- FTSE 100 closes down 52 points at 7,629
- Barratt buys Redrow in £2.5bn deal
- Sainsbury to cut £1bn costs, £200mln buyback
4:40pm: FTSE 100 closes near lows for the day
The FTSE 100 closed near its worst levels for the day hit by falls in Barratt Developments and J Sainsbury.
At the close, London's blue-chip index was down 52.26 points at 7,629 while the FTSE 250 was 66.81 points lower at 19,104.53.
Chris Beauchamp, chief market analyst at online trading platform IG said the "seesaw battle going on in the FTSE 100 swung the way of the bears today."
"Barratt Developments slumped on news of its acquisition of rival Redrow, and a poorly-received update from Sainsbury’s hit supermarket shares."
"Despite the index’s relative cheapness, it remains firmly unloved, and languishes well off its record highs even as its peers in Europe and the US continue to look well-placed for more gains," he added.
Sainsbury ended down 5.9% as the scale of buyback and cash flow savings disappointed the market while Barratt Developments shed 5.7% after buying Redrow.
Vodafone slipped 3.6% as Citi cut its price target to 68p but it was a better was Smurfit Kappa, up 3.6%, after well receievd results, which also dragged DS Smith higher.
3:48pm: Fitch says UK banks will see robust performance in 2024
Major UK banks will achieve a “robust” performance in 2024, ratings agengy Fitch has predicted.
The ratings agency predicted that the banks’ strong earnings power, capital, and liquidity buffers will help them handle the aisks arising from “the tough macroeconomic environment”.
It said: "The effects of higher interest rates on the UK economy will be increasingly visible in 2024."
"This will affect the UK banks’ performance, but we expect that asset-quality deterioration, higher funding costs and competitive pressure on lending margins will affect the performance of the largest banks only slightly."
"Profitability should remain strong, despite our expectations for net interest margins to contract, reflecting higher interest rates, structural hedge income, manageable loan impairment charges and controlled cost growth."
2:45pm: US stocks make a bright start
Stocks made a bright start to the day with the S&P 500 creeping ever closer to the 5,000 mark.
Shortly after the opening bell, the Dow Jones Industrial Average was up 0.4% at 38,668.65, the S&P 500 was up 0.5% at 4,977.03 and the Nasdaq Composite was up 0.4% at 15,670.64.
Stocks on the move include Snap, down 31%, after a revenue miss and weak guidance, while car maker Ford gained 5.2% after beating Wall Street’s fourth-quarter estimates and issuing higher-than-expected full-year guidance.
Enphase Energy jumped 17% after the solar company said its inventory glut may be approaching a bottom, boosting the solar sector, with Solaredge Technologies surging 11%.
2:05pm: Vodafone risk/reward to the downside, says Citi
Shares in Vodafone are under pressure today after Citit cut its price target to 68p per share.
Commenting after Monday’s “uneventful” third quarter results, the broker said the focus shifts to the upcoming quarters.
It thinks German trends should come under pressure as from January the impact of the housing association contract changes kicks in, while comparatives on broadband service revenues also get tougher from April.
“We see potential for a rerating as we head into financial 2026 when earnings momentum may shift, but in the meantime - despite an attractive valuation - we believe the risk reward is to the downside.”
Citi has a neutral rating on the telco.
1.32pm: Here’s a recap of the top risers and fallers on the market today
Smurfit Kappa Group plc (LSE:SKG) shares rose almost 5% after final results from the packaging group were not as bad as feared, with the final dividend increased 10% and sales volumes starting to recover.
Shares in Redx Pharma PLC (AIM:REDX) jumped 40% after it inked a deal with Jazz Pharma worth a headline US$880 million.
Redrow PLC (LSE:RDW) shares surged 12% following the announcement of the housebuilder's £2.5 billion all-share acquisition by Barratt Developments PLC (LSE:BDEV), with the latter saying it brought together two "highly complementary companies".
Palace Capital PLC (LSE:PCA), the real estate investment trust (REIT), jumped 5% after it announced a series of disposals, with proceeds used to reduce its debt pile.
