- FTSE 100 closes up 19 points at 7,497
- Vistry soars, strategic shift, new buyback
- DX jumps on private equity bid approach
4:40pm: London closes with modest gains, DX jumps on bid approach
The FTSE 100 held modest gains at the close despite a strong open on Wall Street with falls in pharma giant and index heavyweight Astra Zeneca restricting gains.
At the close, London’s blue-chip index was up 18.68 points, 0.3%, at 7,496.87 while the FTSE 250 rose 59.25 points, 0.3%, to 18,522.44.
Top of the fallers was Melrose Industries which was downgraded by RBC to sector perform from outperform, explaining that even with fresh upgrades to its full-year outlook, the company's valuation looks in line with peers.
Offsetting this were strong gains in mining stocks after encouraging economic data from China while in the FTSE 250 news of a change in strategy which could mean bumper payouts for shareholders lifted Vistry 14%.
Two late movers, were DX Group which soared 18% after revealing a bid approach from US private equity outfit, HIG, while Wizz Air fell 4.4% after it said it faced a 10% reduction in capacity as a result of the Pratt & Whitney engine inspection issues.
4:20pm: Deutsche ups Aviva and L&G targets
Before the close, and couple of price target changes at insurers Aviva and Legal & General PLC to report.
Deutsche Bank has moved Aviva's target to 490p from 475p and kept a buy rating, and increased the target for L&G to 290p from 275p and retained a hold rating.
Analyst Hadley Cohen noted that "the sector is up 7% YTD, underperforming the wider European market by 3%."
"On our forecasts, the sector currently trades on a 12-month forward P/E and a dividend yield of 10.1x and 6.0%, respectively," he added.
4:10pm: HSBC share price weakness a buying opportunity
Recent weakness in HSBC Holdings PLC (LSE:HSBA)’s share price is a buying opportunity, according to Jefferies.
The bank said investor meetings with HSBC's Asia CFO Ming Lau at the Jefferies Asia Forum in Hong Kong conveyed a message of consistency around delivery on the "greater than $35 billion" of net interest income for this year guided at the second quarter results.
On Chinese commercial real estate, HSBC's Asia CFO reiterated that the downside risk is quantified at $1 billion of further credit costs, with $300 million taken in the second quarter, with the downside seen as 'plausible' and baked into the 40bps 20223 cost of risk guidance, Jefferies explained.
“We noted conservatism around HK CRE risk, consistent with other banks though for HSBC likely an asset growth story at this stage,” the broker added.
Jefferies has a buy rating on HSBC with a 1,000p price target.
3:40pm: Vistry's strategic shift frees up cash for shareholders
Almost back to where we started the day and a bit more on Vistry's strategic shift which analysts think gives it a point of difference from other housebuilders.
"Having another string to its bow is proving useful to developer Vistry. Unlike rival housebuilders it has a significant regeneration and affordable housing footprint which it can pivot to when times are tough," said AJ Bell's Russ Mould.
The housebuilder is revising its strategy to focus solely on building affordable homes through its "high return" Partnerships division, to help address the UK's "chronic shortage of affordable mixed tenure housing".
Vistry said it plans to focus operations on its "high return, capital light, resilient partnerships model" by merging its housebuilding and partnerships businesses before the end of this year.
It expects this to result in "a significant release of capital" and, in the medium term, will target revenue growth of 5 to 8% and a 40% return on capital employed.
Josh Warner, market analyst, City Index explained the shift in strategy to focus on partnerships “will offer higher returns and require less capital, which is good news for shareholders that will see more cash funnelled back to them over the coming years as a result.”
The firm said the decision would result in "a significant release of capital" and, it plans to return £1 billion to shareholders over the next three years.
Mould explained that by stopping building private homes for the foreseeable future, it can take costs out of the business by scaling back its workforce and freeing up capital.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said the strategic shift came as no surprise, “given housebuilding's a notoriously cyclical sector.”
“In contrast, Partnerships' revenues tend to be more robust - the need for more affordable housing doesn't go away because economic conditions look tough,” he added.
“This provides large fixed-volume projects which should hold up better in a downturn,” he felt.
AJ Bell's Mould also noted that affordable housing "is much less sensitive to interest rates and the economic backdrop."
It should therefore "give Vistry some solid foundations which its peers could only dream of right now – reflected in a resilient set of first-half results.”
3:10pm: Hunt plays down chances of tax cuts
The chancellor Jeremy Hunt has told Bloomberg TV it is ‘unlikely’ that he will have more fiscal firepower this autumn, to fund tax cuts or higher spending.
Speaking today, Hunt said he doesn’t expect to have more fiscal headroom to hit his targets than in March, when it was the lowest on record.
