- FTSE 100 closes up 65 points at 7,426
- Phoenix rises after lifting cash generation targets
- Dr Martens knocked by Barclays downgrade
4:40pm: FTSE 100 ends near best levels
The FTSE 100 started the week in fine fettle, closing up 65.28 points, 0.9%, at 7,425.83 while the FTSE 250 rose 60.56 points, 0.3%, at 17,913.65.
Among blue-chips, Phoenx Group rose 5.7% after raising cash generation targets boosting other life insurance firms such as Legal & General Group, up 2.0%
In the FTSE 250, British Land closed up 3.0% after well received results.
3:53pm: Boost to UK banks from high rates coming to end
The boost to UK bank profits from higher interest rates is coming to end, according to Fitch Ratings.
Profitability has been increasing due to widening net interest margins (NIMs), but margins will come under growing pressure from rising deposit costs and increasing loan impairment charges, the credit ratings agency thinks.
The average annualised operating profit/risk-weighted assets (RWAs) ratio for the six largest UK banks was 3.2% in the first nine months of 2023, with all of the banks performing better than in 2022.
However, the ratio was marginally lower than in the first half of the year (3.4%), signalling that profitability may have peaked.
The decline was driven by a slight decrease in average NIMs and a slight increase in average LICs in 3Q23, it said.
“We expect this to continue in 2024, driving a modest decline in NIMs and increasing pressure on banks to improve their cost efficiency as they grapple with the effects of high inflation,” Fitch said.
3:14pm: M&S still offers upside – Bank of America
Bank of America sees another 30% plus further upside potential to Marks & Spencer despite the strong performance year-to-date.
“We think M&S remains mispriced and see potential upward earnings revisions,” BofA said.
It has set a new price target of 330p, up from 300p, with revised pre-tax profit estimates 5% above consensus between 2024-27 - largely due to higher margin forecasts for Clothing & Home.
“We see further market share gains in Kantar data & a potential beat at its Christmas trading update as the next possible catalysts”, the bank said.
Shares in M&S are up 1.2% to 249.40p.
2:48pm: US markets open lower
Stocks started the week on the back foor ahead of US inflation figures tomorrow and after Moody’s Investors Service lowered its US credit rating outlook to negative from stable, late Friday.
Shortly after the opening bell, the Dow Jones Industrial Average was down 72.79 points, 0.2%, at 34,210.31, the S&P 500 was down 18.36 points, 0.4%, at 4,396.88 and the Nasdaq Composite was down 73.34 points, 0.5%, at 13,724.76.
Deutsche Bank's Jim Reid noted: "S&P and Fitch ratings are already a notch lower at AA+, so the Moody's move may be seen as a step towards catching up to the other rating agencies but if it did lose its last AAA rating that would be highly symbolic."
Wall Street will also keep a close eye on Washington negotiations to avert a US government shutdown at the end of this week.
Stocks on the move include Monday.com, up 11%, after the project management company reported a strong quarter and issued an upbeat sales forecast.
2:15pm: British Land oversold after resilient results, analyst
Back to British Land Company PLC (LSE:BLND)'s results which Stifel called "a resilient set of results given the market backdrop."
The broker pointed out the portfolio valuation is down just 2.5%, taking the net tangible asset to 565p, which now appears to be approaching the "nadir."
The portfolio is valued at an average equivalent yield of 6.1%, leaving a spread of 180bps over the 5-year swap rate, it added, while earnings and dividend were both ahead of expectations.
The EPRA cost ratio is down to 14.8%; however, Stifel noted part of this is from one-off payments due to the collection of rent arrears from Arcadia.
The full-year cost ratio is expected to be closer to (but lower than) 19.5%, it added.
Letting performance continues to be strong and management now expects estimated rental value growth to be at the top end of guidance (2-5%) for financial year 2024, the broker pointed out.
"Given the clear slowdown in valuation declines and increased clarity of future interest rates, we think the shares look oversold at a 44% discount to spot NTA," the broker said.
The shares also offer an attractive 6.8% dividend yield, the broker added.
1.33pm: Here’s a recap of the top risers and fallers this Monday
Shares in Rolls-Royce Holdings PLC (LSE:RR.) were up 2.5% after the the jet engine maker had completed a crucial engine test using sustainable aviation fuel (SAF) ahead of a maiden flight using the green technology later this month.
Saietta Group PLC (AIM:SED) was in strong demand after the electric drive train specialist announced a second significant order in less than two months. Shares climbed over 18%.