Imperial Leather manufacturer PZ Cussons (LSE:PZC) was flung 19% lower in response to a slashed dividend and an 18% year-on-year fall in revenue to £277.1 million in the six months to 31 December 2023.
1:04pm: Sainsbury buyback and FCF guidance falls short
Back to Sainsbury now, where shares have fallem 3.8% today after its unveiled its new strategic blue-print.
While the strategic vision seems to have been well received there has been a more underwehelming reaction to the financial guidance and the share buyback.
Morgan Stanley (NYSE:MS) said: "Overall we think the goals are a natural evolution building on the work done so far and have strong strategic rationale."
But "we have questions on price investment plans, as the headline figures don't immediately suggest an upgrade to our free cash flow/earnings before interest, tax, depreciation and amortisation estimates".
It said the figures imply an underlying step in 'steady state' operating cash flow of about GBP80 million to GBP100 million versus the current run-rate, which is its base case already.
The bank said the GBP200 million buyback was below its GBP250 million forecast.
"Overall putting it all together – we think that the buyback and the FCF/profitability guide may be a touch lower vs market expectations based on our conversions with investors."
12:18pm: US markets seen little changed
Stocks futures were little changed on Wednesday as investors await fresh catalysts for direction.
In pre-market trading, futures for the Dow Jones Industrial Average were down 0.1%, while those for the S&P 500 were flat and contracts for the Nasdaq 100 futures rose 0.1%.
There will be more ‘Fedspeak’ while earnings continue to roll in.
US Federal Reserve governors Adriana Kugler and Michelle Bowman will make separate appearances while the presidents of the Fed’s Boston and Richmond branches, Susan Collins and Thomas Barkin, will also speak.
It’s set to be another busy day for earnings with Disney, Uber, Yum Brands, Roblox, Brookfield Asset Management (TSX:BAM.A) and Fox reporting before Wall Street’s opening bell.
PayPal, Coty, News Corp (NASDAQ:NWSA) and Mattel will post their earnings after the market closes.
11:38am: Ashmore confident despite AUM fall
Shares in Ashmore have nudged lower after reported a fall in assets under management although it expressed confidence in its outlook ahead of expected cuts to global interest rates.
The London-based emerging markets-focused investment manager said in the six months ended December 31 assets under management were $54.0 billion, down 3% from $55.9 billion at June 30.
Net revenue declined 14% to £94.5 million from £110.3 million the year prior, reflecting lower average assets under management and reduced foreign exchange gains, partially offset by higher performance fees.
It declared an unchanged interim dividend of 4.8p per share.
Looking ahead, Chief Executive Mark Coombs was optimistic.
"Emerging Markets have continued to perform strongly over the six months, and the factors driving this performance - superior growth, effective monetary policies and a weaker US dollar as the Fed reaches the end of its tightening cycle - look set to underpin further increases in asset prices in 2024," he said.
11:00am: Sainsbury's plans bold but will they work
AJ Bell's Russ Mould described Sainsbury’s strategy plans as "bold," with a clear vision to get customers to spend more money, attract more people to its stores, and drive more traffic to Argos’ website, stores and supermarket concessions.
“However, its growth plan is not something that is guaranteed to work its magic," he cautioned.
Achieving the goal is another matter and it will cost money – something the market typically hates, he added.
Shares in Sainsbury have fallen 3.7% with some in the market disappointed about the scale of the £200 million buyback and the extent of cost savings.
Mould pointed out shares in Tesco and Marks & Spencer also fell as they face "new competitive threats."
He said the grocery space is already highly competitive and other supermarkets have their own initiatives in the fight to grow market share.
Mould questioned how Argis would fit into the new Sainsbury.
“The Argos brand has considerable weight in the retail sector but it doesn’t have frequent shoppers," he explained.
10:09am: BoE's Breedon less concerned that rates need to rise further
Bank of England deputy governor Sarah Breeden is less conerned that UK interest rates will need to be raised higher to fight inflation.
