LONDON MARKETS: U.K. Stocks Falter; 'fundamental Value' Seen In Utilities

By Anneken Tappe

Centrica, United Utilities gain; Fresnillo falls

The U.K. stock market faltered Wednesday as Brexit risk came into focus once again.

Utilities were firmer, however, as Citigroup said it was seeing "fundamental value" in the sector.

How are benchmarks performing?

The FTSE 100 Index pulled back after closing Tuesday's session up 0.5% (http://www.marketwatch.com/story/ftse-100-climbs-led-by-mining-stocks-2018-08-28) for its best daily gain since Aug. 16. It was last down 0.4% at 7,587.48.

Continental European stocks traded around break-even (http://www.marketwatch.com/story/european-shares-tick-higher-but-uk-stocks-dip-2018-08-29), and U.S. stocks showed little enthusiasm as well (http://www.marketwatch.com/story/stocks-aim-for-4th-straight-daily-gain-sp-nasdaq-again-poised-for-records-2018-08-29).

The British pound was little changed against the U.S. dollar, buying $1.2874.

What is driving the market?

European stock action was muted in what is traditionally one of the quietest weeks of the year. Some optimism over global trade remained from President Donald Trump's announcement earlier this week over a trade deal with Mexico.

Investor worries about Brexit negotiations were in focus as Brussels and London now aim to finalize their divorce agreement by mid-November (http://www.marketwatch.com/story/deadline-for-brexit-talks-is-being-pushed-back-again-bloomberg-2018-08-29), later than the previous October deadline, according to a Bloomberg report. The U.K. officially exits the European Union in late March next year, leaving little time to finalize and agreement that will govern the island's relationship with the mainland afterward.

The scenario of a "no-deal Brexit", in which case no agreement can be reached beforehand, is causing investors to worry about possible downside risk, though Prime Minister Theresa May Tuesday said it "wouldn't e the end of the world."

Stocks in focus

Distribution and outsourcing company Bunzl PLC (BZLFY) was leading gainers in the FTSE 100, rising 3%. Investors continued to asses the company's first-half results reported Tuesday (http://www.marketwatch.com/story/bunzl-6-mo-pretax-profit-up-8-sales-top-forecast-2018-08-28) that showed revenue growth of 5% year-over-year, while adjusted earnings per share grew 8% in the same period.

But U.K. utilities were the main focus.

"After several years of exuberant pricing of U.K. utilities, the table has turned in the face of political, regulatory and macro risks," wrote Citi research analyst Jenny Ping in a note. "While we expect a turbulent ride in the months ahead given the uncertainties of Brexit and questions over the stability of the current U.K. government, we cannot ignore the fact that we are starting to see fundamental value."

Among Ping's top buy recommendations in the sector are Centrica PLC(CNA.LN), which she said should benefit from the recent rally in commodity prices as well as earnings visibility, as well as United Utilities PLC(UU.LN), which she said has seen operational fears overdone in its share price. Both companies were among the biggest blue-chip gainers: United Utilities and Centrica PLC rose 1.9% and 2.2%, respectively.

Citi's buy calls also included National Grid PLC (NG.LN). "U.K. risks are now firmly in the shares and we believe exposure to improving U.S. business should also provide hedge in case of further political turbulence."

Decliners included grocery delivery business Ocado Group PLC (OCDO.LN), which was down 2.3%.

Metals and mining multinational Fresnillo (FRES.LN) dropped 2.3%, following an upbeat Tuesday session.

Meanwhile, Aston Martin, the maker of James Bond's cars, is eyeing a billion-pound London IPO, according to The Wall Street Journal (http://www.marketwatch.com/story/aston-martin-eyes-billion-pound-ipo-in-london-2018-08-29).

(END) Dow Jones Newswires

August 29, 2018 05:47 ET (09:47 GMT)

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