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LONDON MARKET MIDDAY: Pound Lower As Brexit Pressure Grows For UK PM

LONDON (Alliance News) - Doubts over whether the UK government will succeed in its last-ditch ...

Alliance News 7 December, 2017 | 12:02PM
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LONDON (Alliance News) - Doubts over whether the UK government will succeed in its last-ditch attempt to break a roadblock in the Brexit negotiations before the end of the year was depressing sterling, and allowing the London blue-chip stocks to extend Wednesday's gains by midday Thursday.

Amid the politician-watching, two mid-cap gaming firms spiced up proceedings Thursday with the announcement of a nearly GBP4 billion merger.

"European markets have clocked up steady gains after a trying week for equities. Weaker home currencies have allowed the likes of the FTSE, Dax and CAC to have another go at playing catch-up with their US brethren, with bullish sentiment enhanced by the prospect of a rebound in tech stocks in the US," said IG chief market analyst Chris Beauchamp.

The FTSE 100 index was up 0.1%, or 3.51 points at 7,351.54 Thursday midday. The mid-cap FTSE 250 index was up 0.1% at 19,883.97. The AIM All-Share index was flat at 1,011.84.

The BATS UK 100 index was up 0.1% at 12,488.83. The BATS 250 was up 0.1% at 18,029.40, and the BATS Small Companies flat at 12,377.49.

Sterling was quoted at USD1.3370 Thursday midday, soft compared to USD1.3379 at the London equities close on Wednesday.

"It is the prospect of a successful US tax reform programme that lies behind the US dollar strength, but sterling's weakness has been given added spice by the ongoing bout of uncertainty over whether the UK and the EU can make any further progress," said IG's Beauchamp.

Following the breakdown of talks on Monday, UK Theresa May is hoping to make a new offer by Friday to resolve the issue of the Irish border, which has prevented Brexit negotiations progressing onto the second phase.

After a phone call with May on Wednesday, Irish Taoiseach Leo Varadkar said May was hoping to return with a new formal written offer "tonight and tomorrow", but warned if there was no agreement talks would be picked up in the New Year.

Following talks in Dublin, Varadkar and Dutch Prime Minister Mark Rutte made clear the EU would not compromise and allow the Irish border to be kicked down the road to phase two of the talks, even under threat of Britain crashing out with no deal or divorce negotiations dragging on to 2018.

Pressure is growing on May to get leaders at the December 14 European Council summit to declare sufficient progress has been made on divorce issues so trade talks can begin, with business chiefs warning companies will activate contingency plans that will cost Britain jobs if there is further delay.

If the EU fails to allow negotiations to move onto the second stage at the December summit, the UK will have to wait until the next summit in March, 2018.

Meanwhile, data published earlier on Thursday by mortgage lender Halifax and IHS Markit showed UK house prices increased more than expected in November. On a monthly basis, house prices increased 0.5%, faster than the 0.3% rise posted in October, marking the fifth consecutive increase. Prices were forecast to grow marginally by 0.2%.

At the same time, house prices advanced at a slower pace of 3.9% in three months to November from previous year after climbing 4.5% in three months to October.

During September to November, house prices grew 2.4% from the previous quarter. This was the fastest price growth, on this measure, since January.

In mainland Europe, the CAC 40 in Paris was up 0.3% while the DAX 30 in Frankfurt was up 0.4% Thursday midday.

Eurostat on Thursday reported that the euro area economy expanded as initially estimated in the third quarter, largely on investment and exports.

Gross domestic product grew 0.6% sequentially, in line with the estimate released in November, slightly slower than the 0.7% expansion seen in the second quarter. On a yearly basis, GDP advanced 2.6%, which was revised up from the flash estimate of 2.5%.

The expenditure-side breakdown of GDP showed that household spending climbed 0.3% sequentially, slower than the 0.5% growth registered in the second quarter. Exports increased at a faster pace of 1.2% following the second quarter's 1% rise.

The euro was quoted at USD1.1778 Thursday midday, flat compared to USD1.1781 at the European equities close Wednesday.

