Market snapshot as FTSE 100 recovers
The FTSE 100 bounced back after an initial decline, and is now up slightly for the day, with Melrose leading the way.
Take a look at all our key market data.
Lucky Strike maker BAT signs deal to sell Russian business after 18 months
Lucky Strike cigarette maker British American Tobacco (BAT) has signed a deal to withdraw from Russia, 561 days after the country launched its full-scale invasion of Ukraine.
The company, which also makes Dunhill, Kent and Pall Mall, said it has “entered into an agreement to sell its Russian and Belarusian business”, adding that the deal complies with both local and international laws.
It promised to not receive any “financial gain from ongoing sales in these markets”.
Funding Circle sees slowdown in demand as interest rates soar
British small business lender Funding Circle today bemoaned high interest rates and sluggish economic growth as it swung to a loss.
The London-based firm reported a 15% drop in its loan book to £3.5 billion in the first six months of the year, driven by the repayment of loans taken out by small businesses under the Government’s post-Covid Recovery Loan Scheme, while pre-tax losses came in at £16.6 million down from a £1.6 million profit the year before.
Loan originations slipped 27% in the UK, while its US arm showed signs of growth over the same period. That was in-part offset by growth in uptake of its new line of credit product, FlexiPay.
Funding Circle said the “UK economic recovery has been slower than we anticipated” as “Bank of England base rate increases…have raised the cost of borrowing for SMEs.”
CEO Lisa Jacobs told the Standard: “We are seeing a difference in demand where businesses are putting off investment decisions and instead focusing on shorter-term capital.
“Given all the volatility there’s been it’s been a challenge for small businesses to have foresight. I do expect that as there is more certainty in the economy businesses will make more long-term investment decisions that they are today.”
Funding Circle shares fell 1.7% to 40p.
Melrose shares jump on profit lift-off
MELROSE today set out plans to turn the screws on arch rival Rolls Royce as it forecast annual profits of £1 billion amidst an aerospace boom.
With customers playing catch up after Covid and new orders flying in, analysts think the aerospace trade is set for a prolonged boom.
Melrose, no longer an aggressive dealmaker, will focus entirely on its aerospace arm.
That means CEO Simon Peckham and CFO Geoffrey Martin will stand down next year, to be replaced by insiders Peter Dilnot and Matthew Gregory.
In the half-year Melrose saw revenue up 19% at £1.63 billion, while profits jumped from £9 million to £134 million.
It plans to buy back a large chunk of shares and will start in October, earlier than previously guided.
Peckham, after 20 years at Melrose, said: “There will be a big uplift in the aerospace cycle, there is a huge backlog of orders.”
Profit this year will be as high as £385 million with an expectation in the longer run to hit annual profits of £1 billion. That should take three years and puts it in line for a scrap with Rolls Royce, for whom it already makes some engine parts.
If it hits those profit goals, the business could be worth £10 billion. Today the shares jumped 39p to 548p, which values the company at £7.4 billion.
Melrose shares jump after upgrade, Pets at Home down 12%
Melrose Industries is the leading riser in the FTSE 100 index after the GKN aerospace business sweetened its full-year profits guidance and brought forward the launch of a share buyback programme to next month.
The stock rose 7% or 34.6p to 543.6p, with other industrial beneficiaries including Weir, Rolls-Royce and BAE Systems.
The paper and packaging group Mondi lifted 33.5p to 1329.5p on hopes of further industry consolidation after last night’s announcement of a tie-up between Smurfit Kappa and US-listed WestRock.
Smurfit shares fell 84p to 3134p, while London Stock Exchange dropped 190p to 8074p after the former owners of data business Refinitiv sold more shares.
The FTSE 100 index stood 34.27 points lower at 7391.87 and the FTSE 250 index weakened 90.89 points to 18,360.93.
Direct Line shares surged 17% after its results, but Pets at Home slumped 12% or 46p to 332.6p after the Competition and Markets Authority announced a review into veterinary services.