Phoenix Group Holdings PLC (LSE:PHNX), the life insurer, jumped to the top of the FTSE-100 movers list with a 5% add as it said cash generation following the merger of its funds with Standard Life had surged.
Avingtrans PLC (AIM:AVG) shares gained nearly 7% gained after the company said its US business, Hayward Tyler Inc., had been picked to design and develop production pumps for the Natrium Reactor Demonstration Project in Wyoming in a deal that “presents a significant growth prospect” and will boost the subsidiary’s capabilities.
Shares in FTSE 250-listed software company Kainos Group PLC (LSE:KNOS) were off more than 20% on Monday in response to the company’s latest interim results.
Shares of the iconic German-founded British boot brand Dr Martens PLC (LSE:DOCS) hit a new all-time low on Monday, taking the FTSE 250 constituent 75% below its 2021 flotation price. Shares were swapping for 107.5 at the time of writing.
1:03pm: Barclays downgrade gives Dr Martens shares a kicking
Dr Martens shares are down 6.5% today after Barclays analysts moved the bootmaker to neutral from overweight.
The broker cited four main reasons behind the rating downgrade which also the price target slashed to 140p from 175p.
Firstly, Barclays said lead indicator data for Dr. Martens from both Google Trends and Similarweb looks weak.
Secondly, there is a significant second half weighting for the company to meet 2024 financial year numbers.
“If macro weakness affects trading, there is a lot to deliver in H2,” Barclays pointed out.
Thirdly, it has concerns that the focus on direct to consumer growth and the better gross margin achieved from this overlooks the increased capital intensity as the company expands more stores.
Finally, from a valuation perspective, the shares trade on an 2024 PE of c11x which may not “appear especially demanding,.”
“However, given that many consumer facing stocks under our coverage trade on similar/lower multiples, we believe there are richer pickings elsewhere,” it said.
12:31pm: Asking prices fall at fastest rate in five years - Rightmove
Asking prices for homes in Britain have fallen at their fastest pace in five years for the time of year, according to property website Rightmove this morning.
New seller asking prices dropped by 1.7%, or over £6,000, this month to an average of £362,143, Rightmove reported. the largest November drop since 2018.
Fleeting listing optimism in Oct is quickly replaced with realism. Asking prices fall -1.7% (-£6,088) to £362,143 in Nov 23, the largest fall for the time of year in 5ys. Properties at the top of the ladder falling further & selling less than those on the lower rungs @rightmove pic.twitter.com/Md35wZKVVl
— Emma Fildes (@emmafildes) November 13, 2023
Tim Bannister, Rightmove’s director of property science, says:
Despite the turbulent end to 2022, the year to date has been better than many expected. Asking prices have eased from the unsustainably frothy heights seen during the pandemic markets, where many sales went to best and final bids.
However, new seller asking prices are now just 3% behind May’s peak and this relatively small fall in asking prices, coupled with stable numbers of new properties coming to the market each month, are strong indicators that forced sales are not widespread.
12:04pm: Subdued start seen on Wall Street
It's looking like a pretty subdued start to the week in the US ahead of inflation figures on Tuesday, and after Moody’s lowered its credit rating outlook for the US on Friday.
In pre-market trading, futures for the Dow Jones Industrial Average were flat, while those for the S&P 500 were 0.2% lower, and contracts for the Nasdaq 100 futures were down 0.2%.
Moody’s on Friday highlighted “very large” fiscal deficits and partisan gridlock in Washington as contributing factors for the downgrade.
It reaffirmed the credit rating at AAA but lowered the outlook to negative from stable.
“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues,” the agency said.
“Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.”
Joshua Mahony at Scope Markets said the decision signalled a growing feeling that the country is becoming increasingly unstable under the weight of increased debt and ballooning repayment costs.
Stocks to watch include Boeing with shares up almost 3.4%, lifted by a $52 billion deal with Emirates, as well as reports that China is weighing an end to a freeze on purchases of Boeing aircraft.
US President Joe Biden and Chinese premier Xi Jinping are due to meet on Wednesday.
11:34am: Royal Mail fine shows execution risks remain high
Shares in Royal Mail owner International Distributions Services PLC are down 1.2% after the fine from Ofcom.
Liberum’s Gerald Kho said “This validates our concerns about Royal Mail’s ability to successfully implement restructuring.”
“The execution risk is high, both in management’s plans being implemented fully, and in successfully implemented actions yielding the anticipated effects.”