That’s because inflation has been stickier than forecast back in the Spring budget, meaning the UK’s debt repayments have been higher than expected.
Hunt says today the government’s priority is to bring down inflation, so that will be the focus of the autumn statement in November, rather than to put ‘extra money’ into people’s pockets to help them.
He explained: "When you’re trying to bring down inflation, you have to be really careful not to pump extra money into the economy, much as you would like to."
"Not to pump extra money into people’s pockets, because that can push up prices and keep inflation higher for longer."
2:45pm: Bright start on Wall Street fails to inspire London
Wall Street opened higher, led by tech stocks, as an upgrade by Morgan Stanley (NYSE:MS) sent Tesla shares higher, with sentiment further lifted by reports the Federal Reserve will leave interest rates unchanged at its next meeting.
Shortly, after the opening bell, the Dow Jones Industrial Average was up 181.71 points, 0.5%, at 34,758.30, the S&P 500 was up 27.38 points, 0.6%, at 4,484.87 and the Nasdaq Composite was up 99.04 points, 0.7%, at 13,860.56.
Tesla jumped 5.1% as Morgan Stanley (NYSE:MS) upgraded the EV maker to outperform and set a $400 price target based on hopes for its Dojo supercomputer.
Other big tech names rallied, with Apple up 1.1% ahead of tomorrow’s hotly anticipated unveiling of the iPhone 15, and chipmaker Qualcomm advanced 3.7% after it struck a three-year deal with the iPad maker to supply it with 5G chips for its smartphones.
But the rbight mood in the US has so far failed to spark the FTSE 100 into life, up 8 points at 7,486.
2:08pm: Barclays reportedly set to cut jobs
Could job cuts be on the cards at Barclays PLC?
Reports over the weekend suggested the lender was drawing up plans to cut hundreds of jobs, as it trims costs while embarking on a wider strategy review.
The British bank could cut as many as 400 jobs in its domestic retail business, a sources tol Reuters, but added that the numbers were not final.
Another source said the bank was planning investment bank cuts that were part of annual assessments of banker performance and that the two rounds of cuts were not related, adding that some retail staff could be redeployed or take voluntary redundancy.
A Barclays spokesperson told Reuters: "We do not comment on speculation. We regularly review our operations to ensure we meet the evolving needs of our customers and clients in an efficient and effective way."
1.36pm: Here’s a look at the top risers and fallers on the junior market today
Barkby Group plc skyrocketed over 150% to 8p after announcing that it is in negotiations to sell subsidiary Cambridge Sleep Sciences, the science-based sleep technology business behind SleepEngine.
Angle plc continued to post gains, adding another 14% following last Thursday’s bullish interim earnings call.
Seed Innovations added 23% after announcing the partial sale of Avextra AG, a German-based medicinal cannabis company, for gross proceeds of €2.9 million.
Sportetch plc was sent 38% lower after announcing plans to delist from AIM despite a solid earnings performance in the first half.
Scandal-ridden data company Wandisco PLC (AIM:WAND) fell another 6%, bringing year-to-date losses above 93%, after posting a dire interim earnings update.
1:03pm: Melrose hit by RBC downgrade, valuation up with events
Back to home shores, and as we reported earlier a big faller - in fact, now, the biggest faller - in the FTSE 100 is Melrose Industries PLC (LSE:MRO, OTC:MLSPF).
Shares are 5.1% lower at 484.40p after RBC Capital Markets moved the stock to sector perform from outperform, explaining that even with fresh upgrades to its full-year outlook, the company's valuation looks in line with peers.
"The fundamentals remain very supportive - the business is growing well, we expect further earnings upgrades and a share buyback is set to start in October," RBC said.
"However, we think this is all 'known' now, even the [earnings per share] upgrade potential may not surprise the street given traditional management conservatism," RBC added.
Last week, Melrose upgraded its full-year guidance on the back of strong interim results.
"This issue is that even on our above consensus forecasts, the valuation looks to be more up with events," RBC suggested.
"The share is up [around] 50% versus its adjusted pre-Dowlais demerger level from April following a succession of positive targets and the new 2025 enterprise value-to-Ebita at 10.6 times is not far below the blended peer multiple at 11 times."
RBC has a price target of 540p, up from 525p.
12:45pm: Tesla's mojo to be boosted by Dojo says Morgan Stanley (NYSE:MS)
A bit more on Tesla now and the upgrade by Morgan Stanley (NYSE:MS) which has seen the stock jump 6% in pre-market trading.
The investment bank reckons Tesla's Dojo supercomputer could add as much as $500 billion to the company’s market value through faster adoption of robotaxis and network services.