Currys shows Nordic progress, but UK in decline
Currys showed slow sings of progress towards getting its struggling Nordics business back on track today, but a fall in computer sales hit its core UK arm.
The fridges-to-phones retail giant said trends in the Nordics region had “improved slightly” in the 17 weeks to 26 August. However, the environment “remains challenging”.
But in the UK, sales were down 2% due to “weakness” in its computing division.
“Our priorities this year are simple: to keep the UK&I’s encouraging momentum going, and to get the Nordics back on track,” CEO Alex Baldock said. “We’re making good progress on both, in what continues to be a challenging economic environment.
“We remain confident that we’re building a stronger business that’s resilient today and fit to prosper in the longer term.”
Shares were flat at 48.7p.
Direct Line in £520 million sale of commercial insurance as half-year loss rises
Direct Line announced the sale of its commercial insurance brokerage today as the beleaguered FTSE 250 company reported a widening first-half loss.
It said the £520 million sale would help it “restore the resilience of its capital position” and provide “a platform for improved performance.” The buyer is RSA Insurance, a subsidiary of Intact Financial.
News of the sale came as Direct Line reported a pre-tax loss of £76.3 million, up from £11.1 million in the same period a year ago.
Last month it appointed a new CEO, Adam Winslow, as the permanent replacement for Penny James, who left suddenly in January two weeks after it issued a profit warning and scrapped its dividend.
Earlier this month it pledged to pay back around £30 million to customers it overcharged after the City watchdog banned insurers from charging more for renewals than new policies.
Lloyd’s of London returns to profit with ‘bulletproof’ balance sheet
Lloyd’s of London, the world’s largest insurance exchange, moved back into profit today, helped by a rise of over a fifth in gross written premiums.
The 21.9% rise in new insurance business of £29.3 billion in the first half of 2023 helped it return to profit before tax, of £3.9 billion, up from a loss of £1.8 billion in the same period a year ago.
Its CEO, John Neal, described Lloyd’s balance sheet as “bulletproof’, adding it “means we can support customers through a range of shocks and scenarios”.
Its total capital ticked up to £40.8 billion from £40.2 billion.
FTSE 100 seen lower, oil above $90 a barrel
The poor run for the FTSE 100 index is set to continue as investors worry about slowing economic activity and the prospect of elevated oil prices contributing to interest rates staying higher for longer.
London’s top flight is forecast by CMC Markets to open 18 points lower at 7408, having posted three successive sessions in negative territory during this week.
The latest downbeat performance follows falls for Wall Street benchmarks as the S&P 500 index lost 0.7% and the Nasdaq declined by 1%.
Brent Crude is 0.5% lower this morning but still above $90 a barrel after rallying above the threshold yesterday. The pound is just below $1.25 after Bank of England governor Andrew Bailey yesterday signalled that interest rates may be near their peak.
House prices in steepest drop since November
The UK’s average house price fell by 1.9% in August, the steepest drop since November as the property market feels the heat from Bank of England interest rate rises.
The average home recorded by lender Halifax now costs £279,569, down by around £5,000 since July, and back to the level seen at the start of last year. On an annual basis prices fell by 4.6%, from 2.5% in July and the biggest year-on-year decrease since 2009 amid comparisons with the record-high property prices seen last summer.
Halifax Mortgages director Kim Kinnaird said: “It’s fair to say that house prices have proven more resilient than expected so far this year, despite higher interest rates weighing on buyer demand.
“However, there is always a lag-effect where rate increases are concerned, and we may now be seeing a greater impact from higher mortgage costs flowing through to house prices.
“Increased volatility month-to-month is also to be expected when activity levels are lower, though overall the pace of decline remains in line with our outlook for the year as a whole.”
London had an average property price of £529,814, down by 4.1% over the last year. Southern England and Wales have seen the most downward pressure on property prices, withScotland showing greater resilience.
