under sterling and recent weakness persisting, it has given support to the internationally focused FTSE 100, which benefits from a weaker pound given that it boosts earnings made overseas in dollars,” she explained.
Trading updates helped support the lead index. Bunzl PLC (LSE:BNZL) was 2.4% higher after its final results which broker Jefferies noted were 3% ahead of consensus at the EPS level but well ahead in terms of free cash flow.
Peel Hunt agreed noting 2022 pre-tax profits of £818mln were slightly ahead of the £800mln consensus. “The shares are trading on 17.2x December 2023 and remain attractively valued,” the broker said, reiterating an ‘add’ recommendation.
Associated British Foods also rose after its trading update described as “good” by Shore Capital.
“We are provisionally upgrading our EPS estimates by around 11%, noting that the company now guides to ‘broadly’ flat adjusted EBIT and EPS, year-on-year.”
The Primark-owner said full-year expectations have improved, with adjusted operating profit and earnings per share now expected to be broadly in line with the previous financial year. It had previously forecast profits would fall.
Inflation has become less volatile and some commodity costs have declined, the FTSE 100-listed firm said.
But the company cautioned macro-economic headwinds for the consumer remain and may weigh on spending in the months ahead.
8.15am: FTSE makes strong early progress
The FTSE 100 jumped in early exchanges recouping Friday’s losses as US markets closed off their worst levels on Friday after the strong PCE inflation numbers.
At 8.15am, London's blue chip index was at 7,937.08, up 58.42 points, or 0.74% while the FTSE 250 was also in fine form at 19,770.54, up 74.01 points, or 0.38%.
Despite renewed concerns that US rates would stay higher for longer equities in London powered ahead supported by gains in oil majors BP PLC (LSE:BP.) and Shell PLC (LSE:SHEL, NYSE:SHEL), up 1.2% and 1.5% respectively.
Associated British Foods PLC (LSE:ABF) advanced after raising guidance for the full year as it signalled inflationary and cost pressures were easing.
The owner of Primark said operating profit and earnings per share now expected to be broadly in line with the previous financial year. It had previously forecast profits would fall.
Inflation has become less volatile and some commodity costs have declined, the FTSE 100-listed firm said.
But the company cautioned macro-economic headwinds for the consumer remain and may weigh on spending in the months ahead.
“At Primark, we remain cautious about the resilience of consumer discretionary spending in the face of continuing inflation in the cost of living and higher interest rates,” the group said in a statement.
Nonetheless, AB Foods expects Primark operating profits to be ahead of previous guidance in the second half as a result of higher sales and lower operating costs. “For the full year we now expect adjusted operating profit margin to be above 8%,” the firm said.
Shares rose 2%.
Richard Hunter at Interactive Investors said, “In all, the idiosyncratic nature of the group continues to play into the hands of AB Foods.”
“A diversified range of businesses gives the group any number of levers to pull depending on economic cycles, while Primark is on the way to cementing its place as the company’s jewel in the crown.”
Bunzl PLC (LSE:BNZL) was also in favour after reporting strong growth in full year revenue and profit alongside a 10% increase in the dividend. Shares improved 2.5%.
For the year to December 31, 2022, Bunzl's revenue totalled £12.04bn, up 9.8%, statutory pre-tax-profits rose to £634.6mln, up 12%, from £568.7mln and basic earnings per share improved 6.8% to 141.7p from 132.7p. 6.8%. Shareholders were rewarded with a 10% boost to the dividend to 62.7p.
The FTSE 100-listed distribution firm said revenue growth was driven by product cost inflation, volume recovery in the first half and growth from acquisitions.
The group held 2023 guidance and announced two more bolt-on acquisitions.
Matt Britzman, equity analyst at Hargreaves Lansdown commented: “Bunzl marks its 30th consecutive year of dividend growth, an impressive feat by anybody’s standards, underpinned by a well-oiled, cash-generative machine.”
“2022 was another strong year for growth on both the top and bottom line, price hikes and acquisitions did their jobs to keep inflation at bay and margins were even able to creep up. At a reported level, exchange rates helped the cause too – contributing 6-7% to profit growth as around 90% of earnings come from outside the UK.”
Trainline PLC (LSE:TRN) rose 2.4% as Deutsche Bank put the firm on its buy list upgrading from ‘hold’ while positive comments from Barclays Capital supported Lloyds Banking Group, up 0.4%. The broker reiterated its ‘overweight’ rating.
“While net interest margin has likely peaked, earnings are building toward a higher and more sustainable level, underpinned by lower deposit risks and receding provision concerns,” the bank said.
