- FTSE 100 closes down 60 points at 7,624
- Entain slips, warns of soft online gaming revenue
- Aviva swoops for AIG's UK protection business
4:40pm: FTSE down but well off earlier lows
The FTSE 100 endured a tough start to the week heading sharply lower as renewed concerns over the Chinese property sector once more put stocks on the back foot.
At the close, London’s lead index was down 59.92 points, 0.8%, at 7,623.99 while the FTSE 250 fell 191.53 points, 1.0%, at 18,415.31.
It had earlier hit an intra-day low of 7,580.81.
CMC Markets Michael Hewson said concerns around sticky inflation, and low growth (stagflation), or recession also served to push yields higher and equity markets lower.
“Worries over the property sector in China aren’t helping either after it emerged Chinese property group Evergrande said it was struggling to organise a process to restructure its debt,” he added.
Entain PLC (LSE:ENT) was the wosrt performer, down 13%, after it warned of softer growth in online gaming revenue hit by a worse performance in Italy and Australia and regulatory headwinds in the UK.
Other gambling firms headed south with Flutter Entertainment down 3.0% and 888 Holdings down 6.5%.
There was some bright news - M&G was boosted by positive comments from Bank of America and rose 0.7% while AstraZeneca PLC (LSE:AZN) attracted praise from Jefferies, Morgan Stanley (NYSE:MS) and Berenberg, helping keep the stock up 1.4%.
3:55pm: Aldi's profit leaps on shoppers seek value
Aldi penned a three-fold increase in profit last year as consumers flocked to the German discounter’s stores in response to rising prices.
Sales hit a record £15.5 billion over the 12 months to December 2022, Aldi reported on Monday, helping the chain’s market share climb to 10.1% as of this month.
Operating profit soared from £60.2 million to £178.7 million as a result, prompting Aldi to lift its two-year investment in expanding its UK and Irish store estate to £1.4 billion.
“What we’re seeing is a new generation of savvy shoppers who’ve turned their back on traditional, full-price supermarkets in favour of transparent, low prices.”
“Shoppers know they’ll always get more for their money at Aldi,” UK and Irish chief executive Giles Hurley commented.
3:20pm: Bank of America ups M&S target to 240p
There aren't many shares in the FTSE 100 in positive territory but M&G PLC (LSE:MNG) is one, bootsed by positive words from Bank of America.
The bank said in a note to clients that M&G is building an attractive equity thesis under its new management team.
“Flows have improved (supported by strong fund performance) and we expect cost control to support profit growth,” it said.
This can in turn lead to dividend growth, which BofA now introduce from 2024.
Nearer-term, the investment bank expects £200-400 million of pro-active de-leveraging in the fourth quarter, in advance of a further £300 million redemption at first call in 2024.
“We think this will be well-received, as leverage concerns have plagued the stock since listing,” it explained.
“We remain buyers and increase our price objective to 240p,” it added.
Shares are up 1.1% to 205p.
2:44pm: FTSE 100 hits session lows on weak start in the US
The FTSE 100 has fallen to its worst levels of the day, now down 94 points at 7.590, following a weak start on Wall Street.
Shortly after the opening bell, the Dow Jones Industrial Average was down 67.26 points, 0.2% at 33,896.58, the S&P 500 was down 12.54 points, 0.3%, at 4,307.52 while the Nasdaq Composite was down 58.20 points, 0.4%, at 13,153.60.
US economic growth slowed in August as industrial activity moderated, data from the Federal Reserve Bank of Chicago showed.
The Chicago Fed National Activity Index fell to minus 0.16 in August from a revised 0.07 in July. A reading below zero suggests economic activity is expanding at a slower rate than its average historical trend.
United States Chicago Fed National Activity Indexhttps://t.co/M4j5btNttf pic.twitter.com/IldESYAgkv
— TRADING ECONOMICS (@tEconomics) September 25, 2023
The CFNAI index, designed to gauge overall economic activity and inflationary pressures, is composed of 85 economic indicators from four broad categories of data: production and income; employment, unemployment and hours; personal consumption and housing; and sales, orders and inventories.
All four categories dragged the indicator down in August, albeit at different degrees of strength.
2:14pm: Goldman expects further weakness in sterling
Sterling has continued to decline after the recent weak economic data prompted the Bank of England to leave interest rates unchanged last week.