Dojo can open up new markets, just like AWS did for Amazon.com Inc, analysts at the investment bank said, upgrading the stock to overweight from equal-weight and raising its 12-month price target to $400 per share from $250.
Dojo is a purpose-built supercomputer designed in-house by Tesla to train the full-self-driving system that sits inside every Tesla vehicle.
“We believe Dojo can represent the next step-change in market perception of Tesla,” MS analysts said.
The bank thinks that as well as accelerating the development and monetization of Tesla's software and services business, there is scope for Dojo to provide avenues for Tesla's software and hardware capabilities to extend well beyond the auto industry
“The more we looked at Dojo, the more we realized the potential for underappreciated value in the stock,” it added.
“In its quest to solve for autonomy, Tesla has developed an advanced supercomputing architecture that pushes new boundaries in custom silicon,” the bank said.
“Investors have long debated whether Tesla is an auto company or a tech company. We believe it's both, but see the biggest value driver from here being software and services revenue,” it added.
12:22pm: Strong start expected on Wall Street, Tesla upgraded
Over to the US, and stocks are expected to start the week on the front foot as reports indicated the Federal Reserve would leave interest rates unchanged at its next meeting while Tesla rose after an upgrade by Morgan Stanley (NYSE:MS).
In pre-market trading, futures for the Dow Jones Industrial Average were 0.2% higher, while those for the S&P 500 rose 0.4%, and contracts for the Nasdaq 100 futures were up 0.6%.
The Wall Street Journal reported on Sunday that there was a consensus among Fed members to not raise rates when the central bank meets next week.
Futures trading now puts the chance of the Fed staying on hold at its September meeting at 93%, according to the CME FedWatch tool.
Whether the Fed hikes again this year is undecided, the WSJ report said.
Shares of Tesla gained 5% in premarket trading after Morgan Stanley (NYSE:MS) upgraded to overweight and set a $400 price target from $250.
The investment bank reckons Dojo, Tesla’s purpose-built supercomputer can add up to $500 billion to Tesla's enterprise value.
We'll have a bit more on this shortly.
11:45am: UK stocks "attractively valued" says Goldman
Goldman Sachs (NYSE:GS) continue to see UK stocks as relatively attractively valued, noting they trade on a deep discount to global peers and especially those in the US.
The US investment bank explaind the UK trades on a 45% PE discount to the US market and while a large share of this just reflects large differences in sector exposure, it doesn’t tell the whole story.
Even on the same sector weights, the UK market trades on a PE discount of 30%, the largest valuation discount since the early 1990s, Goldman pointed out.
Given the low valuation and scepticism in the market about the medium-term growth prospects, especially for the large caps in mature industries, Goldman noted companies are increasingly returning money to shareholders.
The combination of buybacks, lack of IPOs and other new issuance, and growing dividends means the total shareholder yield is now around 6%, it said.
It added while private equity remains a buyer of UK equity, M&A activity is low.
For this to improve “we think a peak in rates and a decline in rates volatility is needed,” the bank said.
11:26am: Passenger numbers flying at Heathrow
Heathrow Airport reported a strong rise in passenger numbers in August compared to last summer.
The airport said a total of 7.5 million passengers passed through London’s primary air hub in August, down from 7.6 million in July but up 25% from 6.0 million in August 2022.
UK terminal passengers saw an increase of 45.9%, while travellers to Asia-Pacific destinations witnessed growth of 71%.
For September, Heathrow expects to beat pre-pandemic passenger numbers of September 2019, but emphasised that this was due to industrial action in 2019 which had lowered demand. It added that annual figures for 2023 will remain below pre-Covid levels.
10:48am: Bank of America sees around 50% upside at Babcock
Over to the FTSE 250, and Babcock International has jumped 4.6% supported by an upbeat assessment from Bank of America which sees around 50% upside from the current share price.
In a research note, the bank initiated coverage of the British aerospace, defence and nuclear engineering services company with a buy rating and a price target of 585p.
This compared to the share price of around 400p mid-morning on Monday.
“The company is in the early stages of its turnaround, but we are already seeing the first positive effects of the restructuring,” BofA analysts said.
The bank highlighted three key points.
Firstly, it estimates around 140 basis points of margin expansion through to 2026, which should be supportive of better free cash flow (FCF) generation.
Secondly, it sees FCF inflecting from financial year 2024, leaving room for shareholder returns.
Thirdly, BofA estimates the firm could generate c.80% of revenues through defence markets in financial year 2026 vs 61% in 2023.
This should underpin a re-rating from around 6x EV/Ebit and c.7x earnings on 2026 estimates to 11x & 12x respectively, it believes.