7.5oam: Bunzl packages strong growth, lifts dividend
Bunzl PLC (LSE:BNZL) held guidance for 2023 as it reported strong growth in revenue and profit in 2022 alongside two more bolt-on acquisitions.
For the year to December 31, 2022, Bunzl's revenue totalled £12.04bn, up 9.8%, statutory pre-tax-profits rose to £634.6mln, up 12%, from £568.7mln and basic earnings per share improved 6.8% to 141.7p from 132.7p. 6.8%. Shareholders were rewarded with a 10% boost to the dividend to 62.7p.
The FTSE 100-listed distribution firm said revenue growth was driven by product cost inflation, volume recovery in the first half and growth from acquisitions.
Growth of the foodservice, retail and grocery sectors was particularly supported by significant product cost inflation although the cleaning & hygiene, safety and healthcare sectors were impacted by the year-on-year decline in COVID-19-related sales.
Group revenues were further supported by 3.1% growth from the incremental impact of acquisitions, Bunzl said.
Looking ahead and the company kept 2023 guidance unchanged and expects revenue in 2023 to be slightly higher than in 2022, driven by both organic growth and announced acquisitions, and partially offset by a small impact from the UK healthcare disposal.
Adjusted operating profit in 2023 is forecast to be “resilient,” with operating margin slightly higher than historical levels.
Bunzl also announced two further acquisitions buying Arbeitsschutz-Express, a fast-growing online distributor of workwear and PPE in Germany and Capital Paper, a distributor of foodservice packaging and consumables, cleaning & hygiene supplies, and industrial packaging products in Canada.
7.30am: AB Foods raises guidance
A trading update from Associated British Foods PLC (LSE:ABF),to start the week and its positive news.
The owner of Primark said on Monday that full-year expectations have improved with adjusted operating profit and earnings per share now expected to be broadly in line with the previous financial year. It had previously forecast a fall.
Inflation has become less volatile and some commodity costs have declined, the FTSE 100-listed firm said.
But the company cautioned macro-economic headwinds for the consumer remain and may weigh on spending in the months ahead.
“At Primark, we remain cautious about the resilience of consumer discretionary spending in the face of continuing inflation in the cost of living and higher interest rates,” the group said in a statement.
Nonetheless, AB Foods expects Primark operating profits to be ahead of previous guidance in the second half as a result of higher sales and lower operating costs. “For the full year we now expect adjusted operating profit margin to be above 8%,” the firm said.
Full-year adjusted operating profit in its Food businesses are expected to be modestly ahead of last year with Ingredients profit for the full year forecast “to be well ahead of last year. “
But a much lower UK beet crop will reduce second-half profit and bring adjusted operating profit for the full year at AB Sugar broadly in line with the prior year. Grocery adjusted operating profit is seen broadly in line with the prior year benefiting from “pricing actions.”
The improved outlook came as the company updated on first-half performance. The group forecast interim sales to be 20% higher year-on-year at actual exchange rates with adjusted operating profit expected to be broadly in line with the last year.
Cost pressures remained significant but consumer spending proved more resilient than anticipated.
Primark sales are expected to be up 19% at £4.2bn and adjusted operating profit margin for the half year is now expected to be above 8%.
Profits at its Food businesses are forecast to be significantly ahead of the same period last year but in Grocery profits are likely to fall with inflation in input costs continuing to run ahead of pricing and cost mitigation activity.
7.00am : Footsie set to open higher
The FTSE 100 is expected to start the week in brighter fashion recouping some of Friday’s losses.
Spread betting companies are calling London’s lead index up by around 21 points.
US markets endured a tough day on Friday after stronger-than-expected PCE inflation figures, but closed off session lows.
The Dow Jones Industrial Average finished Friday down 337 points, 1%, at 32,817, the Nasdaq Composite lost 195 points, 1.7%, to 11,395 and the S&P 500 fell 42 points, 1.1%, to 3,970. The small-cap Russell 2000 index declined 24 points, 1.3%, to 1,884.
In Asia on Monday, the Nikkei 225 index closed down 0.1%. In China, the Shanghai Composite was down 0.4%, while the Hang Seng index in Hong Kong was down 0.7%.
Michael Hewson at CMC Markets commented, “As we look towards a new week, and the end of the month tomorrow, last week’s falls have called into question whether markets in Europe can hold onto their February gains, while US markets have already slipped into negative territory for the month, after last week’s sharp falls.”
In London, the early focus will be a trading statement from Primark owner, Associated British Foods PLC (LSE:ABF) and full-year results from Bunzl PLC (LSE:BNZL).
No major economic data is expected in London on Monday but in the US later today, durable goods orders and pending homes sales figures are due for release.