Goldman Sachs (NYSE:GS) has lowered its GBP/USD forecast path to 1.18, 1.20, 1.25 in 3, 6, 12 months (vs 1.24, 1.29, 1.33 previously) and has officially “shifting back to sterling bears.”
It thinks the main headwind to further GBP weakness would be if incoming data surprise to the upside, revealing the recent progress to be a red herring and pushing the BoE back towards a more “forceful” response.
But it reckons such a shift would likely take some time to play out, “leaving us comfortable with a tactically bearish view for now.”
1:48 pm Today's risers and fallers
Here's a summary of today's top risers and fallers
Risers:
Tertiary Minerals PLC (AIM:TYM) the African mining company, jumped over 22% after it signed a term sheet for an earn-in and joint venture agreement with its local partner Mwashia Resources.
Fallers:
Entain PLC (LSE:ENT), the owner of Ladbrokes and Coral, is trading 11% lower on Monday after disappointing investors with a warning that revenue growth has been slowing in 2023.
Shares of Pelatro PLC (AIM:PTRO), a provider of campaign management solutions, dropped 14% following an announcement that the company is facing project delays.
SpaceandPeople PLC (AIM:SAL)dropped close to 20%, with the stock's Level-2 page - giving live prices - suggesting the fall was the result of a small, early trade of around 7,000 shares worth £5,800. Perhaps this was someone using the interims as their cue to cash out of the investment.
1:01pm: Aviva's AIG deal price multiple on the 'high side'
Back to the start of the day and UBS thinks Aviva has paid a high price for AIG’s UK protection business.
The Swiss Bank explained AIG Life Limited's own funds at 2022 were £261.6 million implying a multiple of 1.76x own funds (ex- synergies).
“This multiple appears on the high side relative to a range of 0.8x-1.0x for prior UK life insurance transactions,” it said.
Aviva has paid £460 million for the business in a deal it said would “deliver strong financial returns with an expected low-teens internal rate of return.”
UBS thinks the transaction could be funded through the proceeds from the sale of Aviva's Singlife stake which was sold for a £500 million plus a cash payment of £300 million for two debt instruments on top.
But it expects a negative reaction given the high headline own funds multiple and lower expectations of higher capital returns post the Singlife deal.
12:27pm: Astra's non-oncology assets overlooked, says Jefferies
A bit more on the AstraZeneca upgrade by Jefferies - the pharma giant remains in the green, 1.8% to the good.
The broker has upgraded the stock to buy from hold and set a 13,000p price target, up from 10,500p.
“We flag R&D assets outside oncology are being largely ignored, offering significant upside optionality, with our deep-dives underpinning up to +8% above consensus sales & EPS,” it said.
Jefferies highlighted the asthma drug Airsupra where it sees near $1 billion more sales backed by a US proprietary physician survey.
It also has taken a look into what it calls “blockbuster opportunities” for tozorakimab, Farxiga follow-ons and eplontersen.
Tozorakimab in Phase III for acute respiratory failure and smokers' cough seems underappreciated, it said, with Jefferies estimating peak sales of $4.5 billion peak, while it is “optimistic Farxiga combos can at least sustain this $8 billion franchise.”
The bank estimates a $3.5 billion peak for eplontersen for rare cardiac disorder.
12:03pm: Wall Street set to follow the UK and Europe lower
Across to the Wall Street now, and the concerns over China's property sector look set to keep US stocks subdued when trading begins on Monday.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.1% lower, while those for the S&P 500 fell 0.1%, and contracts for the Nasdaq 100 futures were down 0.2%.
Aside from the Evergrande worries which we covered earlier, Amazon is in the news.
It plans to invest up to $4 billion in artificial intelligence start-up Anthropic, as the big tech group steps up its rivalry with Microsoft, Google and Nvidia to get AI companies using its technology.
The deal, announced on Monday, will see Amazon invest an initial $1.25 billion for a minority stake in Anthropic.
Both companies will later have the option to increase the total to $4 billion, they said.
Shares of Disney, Paramount and Warner Bros. Discovery were higher in premarket after Hollywood writers and studios reached a tentative deal that would end the Writers Guild of America’s strike.
Disney rose 1.2%, while Paramount and Warner Bros. Discovery gained 3.5% and 4.1%, respectively.
11:38am: UK set for sluggish growth in 2023 and 2024
While worries about a deep recession have largely gone away, the prospects of high interest rates and low productivity are expected to hold back growth in the UK, according to KPMG.