AJ Bell’s Russ Mould felt the fine showed “confirmation that Royal Mail cannot do its job properly.”
““Last week Royal Mail lost its 360-year monopoly on delivering parcels from Post Office branches as rivals Evri and DPD were added as alternative options for customers,” he pointed out.
“This is the latest in a string of setbacks for the business as competition intensifies and consumers and businesses vote with their feet, realising they don’t have to stick with Royal Mail,” he added.
Mould thinks improving service levels are crucial if IDS wants to stand a chance of returning Royal Mail to profitability but he said the firm seems be in a “constant state of flux.”
“While its overseas parcel arm GLS is taking one step forward, this always seems to be offset by Royal Mail taking one step back.”
11:07am: BAE's order book gives earnings visibility
BAE Systems’ trading update has gone down well in the City with shares up 0.7%.
The stock was one of the few risers on Friday in the sea of red which engulfed the blue-chip index.
Analysts at Berenberg said It was “strong” trading update this morning, with the group continuing the broad-based momentum from the first half.
It highlighted that order intake was ahead of guidance issued at half-way and as a result thinks BAE may end the year with a level of order intake not far below the record high £37 billion achieved in 2022, further improving visibility.
“While we did not expect an upgrade to full-year guidance, we note consensus is at the upper end of the 10-12% EPS growth guidance, and as such there is little scope for upgrades following this update,” the broker said.
AJ Bell’s Russ Moul felt the encouraging thing for BAE and its shareholders is that the contracts it is winning tend to be long term in nature and, as a result, the company has good visibility on revenue, earnings and cash flow over several years.
He suggested the more muted share price response may reflect “some disappointment at a lack of further upgrades” after the company’s boost to guidance at the half year stage in August.
10:26am: Former PM Cameron returns to politics as Braverman exits
Away from the markets and news of a big political comeback.
Former Prime Minister David Cameron has been appointed Foreign Secretary as the current incumbent of No 10 Downing Street Rishi Sunak reshuffles his cabinet ahead of a forthcoming General Election.
The King confers a peerage on David Cameron so the former Prime Minister (who resigned as MP for Witney) can return to government as Foreign Secretary (but he’ll be answerable to, and speak from, the House of Lords, not the Commons) pic.twitter.com/TZ8Au3Bo2w
— Chris Ship (@chrisshipitv) November 13, 2023
Cameron takes over from James Cleverly, who is the new Home Secretary, succeeding Suella Braverman who has been sacked.
Cameron, who resigned as Prime Minister, after failing to win the Brexit referendum, will join the House of Lords as he is no longer an MP.
Braverman's exit ends a controversial tenure at the Home Office, in which she recently prompted widespread anger with her comments on rough sleeping being a “lifestyle choice” and criticism of the Met Police’s handling of pro-Palestinian protests in recent days.
9:52am: Tullow Oil facility removes key drag on share price
Peel Hunt thinks Tullow Oil's new new facility represents important third-party validation of its business model, particularly given it is from a single counterparty who is a major player in the commodities space.
Tullow has now entered into oil marketing and offtake agreements with Glencore for its Ghana and Gabon production, it pointed out.
"In our view, the new US$400m facility significantly de-risks Tullow’s ability to refinance its 2026 notes," the broker said.
"This uncertainty has been a key drag on the share price," it explained.
The broker reiterated its 75p target price and buy rating.
Shares remain in demand, up 7.9%
9:43am: Tullow Oil jumps after financing deal
Tullow Oil PLC (LSE:TLW) shares have risen 7.3% after agreeing a $400 million five-year notes facility agreement with Glencore Energy UK Limited.
The facility will be available to draw for 18 months and proceeds will be used for liability management of Tullow's senior notes maturing in March 2025.
The interest on the facility will be Term Secured Overnight Financing Rate plus 10% on drawn amounts.
Tullow also announced that it has entered into oil marketing and offtake contracts with Glencore for Tullow's crude oil entitlements from the Jubilee and TEN fields in Ghana and the Rabi Light entitlements in Gabon which run concurrently with the notes facility agreement.
Rahul Dhir, chief executive officer said: “Glencore's $400 million facility commitment is a strong endorsement of our business plan and strategy.”
“Today's announcement demonstrates our ability to access long term capital from a variety of sources.”
9:12am: British Land buoyed by resilience of retail parks
Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown said British Land has had a reasonable first half, buoyed by the continued resilience of retail parks.
Customers are still preferring to shop in these locations, due to the convenience of parking and calibre of stores, she noted.