10:22am: European Commission cuts growth forecasts
The European Commission has cut its forecasts for growth across the EU, and in the eurozone.
The eurozone is now forecast to only expand by 0.8% this year, down from 1.1% forecast in the spring forecasts, and by 1.3% in 2024 (down from 1.6%).
GDP across the whole EU is also forecast to only rise by 0.8%, down from 1% expected before, and by 1.4% in 2024, (down from 1.7%).
Paolo Gentiloni, EU Commissioner for Economy, said: “multiple headwinds facing our economies this year have led to a weaker growth momentum than we projected in the spring.”
He noted: “Russia’s brutal war against Ukraine continues to cause not only human suffering but economic disruption.”
10:04am: Retail heads call on government not to lift property taxes
A group of top UK retailers are calling on the government not to increase their property taxes, saying it would cost them around £400 million.
Bosses from 44 firms, including Tesco, M&S and B&Q, are urging chancellor Jeremy Hunt to freeze their property taxes to avoid a roughly £400 million hike in tax bills.
They warn that an inflation-based increase to business rate would threaten “the viability of many shops and hindering the industry’s capacity to invest”.
In a statement they said: "Global supply chain issues are already likely to increase costs in the months ahead, including Russia’s withdrawal from the Black Sea Grain Initiative and targeting of Ukrainian grain silos, plus restrictions on Indian rice exports and ongoing labour market challenges."
“Against this backdrop, the Government should not make the situation worse by adding significantly to our cost base – freezing the business rates multiplier at its current level would avoid this.”
9:31am: TRG's Frankie & Benny's sale welcomed
The City has given the thumbs up to plans by Wagamama owner, The Restaurant Group’s plans to sell its Frankie & Benny’s and Chiquto’s restaurants.
Analysts at Jefferies said the sale “removes a loss-making, group margin drag and sharpens the strategic focus to Pubs, Concessions and Wagamama.”
“Further divisional disposals are possible which would drive more deleveraging, and potentially dividends,” the broker suggested.
The involvement of activist investors is likely to continue highlighting the lowly valuation, as well as strategic opportunities, Jefferies thinks.
Shore Capital analyst Greg Johnson viewed the news “as a significant milestone for the Group, improving cash flow, limiting the ongoing drag to revenues and profitability and significantly enhancing margins.”
“Our near-term fair value of c70p per share is likely to remain broadly unchanged, although we see a compelling investment case building on improving margins and focus on its attractive growth channels,” he said.
On Friday, chairman Ken Hanna said he was stepping down after pressure from some shareholders.
9:05am: Rescue deal for Wilko collapses
Away from the markets, and news that a rescue deal for high street chain Wilko has collapsed, leaving the future of thousands of jobs uncertain.
The billionaire owner of HMV, Doug Putman, planned to keep up to 300 Wilko shops open, but his bid failed as rising costs complicated the deal.
????Breaking: Wilko rescue hopes dashed as HMV owner Doug Putman walks away from deal in the face of rising costs.
Grim news for 12,000 staff who will have to find new jobs.
Store estate will now be carved up between retail rivals.
Full Story on @TheSun shortly
— Ashley Armstrong (@AArmstrong_says) September 11, 2023
It leaves the future of more than 10,000 workers and hundreds of stores uncertain.
Some of Wilko's remaining stores could be sold to rival retailers, such as Poundland or The Range.
Administrators are expected to announce the details of job losses and store closures in the coming days.
8:45am: Miners lead the way as blue-chips rally
The FTSE 100 remains firmly in the green in early exchanges, down up 69 points at 7,547, led by strong gains in mining stocks, as investors welcomed data over the weekend showing that deflationary pressures eased in China.
Fresnillio, Antofagasta PLC (LSE:ANTO), Anglo American and Rio Tinto are all more than 3% to the good after data showed China’s consumer prices returned to positive territory in August, while the country’s new bank loans jumped more-than-expected last month, reflecting signs of economic stabilisation of the top metals consumer.
The gains were reflected in Europe, with the Cac 40 up 0.5% in paris and Frankfurt’s Dax up 0.4%.
Housebuilders are a firm feature, with the sector given a boost by Vistry's plans for bumper shareholders returns, and as analysts at Liberum suggested there was 20% upside potential in the sector.
"We are surprised by the lack of optimism in housebuilders’ shares as the peak in rates approaches, especially as NatWest cut its mortgage rates twice this week."
"Rates peaking should be a trigger for better sentiment but should also reduce buyer uncertainty which might move some from the sidelines back into the market."
Melrose Industries was a weak feature, down 1.5% as RBC downgraded to sector perform from outperform.
