ADVFN Morning London Market Report: Tuesday 4 August 2020

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London open: Stocks edge lower with BP, Diageo earnings in focus

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London stocks edged lower in early trade on Tuesday following strong gains in the previous session, as investors sifted through results from the likes of BP and Diageo.

At 0900 BST, the FTSE 100 was down 0.2% at 6,021.58.

Diageo was the worst performer on the FTSE 100 as the drinks company proposed an unchanged final dividend and reported a 15% drop in underlying annual profit caused by the Covid-19 crisis. Operating profit before exceptional items for the year to the end of June fell to £3.49bn from £4.12bn as net sales dropped 9% to £11.8bn.

Babcock fell sharply as the aerospace and defence company said first-quarter underlying revenue fell 11% from the same period a year ago, while underlying operating profit slumped 40%.

Workspace provider IWG was under the cosh as it posted a widening of its first-half losses, while Spectris slid despite saying it had performed better than it expected in the first half and reinstating its dividend.

Centamin lost its shine even as the gold miner hiked its interim dividend by 50% after first-half profit more than tripled as the price of gold soared.

On the upside, BP was the top gainer despite halving its quarterly dividend for the first time in a decade as it swung to a $6.7bn second quarter loss as the coronavirus pandemic slammed demand for oil.

Richard Hunter, head of markets at Interactive Investor, said there were “glimmers of hope through these dark clouds for BP”.

“In reshaping its business by disposing of non-core assets and reducing capital expenditure where possible, there are some immediate signs of improvement. The net debt figure has reduced in the quarter by $10.5bn to stand at $40.9bn. Although this leaves the current gearing figure at 33.1%, well in excess of its targeted range of 20% to 30%, it nonetheless represents an improvement from 36.2% at the end of the first quarter.

“Meanwhile, extra headroom has been secured, partly by some new bond issuance, with the access to liquidity figure now standing at $47bn, as compared to $32bn three months prior. For the quarter, a strong contribution from its oil trading unit mitigated some of the pain being felt elsewhere. With an eye to the future, BP has an enlarged presence in alternative energies, with wind and solar power in particular becoming areas of focus.”

He said the positive share price move reflects appreciation of the steps being taken, and at pace, such as the dividend reduction. “At the same time, it is also possible that much of the sting had already been taken out of the price, given the company’s immediate prospects being limited in the current environment,” he added, pointing to a decline of 47% over the last year compared to a drop of 19% for the wider FTSE 100.

Elsewhere, Melrose Industries rallied after amending its financial covenants to give the company “considerable headroom and flexibility”.

EasyJet flew higher after saying it expects to report a smaller loss for the third quarter of the year than the third and that it is expanding its flight schedule. The budget airline now expects to fly around 40% of planned capacity in the fourth quarter, up from the 30% previously expected.

Car insurer Direct Line was up after it lifted its dividend and declared a special “catchup” payout to make up for cancelling its 2019 disbursement, as it reported a fall in profits.

Rotork gained as it reported a 4% decline in first-half profit as revenues were dented by the Covid-19 pandemic, but reinstated its previously-deferred final dividend for 2019.

 

Top 10 FTSE 100 Risers

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# Name Change Pct Change Cur Price
1 Easyjet Plc +11.47% +58.20 565.40
2 Bp Plc +7.56% +21.25 302.30
3 Direct Line Insurance Group Plc +7.41% +22.80 330.40
4 Rolls-royce Holdings Plc +6.68% +15.40 245.80
5 Bt Group Plc +6.36% +6.23 104.25
6 International Consolidated Airlines Group S.a. +5.65% +9.25 173.10
7 Melrose Industries Plc +5.53% +4.88 93.10
8 Tui Ag +3.58% +10.30 298.20
9 Hiscox Ltd +3.50% +26.40 781.60
10 Royal Dutch Shell Plc +3.15% +36.00 1,179.40

 

Top 10 FTSE 100 Fallers

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# Name Change Pct Change Cur Price
1 Diageo Plc -6.04% -174.00 2,707.00
2 Intertek Group Plc -3.02% -170.00 5,452.00
3 Rentokil Initial Plc -2.76% -15.20 535.60
4 Hargreaves Lansdown Plc -2.33% -42.50 1,782.50
5 Berkeley Group Holdings (the) Plc -2.32% -106.00 4,454.00
6 Experian Plc -2.31% -64.00 2,709.00
7 Astrazeneca Plc -2.22% -195.00 8,572.00
8 London Stock Exchange Group Plc -2.12% -184.00 8,502.00
9 Hikma Pharmaceuticals Plc -1.85% -41.00 2,174.00
10 Croda International Plc -1.75% -102.00 5,718.00

 

US close: Solid gains on the Street following manufacturing PMIs

Wall Street stocks closed higher on Monday as market participants turned their attention towards stimulus talks in Washington and a reading of July’s purchasing manager index.