The UK economy could struggle to keep its head above water in the second half of 2023, it thinks.
"Our forecasts show real GDP growth slowing to just 0.4% in 2023 and 0.3% in 2024." the accountancy firm said.
What are the prospects for the UK economy? Read our new UK #EconomicOutlook for our latest forecasts for growth, trade, inflation and unemployment ????
Check out the full report here: https://t.co/nFkvnq1hC3 pic.twitter.com/W71fOpFqNZ
— KPMG UK (@kpmguk) September 25, 2023
"And uncertainty around the upcoming general election and strength of demand suggests that risks are skewed to the downside," it warned.
KPMG said inflation may only return to its 2% target by the latter part of 2024, especially if businesses continue to pass on higher costs to rebuild margins.
But it expects a cooling labour market to see a gradual fall in pay growth.
11:12am: Chinese jitters keep blue-chips lower
Blue-chips are still nursing losses knocked by renewed concerns over the Chinese property sector.
“China is set to go down in history as being 2023’s biggest disappointment for investors," according to AJ Bell's Russ Mould.
"Having started the year in everyone’s good books amid expectations of a big economic rebound, the Asian superpower has failed to deliver," he explained.
"Economic growth has become a struggle compared to the levels it generated a decade ago and government stimulus initiatives have lacked bite.”
The latest woes have come as ailing property firm Evergrande warned it was struggling with its debt restructuring plan following poorer-than-expected sales, causing its shares to dive 22%.
"Investors are losing faith in China and this situation is only going to make matters worse for the markets," Mould said,
10:50am: Morgan Stanley (NYSE:MS) nudges up AstraZeneca and GSK targets
AstraZeneca PLC (LSE:AZN) remains a bright feature in the FTSE 100 which continues to nurse heavy losses today.
Broker Jefferies has upgraded the stock to buy from hold while Morgan Stanley (NYSE:MS) and Berenberg have reiterated their positive stance on the pharma giant today.
Morgan Stanley (NYSE:MS) expects EU biopharma to offer a safe haven from weakening growth/higher real yields.
“Whilst we continue to favour growth / innovation narratives in biopharma over the long-term, we expect investors to reward earnings upgrade stories - Novo Nordisk (NYSE:NVO), Novartis, AstraZeneca - in the near-term,” it said.
“Our top picks remain AstraZeneca in large-cap biopharma, Lonza in Life Sciences and Indivior and SOBI in mid-cap biopharma,” it said.
The investment bank rates AstraZeneca overweight and has nudged its price target up to 12,900p from 12,700p.
It has also raised its price target to GSK (rated equal weight) to 1,585p from 1,440p to reflect a stronger than anticipated uptake of RSV vaccine Arexvy and positive FX movements.
In Europe, the bank has upgraded Novartis to equal weight from underweight.
Shares in Astra Zeneca rose 1.2% to 11,168p, GSK was little changed at 1,527p, while Indivior fell 0.7% to 1,779p.
10:19am: German business morale eases slightly
IFO, the research institute, reports that German business morale has fallen this month - its business climate index has dipped to 85.7 this month, down from 85.8 in August.
Ifo president Clemens Fuest said. "“The German economy is treading water.”
Sentiment in the ????????German economy remains bleak. The ifo Business Climate Index fell to 85.7 points in September, down from 85.8 points1 in August. Once again, companies were less satisfied with their current business situation. #ifoSurvey @KlausWohlrabe @FuestClemens @ifo pic.twitter.com/EAbxFc0SWG
— CESifo (@CESifoNetwork) September 25, 2023
IFO reports that companies were less satisfied with their current business situation, but also slightly less pessimistic about the coming months.
Carsten Brzeski global head of macro said: "What today's reading shows is that the economic picture has not changed."
"The Chinese economy is still not gaining momentum and, at the same time, has become a rival to the German economy," he pointed out.
He added: "The European Central Bank continues hiking interest rates and the delayed impact of tighter monetary policy will continue to weigh on the economy. "
9:48am: UK to delay implementing global banking reforms - FT
The Bank of England will delay implementing the latest package of global post-crisis banking reforms for another six months, aligning its approach with the US as officials wade through an avalanche of industry feedback, according to the Financial Times.
The new rules, part of the broader Basel III reforms, are global policymakers’ final effort to insulate the banking industry against the excessive risk-taking that culminated in the financial crisis of 2007-08.