British Land’s big bet comes in the form of its campuses, which are relying on a continued demand for high quality hybrid office space, she explained, adding while early indications are “positive, the outlook is less clear.”
A return to more full-time office hours is still possible and would leave British Land exposed, she suggested.
On the flipside, British Land does have best in-class assets, across corporate and retail spaces – the question isn’t about management strength or strategy, but rather the shape of demand in these two tricky sectors.
“Interest rates have continued to dent the valuation of the portfolio, but the group remains positive that rates have peaked. Should that be true there will be space for a recovery, but the higher-for-longer narrative does clip potential in the medium term,” she said.
Pee Hunt said the results look "pleasing at first glance, with the portfolio down just 2.5% in the period, and the two key elements - campuses (-4.0%) and retail parks (+0.2%) - both outperforming."
"Operationally the portfolio seems to have performed well, with occupancy at 96% (vacant space largely in campuses) and an expectation that ERV growth guidance will be at the top end of ranges for 2024E," the broker added.
Shore Capital said: "The leasing environment across the group looks reasonably positive with ERV growth targeted at Campuses of 2-4%, Retail Parks 3-5% and London Urban Logistics 4-5%."
Analyst Andrew Saunders said: "With our expectation that the likely peak in the current interest rate cycle as now been achieved, we see sentiment improving across the sector and we are encouraged by British Land’s commentary this morning with positives and negatives broadly cancelling out for the time being."
8:50am: FTSE 100 extends gains
The FTSE 100 has extended its early gains, now up 46 points at 7,406.
Susannah Streeter, head of money and markets, Hargreaves Lansdown said: “’The FTSE 100 has found a dose of Monday motivation amid hopes that peak interest rates have been reached, despite warnings about America’s huge debt pile and ongoing geo-political fracture.”
“British Land has helped cement a more upbeat mood, helped by the performance of its retail parks portfolio,” she said.
“Results appear to have spread wider cheer about the resilience of the UK economy, with the company expecting rents for commercial property to rise next year,” she added.
Phoenix Group Holdings PLC (LSE:PHNX) tops the risers, up 7.6%, after its raised cash generation targets with Land Securities, up 2.0%, lifted by the positive reaction to British Land’s results, which is now up 6.5%.
Elsewhere, Dr Martens is down 3.2% after Barclays downgraded to neutral from overweight and slashed its price target to 140p from 175p.
8:15am: FTSE 100 makes early headway
The FTSE 100 made a bright start to the week after Friday’s sell-off ahead of inflation figures either side of the Atlantic this week.
At 8:15am, London’s blue-chip index was up 30.38 points, 0.4%, at 7,390.93 while the FTSE 250 was up 27.53, 0.2%, at 17,880.62.
BAE Systems PLC (LSE:BA.) gained 0.8% after it confirmed guidance for the full-year amid a strong order book.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown explained “BAE occupies a key space in the defence market, and another promising update proves why the group’s so highly regarded in the defence space.”
Also on the rise was Phoenix Group Holdings PLC (LSE:PHNX) which jumped 5.9% after it upgraded its near-term cash generation targets.
The life assurer has boosted the target for the year from £1.3 billion to £1.4 billion to around £1.8 billion, after completing an internal merger of subsidiaries that dates back to its Standard Life acquisition five years ago.
British Land rose 3.5% after it said predicted rental value growth would be at the top-end of guidance.
Shore Capital said with the “expectation that the likely peak in the current interest rate cycle as now been achieved, we see sentiment improving across the sector and we are encouraged by British Land’s commentary this morning with positives and negatives broadly cancelling out for the time being.”
Vodafone Group PLC (LSE:VOD) was little changed, up 0.1%, after it announced a strategic tie-up with Accenture (NYSE:ACN) while M&G PLC (LSE:MNG) rose 1.7% after JPMorgan upgraded to neutral from underweight.
7:58am: Royal Mail fined for missing delivery targets
Royal Mail owner, International Distributions Services PLC (LSE:IDS), has been fined £5.6 million by the UK communications regulator.
Ofcom said the British mail delivery service failed to meet its first and second class delivery targets in the 2022/23 financial year, even after adjusting for industrial action, extreme weather and the Stansted runway closure.
"Clearly, the pandemic had a significant impact on Royal Mail's operations in previous years," said Ofcom Director of Enforcement Ian Strawhorne.
"But we warned the company it could no longer use that as an excuse, and it just hasn't got things back on track since."