At the close, the Dow Jones Industrial Average was up 0.89% at 26,664.40, while the S&P 500 was 0.72% firmer at 3,294.61 and the Nasdaq Composite saw out the session 1.47% stronger at 10,902.80.

The Dow closed 236.08 points higher on Monday, carrying on with gains recorded at the end of the previous session after AppleAmazon and Facebook all posted far-better-than-expected quarterly financial results the evening before.

Monday’s main focus was talks between Republican and Democratic lawmakers on Capitol Hill as discussions reached an impasse over certain components of the nation’s next Covid-19 relief bill. The key issue between the two parties was over the amount of a federal boost to unemployment assistance, which was set at $600 per week in March but had just expired during the previous week.

While the White House has indicated desires to reduce the federal assistance to just $200 a week, Democrats were backing a move to keep the $600 payments in place. Other provisions, such as another round of $1,200 stimulus checks, had broader support from both sides of the aisle.

Elsewhere, while a dollar bounce took somewhat of an edge off a recent surge in gold prices, it still saw fit to take another run at $2,000 early on Monday.

In corporate news, Eli Lilly shares closed higher 2.19% after revealing it had begun phase three trials of a drug aimed at preventing coronavirus, while Clorox shares were down despite posting a strong quarterly earnings report.

Shares in home security firm ADT skyrocketed after revealing Google parent company Alphabet had taken up a 6.6% stake in the group, while Microsoft shares gained after confirming reports that it was in talks to purchase social video app TikTok.

On the macro front, the IHS Markit US manufacturing PMI for July was revised lower to 50.9 on Monday from a preliminary estimate of 51.3.

However, the latest figure was still seen as signalling a marginal improvement in the performance of the US manufacturing sector as it was the first increase in the index since February.

On the other hand, according to the Institute for Supply Management, economic activity in the US’ manufacturing sector expanded at a stronger pace in July than in the prior month, with the ISM’s manufacturing PMI improving from 52.6 to 54.2 – ahead of expectations for a reading of 53.6.

Lastly, construction spending recorded a fourth straight decline in June as the Covid-19 pandemic continued to wreak havoc on the US economy. Spending on construction projects fell 0.7% in June, with both home building and non-residential activity declining, according to the Commerce Department.

 

Tuesday newspaper round-up: Advertising spend, leisure jobs, AA

Advertising spend across the UK media fell by more than £1bn year on year during the coronavirus lockdown, according to figures that reveal the government has become the UK’s biggest advertiser during the pandemic. UK advertising spend on traditional media – TV, newspapers and magazines, radio and cinema as well as on poster sites and billboards across the country – almost halved from the start of lockdown on 23 March to the end of June. – Guardian

Boris Johnson’s plea that people “should be going back to work” in offices across England from Monday appeared to have gone unheeded in central Birmingham. In the Colmore business district, which normally has 35,000 workers, most office blocks were largely deserted and at the city’s train stations at rush hour only a handful of people sauntered out, mostly heading to work in shops or hospitals rather than to office-based jobs. – Guardian

Employers should not rush to bring staff back to workplaces despite new rules that allow bosses to compel workers back to the office coming into force on Monday, the Chartered Institute of Personnel Development has warned. – Telegraph

More than 3,000 jobs are in danger in the leisure and retail industries as Covid-19 continues to land heavy blows on the high street. About 1,700 jobs are at risk from the collapse of DW Sports, the retailer and gym group, while Hays Travel will cut 878 jobs. Hundreds more are set to go at M&Co, the Scottish clothing chain, as part of a pre-pack administration that will lead to about 50 of its 260 shops closing. – The Times

A takeover battle is brewing for the AA after the self-styled fourth emergency service attracted bid interest from private equity firms. The Times has learnt that at least two private equity firms have made initial contact, with one rumoured to have mooted an offer of 40p a share – equating to a market value of about £250 million, or about £2.9 billion including £2.6 billion of debt. – The Times

 

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