Shore Capital's Gary Greenwood said: "UK banks need clarity sooner rather than later, in our view, so they can plan accordingly."
"Knowing what their future capital requirements will be is clearly important when it comes to determining pricing strategies and potential shareholder distributions," he added.
The package includes limiting banks’ ability to decide how much capital they need to back certain loans and trades — measures that generally increase banks’ costs, though the BoE has said that is not the objective.
The BoE is preparing to unveil a July 2025 implementation deadline in the coming weeks, in line with the July 2025 date announced by the US over the summer, several people briefed on the plans told the FT.
The rules were to set to come into force in January 2025, after years of delays from the initial target of January 2021.
9:34am: Entain update an "unwelcome surprise"
Shares in Entain are now down 12.3% ater today's update after what Peel Hunt described as an “unwelcome surprise from a company that has generally delivered positive momentum.”
But it added that “many of the core attractions remain intact” for the company.
The broker noted the firm reiterated over all Ebitda guidance despite softer online revenue growth implying that retail outperformance has taken up the slack.
Shore Capital also called the update “disappointing, “ noting online digital NGR is now expected to be down “high single digit” against its prior expectations of broadly flat to modest growth.
Whilst, it noted better than anticipated performance from Retail and acquisitions supporting full-year Ebitda guidance being held, it questioned whether the assumed fourth quarter performance and profit performance is also being supported by reduced
marketing and investment, which would impact growth further out.
“Today is clearly disappointing in this journey although the implied SOTP valuation remains attractive in our view,” the broker said.
“Therefore, despite the risks, we retain our buy stance.”
9:08am: Balfour Beatty lower on reports parts of HS2 to be ditched
Shares in Balfour Beatty are down 1.2% following reports the government is planning to scrap part of the HS2 high speed rail link.
The company is one of the contractors working on the project.
Press reports suggest prime minister Rishi Sunak is could ditch the northern section of the rail line before the Conservative conference opens in Manchester next weekend.
A source told The Observer any decision to cancel the section of HS2 from Birmingham to Manchester could not be made at the conference and would have to come before it.
“He has to do it before Tories go to Manchester. To do it there would be inconceivable. It would be a kick in the teeth for the city. So doing it before seems to be the plan.”
8:47am: Miners keep FTSE in the red
The FTSE 100 remains in negative territory, although of opening lows, with the concerns over China’s economy dragging the mining sector lower.
Susannah Streeter, head of money and markets, Hargreaves Lansdown said: “’The twin worries about the ongoing fragility in China’s economy and high interest rates lingering for longer in the United States have quashed hopes of a dose of Monday motivation to start the week.”
“The FTSE 100 has opened in the red, with miners among the companies on the back foot.”
Rio Tinto fell 3.0%, Antofagasta dropped 2.4% and Anglo American dipped 2.2%.
Entain remains the top faller, down 4.9%, after its trading warning which has pulled Flutter Entertainment 2.1% lower as well.
IMI rose 1.2% as Barclays reiterated its overweight rating while CRH climbed 2.4% as it launched the final £1 billion tranche of a £3 billion buy-back announced in March.
The building materials firm also confirmed its primary listing has now transferred to the New York Stock Exchange following approval from the Irish High Court.
8:15am: FTSE on the back foot and Entain falls
The FTSE 100 opened lower following falls in Asia on fresh concerns over the ailing property sector.
At 8:15am, London’s lead index was down 27.35 points, 0.4%, at 7,656.56 while the FTSE 250 fell 78.96 points, 0.4%, at 18,527.88.
Shares in the embattled Chinese property developer slumped 20% following the announcement that it would be unable to carry out a restructuring plan intended to guarantee its survival.
The property developer cannot “meet the qualifications for the issuance of new notes”, as its principal subsidiary, Hengda Real Estate Group, is being investigated, it said in a Hong Kong stock exchange filing on Sunday.
Back in London, and it’s been a weak start by Entain PLC (LSE:ENT) which warned of softer-than-expected online net gaming revenue.
The owner of Ladbrokes and Coral blamed adverse sporting results in September, weaker performance in Italy and Australia and regulatory headwinds for the shortfall.
But it still expects 2023 Ebitda to be in the range of £1.00 billion-£1.05 billion supported by robust operational controls.