"The company's let consumers down, and today's fine should act as a wake-up call - it must take its responsibilities more seriously."
"We'll continue to hold Royal Mail to account to make sure it improves service levels."
7:49am: Phoenix lifts cash generation targets
Phoenix Group Holdings PLC (LSE:PHNX) has upgraded its near-term cash generation targets on completion of funds merger through a Part VII transfer.
The lie insurer said the funds merger through a Part VII transfer of Standard Life and Phoenix Life businesses into a single entity has been completed
This has led to a material one-off upgrade to the group's 2023 cash generation target from £1.3-to-1.4 billion to c.£1.8 billion.
The group's three-year cash generation target consequently increases from £4.1 billion to £4.5 billion across 2023-2025
The increased cash generation targets create further “balance sheet optionality”, Phoenix said.
7:42am: British Land lifts hopes for rental value growth
Also reporting today, British Land Co PLC which saw a drop in net asset value but forecast top-end rental value growth after an acceleration in the first half of the year.
“We are benefitting from our value-add strategy in campuses, retail parks and London urban logistics,” it said.
“These segments have the strongest fundamentals within the London office, retail and logistics sectors,” it added.
Simon Carter, CEO said he was “pleased” with the performance with profits rising on the back of another strong period of leasing and good cost control.
“Rental growth has accelerated, with lettings 12% ahead of ERV, and occupancy remains strong at 96% well above levels in the wider market,” he noted.
British Land now expects ERV growth at the top end of its previously guided ranges for the financial year with Campuses up 2-4%, Retail Parks up 3-5% and London Urban Logistics up 4-5%.
The FTSE 250-listed property firm said in the six months ended September 30, underlying pre-tax profit rose 3.4% to £142 million from £138 million the year before while EPS climbed 3.4% to 15.2p from 14.7p.
EPRA net asset value per share fell 3.9% to 565p from 588p but the firm reported estimated rental value (ERV) growth of 3.2% with Campuses up 3.2%, Retail Parks up 4.0% and London Urban Logistics up 3.1%.
The firm remained comfortable with current market expectations for 2024 earnings.
Carter said with “our portfolio yield now over 6% and an increased likelihood we are approaching the peak in UK base rates we expect the strong occupational fundamentals of our submarkets, together with the differentiated quality of our assets, to reassert themselves as the primary drivers of performance."
7:24am: BAE Systems backs guidance amid strong order book
We're of and running with a trading update from BAE Systems PLC (LSE:BA.) which reported the order book remained strong as it confirmed guidance given alongside half-year results.
Charles Woodburn, BAE Systems chief executive, said: “Trading has been in line with the upgraded guidance we issued at the time of our 2023 half-year results.”
“We are delivering another year of good sales and earnings growth, together with strong cash flow generation.”
"Order flow on new and existing programmes, renewals on incumbent positions and progress with our opportunity pipeline remains strong."
BAE reported a strong order intake had been maintained with around £10 billion booked since half-year, meaning order intake for the year to date is over £30 billion.
Woodburn said these orders “underpin our confidence and visibility for good top line growth in the coming years.”
The FTSE 100-listed defence manufacturer said trading reflected good operational performance and effective supply chain management.
For the full-year, BAE expects sales growth of 5% to 7% from £23.26 billion last year and underlying EPS to rise 10% to 12% from 55.5p last time.
7:00am: FTSE 100 called higher ahead of inflation figures
The FTSE 100 is expected to open higher as investors look ahead of inflation readings in the UK and US this week.
Spread betting companies are calling London’s lead index up by around 20 points after closing down 95.12 points at 7,360.55 on Friday.
US inflation figures are due on Tuesday and investors will be hoping the data backs the growing hopes that interest rates have peaked.
"While it seems improbable that anything less than a significant escalation in the current incoming price data would be sufficient to reconsider the possibility of a rate hike in December, this week's upcoming inflation figures from the US will likely reinforce the Federal Reserve's position that it is premature to conclusively determine whether consumer price growth in the world's largest economy is firmly and sustainably on track to reach the targeted 2%," said SPI Asset Management's Stephen Innes.
On Friday, US markets closed higher, while in Asia today, markets were mixed.
After the US market close, credit ratings agency Moody's on Friday downgraded its outlook on US debt to negative from stable, one week before crucial budget negotiations in Congress.
It maintained its AAA rating on US government debt.
Back in London, and a trading update from BAE Systems is expected plus house price data from Rightmove.