She said in a speech that the pace of pay growth, and price rises by companies, will determine how soon UK interest rates should be cut.
She said: "As I have become more confident that persistence is likely to evolve as embodied within our forecast, I have become less concerned that rates might need to be tightened further."
"Instead my focus, and indeed the focus of many on the MPC, has shifted to thinking about how long rates need to remain at their current level."
9:47am: Smurfit Kappa jumps on dividend boost, earnings above its target
Top of the FTSE 100 risers is Smurfit Kappa Group plc (LSE:SKG), up 6.1%, despite reporting a drop in adjusted earnings and revenue in 2023.
The Dublin-based packaging company reported revenue in the 12 months to December 31 fell 12% to €11.27 billion from €12.82 billion the year prior, with pretax profit down 18% to €1.06 billion from €1.29 billion.
Earnings before interest, tax, depreciation and amortisation fell 12% to €2.08 billion from €2.36 billion while the return on capital employed dipped to 17.1% from 21.8%.
Chief Executive Tony Smurfit said the results were "the second best in our 90 year history," with Ebitda and ROCE "above our target."
Smurfit said the demand environment for the industry in 2023 was difficult primarily due to destocking and a lack of economic activity in certain sectors, particularly durable goods.
The firm also boosted the dividend 10% to 118.4 euro cents.
9:15am: House prices rise for fourth month in a row - Halifax
The housebuilding sector is very much in the news today with Halifax reporting UK house prices jumped in January for the fourth month in a row, rising 1.3%.
The lender said average house prices were 2.5% higher than a year ago, the highest annual growth since January 2023.
The typical UK home now costs £291,029, over £3,900 more than last month, Halifax said.
Kim Kinnaird, director, Halifax Mortgages, said: “The recent reduction of mortgage rates from lenders as competition picks up, alongside fading inflationary pressures and a still-resilient labour market has contributed to increased confidence among buyers and sellers.”
“However, while housing activity has increased over recent months, interest rates remain elevated compared to the historic lows seen in recent years and demand continues to exceed supply.”
8:41am: Barratt deal a "seismic shift" for sector
Richard Hunter, head of markets at interactive investor, said Barratt’s takeover of its FTSE250 rival Redrow is a “seismic shift” for the sector.
It reflects not only the challenges which housebuilders have more recently faced in terms of the economic backdrop, but also a move to shore up the capabilities of two major players, with the new “Barratt Redrow” company having aggregate revenues of £7.45 billion.
A combined land pipeline of 92345 plots gives the new combined entity significant firepower as and when economic constraints abate, while a combined net cash position of £874 million also allows room for further expansion as and when the opportunities arise, he said.
Complementary geographical footprints add a further intriguing dimension to the deal.
Hunter said the rationale for the deal remains in sharp focus, with the toxic cocktail of housebuilder headwinds continuing to wash through.
Squeezed mortgage affordability and broader concerns over general economic growth have all darkened the picture.
At the same time, the removal of the Help to Buy scheme has removed an important plank from first-time buyers and legacy costs for remedial building work continue to come at a significant cost, totalling some £62 million in this period, he noted.
8:15am: FTSE 100 edges higher
The FTSE 100 opened modestly higher as investors digested news of a big deal in the housebuilding sector.
At 8:15am, London’s blue-chip index was up 12.38 points, 0.2%, at 7,693.39 while the FTSE 250 was up 0.2% at 19,210.18.
Barratt Developments fell 2.6% after agreeing a £2.5 billion deal to buy Redrow which soared 17%.
Other builders such as Crest Nicholson jumped in response, rising 7.3%.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’The economic winds have not been kind to the housebuilders and Barratt Developments and Redrow clearly believe they’ll be stronger together, giving the new combined company much bigger clout to capitalise on the structural need for housing in the UK.”
“Redrow’s share price has struggled to regain its pre-pandemic form and with Barratt enjoying a strong balance sheet and hefty cash reserves it clearly decided the time was right to make a move,” she added.