Aviva fell 0.8% after it paid £460 million for AIG’s UK protection business which it expects to “significant capital and expense synergies .”
The insurer said it continues to anticipate further regular and sustainable capital returns in the future.
Better news for two pharma giants.
GSK is just in the green after Japanese authorities gave the green light to Arexvy, a vaccine for the prevention of respiratory syncytial virus, for adults 60 years of age and above.
This is the first time an RSV vaccine for older adults has been approved in Japan.
Meanwhile, AstraZeneca PLC (LSE:AZN) rose 1.2% supported by an upgrade by Jefferies which has moved the stock to buy from hold.
7:55am: Green light for GSK's Arexvy in Japan
Good news for GSK which has announced that the Japanese Ministry of Health, Labour & Welfare has approved Arexvy, a vaccine for the prevention of respiratory syncytial virus, for adults 60 years of age and above.
This is the first time an RSV vaccine for older adults has been approved in Japan, the pharmaceutical company said.
The approval has been granted based on data from the pivotal AReSVi-006 phase III vaccine efficacy trial.
It follows approvals in the US, EU, UK and Canada earlier this year.
7:42am: Entain holds guidance but warns of softer online trading
A mixed bag from Entain PLC (LSE:ENT) today which has warned of softer than expected gaming revenue following adverse sporting results during September, and ongoing regulatory headwinds.
The owner of Ladbrokes and Coral said since the summer, online net gaming revenue (NGR) has been mixed, but in aggregate, softer than anticipated.
It now expects third quarter online NGR growth to be up high single-digit percent, and down high single digit percent on a proforma basis.
Nonetheless, the firm still expects 2023 Ebitda to be in the range of £1.00 billion-£1.05 billion supported by robust operational controls.
Adverse sporting results impacted sports margins during September while group wide implementation of safer gambling measures and ongoing regulatory headwinds persisted longer than expected, particularly in the UK.
Entain said growth had been slower than expected in Australia and Italy.
In better news, the gambling firm highlighted a robust performance in retail and strong performances from recent acquisitions, particularly SuperSport in Croatia.
BetMGM in the US continues to perform well and is on track to deliver positive EBITDA in the second half of 2023, with full-year 2023 NGR at the upper end of $1.8-$2.0 billion guidance.
Entain plans to unveil a strategic update on November 2, and said this would include a simplified group structure, moving new acquisitions onto its technology platform and progress on delivering its online Ebitda margin target of 30%.
7:22am: Aviva buys AIG's UK protection business for £460 million
We start the week with Aviva PLC (LSE:AV.) which has picked up AIG's UK protection business for consideration of £460 million.
The FTSE 100-litsted insurer said the deal supports its strategy to grow capital-light businesses and adds 1.3 million individual protection customers and 1.4 million group protection members.
Aviva said the purchase, which is being funded through internal resources, will deliver strong financial returns with an expected low-teens internal rate of return with “significant capital and expense synergies .”
Amanda Blanc, chief executive said: “This acquisition brings significant strategic and financial benefits to Aviva.”
“It strengthens our prospects in the highly attractive UK protection market and continues our progress in repositioning the Group towards capital-light growth.”
Aviva estimated the impact on the group's Solvency II shareholder cover ratio would have been a reduction of c.5 percentage points as at June 30 2023.
It said continues to anticipate further regular and sustainable capital returns in the future.
The deal should close in the first half of 2024.
It's the second piece of M&A activity by Avia in a couple of weeks, after Aviva has offloaded its 25.9% stake in Singapore Life Holdings (Singlife), and two debt instruments, to Sumitomo Life Insurance for £0.8 billion cash.
7:00am: FTSE called lower after falls in Asia and the US
The FTSE 100 is expected to start the week on the back foot following falls in Asian markets after more problems for China’s Evergrande.
Spread betting companies are calling London’s lead index down by around 21 points after closing up 5.29 points at 7,683.91 on Friday.
Shares in the embattled Chinese property developer slumped 20% following the announcement that it would be unable to carry out a restructuring plan intended to guarantee its survival.
The property developer cannot “meet the qualifications for the issuance of new notes”, as its principal subsidiary, Hengda Real Estate Group, is being investigated, it said in a Hong Kong stock exchange filing on Sunday.
In China on Monday, the Shanghai Composite was down 0.5%, while the Hang Seng index in Hong Kong was down 1.5%.
In New York, on Friday, markets also ended in the red.