8:15am: FTSE 100 on the front foot, Vistry soars
The FTSE 100 has started the week on the front foot ahead of a key week of economic updates in the UK, Europe and across the pond.
At 8:15am, London’s blue-chip index was up 46.95 points, 0.6%, at 7,525.14 while the FTSE 250 advanced 81.22 points, 0.4%, at 18,544.41.
Richard Hunter, head of markets at interactive investor said “a busy economic week will keep traders on their toes.”
US inflation figures, UK employment and average earnings data and the European Central Bank's rate call all lie ahead this week.
In company news, Vistry PLC jumped 12% after it said it will exit private homebuilding and focus solely on construction for affordable housing and rental landlords.
The builder plans to merge its housebuilding business with its partnerships operation.
It also expects to return as much as £1 billion of surplus capital to shareholders through a combination of dividends and buy-backs.
Peel Hunt said: “Given the shift in strategy, we are changing our valuation approach from being a sum of the parts based one to being solely focused on PE.”
“This sees us up our target price to 1300p.”
Elsewhere, Wagamama owner, The Restaurant Group PLC (LSE:RTN), has paid Big Table £7.5 million to take its loss-making leisure arm, which includes Frankie & Benny’s, off its hands.
Analysts at Stifel said: “We value the business at £0 million in our SOTP valuation but see this transaction as positive for the investment case on the basis that it improves the financial profile of TRG in margin, earnings and leverage terms.”
7:55am: Vistry targets bumper returns to shareholders
Plenty to digest at Vistry Group PLC which plans to focus operations on partnerships by merging its housebuilding operations with its partnerships business.
The strategic shift came as the housebuilder unveiled half-year results and said it intended to distribute £1 billion to shareholders over the next three years.
Chief Executive Greg Fitzgerald said the move, “best enables sustained growth in housing output, provides greater benefits to our partners, while maximising value and long term returns for shareholders.”
Vistry is targeting a 40% return on capital employed and expects a significant release of capital as assets from the housebuilding division are redeployed into partnerships.
It is also aiming for revenue growth of 5% to 8% . p.a., operating profit of £800 million with a 12%+ operating margin.
Vistry said the £1 billion returns to shareholders would be made via dividends or buybacks starting with a £55 million buyback, expected to commence in November.
It said a buyback would replace a dividend this year given it feels the current share price significantly undervalues the group.
Vistry intends to pursue a two times adjusted earnings ordinary distribution cover in respect of a full financial year, with distributions made through either dividends or share buybacks.
Guidance of in excess of £450 million for adjusted pre-tax profit for 2023 was reiterated as the firm reported adjusted pre-tax profit fell 8.4% to £174.0 million from £189.9 million while EPS slumped 43.2% to 38.3p from 67.4p.
Cost savings from the integration of Countryside are expected of at least £35 million in the full-year, ahead of targeted £25 million.
7:29am: Wagama owner sells Frankie & Benny's and Chiquito's
The sale of two well-known names on the high street to start the week.
The Restaurant Group (TRG) PLC is paying Big Tabe Group £7.5 million to tale its loss-making leisure business off its hands.
The owner of Wagamama said it was selling 75 sites to Big Table, principally comprising of the brands Frankie & Benny's and Chiquito.
TRG said the sale “will significantly accelerate the group's core strategic goals of adjusted Ebitda margin accretion and deleveraging.”
The transaction will create a high-quality retained group consisting of the three divisions of Wagamama, Pubs and Concessions which have delivered very strong like-for-like sales and adjusted Ebitda growth during the first half of 2023, with appealing long-term prospects, the firm added.
The deal is expected to be marginally EPS accretive in its first full year following completion and accelerate TRG's adjusted Ebitda margin accretion plan in excess of 100bps in its first full year following completion.
TRG said it is “continuing to actively explore its strategic options to further accelerate margin accretion and deleveraging.”
The deal should complete in the fourth quarter.
7:00am: London expected to start the week on the front foot
Blue-chips in London are expected to open make a bright start to the week ahead of a big week of economic news.
Spread betting companies are calling the FTSE 100 up around 32 points, after closing up 36.47 points at 7,478.19 on Friday.
The economic calendar this week has UK unemployment data on Tuesday, US inflation figures on Wednesday and the European Central Bank's next interest rate decision on Thursday.
In China, the National Bureau of Statistics reported that consumer prices in the country edged up slightly on an annual basis in August.
The consumer price index was 0.1% higher annually in August, compared to a 0.3% deflation in July.
In Monday's UK corporate calendar, there are half-year results from Vistry, WANdisco and MP Evans.