Sainsbury‘s strategy update has failed to inspire the market with shares down 1.7%.
The food retailer pledged a £200 million share buyback in the next financial year and announced plans for a £1 billion share buyback.
Elsewhere, PZ Cussons (LSE:PZC) plunged 12.2% after cutting its dividend and lowering guidance after taking a hit from the devaluation of the Nigerian naira.
7:48am: Sainsbury to cut £1bn in costs, pledges £200mln buyback
J Sainsbury PLC (LSE:SBRY) has unveiled its eagerly awaited strategy update which includes plans for a £200 million share buyback and £1 billion of cost cuts over three years.
The food retailer said the "Next Level Sainsbury's" strategy would put food back at the heart of Sainsbury's, reset its competitive position and create a strong financial platform.
It made eight commitments to deliver by March 2027, including £1 billion of cost savings over three years to 2027, £1.6 billion plus retail free cash flow over three years and higher return on capital employed.
It expects retail operating profit growth from the start of the plan.
Sainsbury pledged a progressive dividend policy from the start of next financial year and the start of a share buyback programme, with a £200 million buyback during the next financial year.
Capital expenditure will increase to between £800 million and £850 million per year over the next three years and there will be an additional £70 million investment in its smart charge electric vehicle charging network.
7:46am: PZ Cussons (LSE:PZC) cuts dividend, lowers outlook
PZ Cussons (LSE:PZC) PLC slashed its dividend after revenue and profit was dented by the devaluation of the Nigerian naira.
The owner of Carex reported an 18% fall in revenue to £277.1 million from £336.9 million in the six months to December 31 and a pretax loss of £94.2 million compared to a profit of £40.5 million.
The devaluation of the naira saw the firm post a foreign exchange loss in the period of £88.2 million.
Around £53 million of the decline in revenue was attributed to the devaluation.
As a result, the company slashed the interim dividend by 44% to 1.50p.
The company said a further depreciation in the naira means it now expects annual adjusted operating profit between £55-60 million, down from previous guidance of £61.5-68.2 million given in September.
7:25am: Barratt swoops for Redrow in £2.5bn deal
A big deal to report in the housebuilding sector.
Barratt Developments on Wednesday agreed a £2.52 billion takeover of fellow housebuilder Redrow PLC (LSE:RDW).
The all-share deal will see Redrow shareholders receive 1.44 Barratt shares for every one held in Redrow.
In a statement, the companies said this would represent a premium of 27% to Redrow’s closing share price on Tuesday.
On completion, Redrow shareholders will hold around 33% of the combined group and Barratt shareholders around 67%.
The firms described the deal as a “uniquely compelling opportunity,” to “create an exceptional UK homebuilder.”
Barratt believes the combined group can achieve annual pre-tax cost synergies of at least £90 million by the end of the third year following completion, of which around 90% is expected to be delivered by the end of the second year.
One-off costs of delivering these savings are expected to total around £73 million.
The combination is expected to be accretive to Barratt and Redrow's respective adjusted earnings per share in the first year after completion.
Redrow’s founder Steve Morgan has backed the deal.
The news came as Barratt unveiled half-year results which showed a 33.5% drop in revenue to £1.85 billion from £2.78 billion.
Completions fell 28.5% to 6,171 and adjusted pre-tax profit tumbled 69.9% to £157.1 million.
The dividend was slashed to 4.4p from 10.2p.
7:00am: FTSE 100 expected to edge higher at the open
The FTSE 100 is expected to open slightly higher on Wednesday, after a late rally saw Wall Street close in positive territory, while Asian markets were mixed.
Spread betting companies predict London's blue-chip index will rise around 7 points when trading starts after closing up 68.15 points at 7,681.01 on Tuesday.
In New York on Tuesday, the Dow Jones Industrial Average closed up 0.4%, at 38,521.36. The S&P 500 climbed 0.2% and the Nasdaq Composite advanced 0.1%.
In London, a strategy update from J Sainsbury, results from Barratt Developments and the Halifax house price index will provide the early focus.