Stocks in New York were called for a higher open on Thursday. The DJIA was called to open up 0.1%, the S&P 500 index called 0.2% higher, and the Nasdaq Composite pointed up 0.5%.

In the afternoon there is US initial jobless claims at 1330 GMT, which prelude nonfarm payrolls for November on Friday.

On the London Stock Exchange, Ladbrokes Coral Group was up 26% and GVC Holdings up 6.2%.

The high-street bookmaker and online gambling firm said they are holding talks about a possible merger that would see GVC buy Ladbrokes in a deal worth potentially up to GBP3.90 billion.

The non-binding proposal is for GVC to pay 32.7 pence in cash and issue 0.141 GVC shares for each Ladbrokes share, with a further potential payout of 42.8 pence structured as a contingent value right that will be payable if certain targets are met.

Excluding the potential 42.8 pence deferred payout, the offer values Ladbrokes at 160.9 pence per share, or GBP3.10 billion in total. Including the maximum deferred consideration, the value rises to GBP3.90 billion.

Ladbrokes shareholders would own about 46.5% of the enlarged group, while GVC shareholders would own the other 53.5%.

"The proposed merger of GVC and Ladbrokes Coral makes sense strategically. It diversifies both, it creates an online and retail gaming company of enormous scale and should lead to material synergies," said Davy Research.

Midcap bookmaker peer William Hill was up 3.1% after reaching an agreement with Scientific Games to "unconditionally support" its proposed acquisition of Toronto-listed NYX Gaming Group, in which it already owns a stake.

William Hill owns both ordinary and preference shares in its Canadian peer. William Hill's stake was acquired in 2016 for GBP80 million in order to support NYX's GBP270 million acquisition of software gaming company OpenBet.

In the FTSE 100, Babcock International was down 2.2%. The stock went ex-dividend meaning new buyers no longer qualify for the latest dividend payout. In the FTSE 250, Anglo-South African bank Investec was down 2.6%, the stock also going ex-dividend on Thursday.

Elsewhere in the FTSE 100, Pearson was up 2.3% at 737.50p. JPMorgan raised its price target on the education publisher to 740 pence from 671 pence and reiterated its Neutral rating on the stock.

Back in the FTSE 250, Cobham was down 2.1%. Keppler Cheuvreux downgraded the defence and aerospace technology company to Reduce from Hold.

Meanwhile, Stagecoach Group was up 3.7%, benefiting from a broker rating upgrade. JPMorgan raised the transport operator to Neutral from Underweight.

On Wednesday, Stagecoach said revenue in the six months to October 28 fell to GBP1.80 billion from GBP2.00 billion the year before, but better margins pushed operating profit from direct operations to GBP101.9 million from GBP93.9 million.

AVEVA Group also rose after an upgrade, 3.3% higher at midday. Barclays raised the engineering software provider to Overweight from Equal Weight.

Electra Private Equity - which will be removed from the FTSE 250 effective Monday December 18 following the latest index review - was down 2.0% after profit dived in its recently-ended financial year due to lower capital gains, though shareholder return beat its benchmark and costs were reduced.

The company said that pretax profit for the year to September 30 declined to GBP176.0 million from GBP536.0 million the year before as the gain on capital fell to GBP193.0 million from GBP665.0 million.

Total gains on investments fell to GBP247.0 million from GBP756.0 million. Net asset value per share for Electra was 1,981.00 pence, giving a total return for the year of 9.0%.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2017 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar
Rating
Electra Private Equity Ord 940.47 GBX 0.10 -
Ladbrokes Coral Group PLC 172.10 GBX 0.82 -
William Hill PLC 314.90 GBX 1.71 -
Investec PLC 472.00 GBX -1.19 -
Cobham PLC 124.50 GBX -0.16
AVEVA Group PLC 2,696.00 GBX -0.88 -
GVC Holdings PLC 918.00 GBX 0.60 -
Pearson PLC 747.00 GBX -0.40
Stagecoach Group PLC 169.60 GBX 0.06 -
Babcock International Group PLC 676.50 GBX -1.17 -
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