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LONDON MARKET MIDDAY: Stocks Rise; Boris Johnson Wins Party Leadership

(Alliance News) - London stocks continued to climb higher on Tuesday, while the pound edged up ...

Alliance News 23 July, 2019 | 12:20PM
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(Alliance News) - London stocks continued to climb higher on Tuesday, while the pound edged up slightly from intraday lows following the election of Boris Johnson as the next leader of the Conservative party.

Gains for blue-chip packaging firms were helping to offset a slide for supermarkets in the wake of the latest grocery market share data from Kantar.

The large-cap FTSE 100 index was 46.89 points higher, or up 0.6%, at 7,561.82 Tuesday midday. The mid-cap FTSE 250 index was up 87.16 points, or 0.4%, at 19,735.17, while the AIM All-Share was 0.2% higher at 917.67.

The Cboe UK 100 index was up 0.6% at 12,812.89. The Cboe UK 250 was up 0.4% at 17,613.67, while the Cboe UK Small Companies was up 0.3% at 11,099.38.

In Paris, the CAC 40 was up 0.8% while the DAX 30 in Frankfurt was up 1.5%.

"Europe is off to a good start on Tuesday and the US is expected to post decent gains at the open as well as we head into a massive few days," said Craig Erlam at Oanda.

However, it is "difficult to look past the UK today", he added.

Focus was on the outcome of the UK Conservative party leadership election on Tuesday, with favourite Boris Johnson beating Foreign Secretary Jeremy Hunt to secure the position.

Turnout was 87.4%, and Johnson won with just over 92,000 votes, versus Hunt on 46,656.

Current leader Theresa May will tender her resignation to the Queen after taking Prime Minister's Questions in the Commons on Wednesday afternoon for the final time, with Johnson set to enter Number 10 soon after.

His election as the new Conservative party leader came following another resignation, this time from junior education minister Anne Milton. Milton said in a resignation letter that she has "grave concerns about leaving the EU without a deal."

Her resignation comes after Alan Duncan quit as Foreign Office minister on Monday in protest at Johnson's expected victory, predicting a "crisis of government" if he becomes PM. Chancellor Philip Hammond and Justice Secretary David Gauke have already given notice they will resign rather than serve Johnson.

Sterling was quoted at USD1.2467 midday, down from USD1.2486 at the London equities close Monday though having traded just above the USD1.2440 mark earlier on Tuesday.

Wall Street is pointed to an upbeat start on Tuesday, with the Dow Jones and S&P 500 on course to rise 0.2% and the Nasdaq called up 0.3%.

The US corporate calendar picks up on Tuesday with soft drinks giant Coca-Coca reporting before the market opens, and payment services firm Visa after the market closes. Later in the week are earnings from aerospace firm Boeing, social media giant Facebook, online retail firm Amazon and Google-owner Alphabet.

In the UK, supermarkets were feeling the heat after the latest set of market shares figures from Kantar.

Ocado was down 2.3%, J Sainsbury down 1.9%, Tesco down 1.9% and Wm Morrison 1.5% lower.

"Coming off the back of a particularly hot summer in 2018, the decline in sales this year has been largely expected. However, with Tesco, J Sainsbury, and Wm Morrison losing market share over the 12 weeks period, the low-cost competitors such as Lidl and Aldi continue to gobble up a greater piece of the pie," said Joshua Mahony at IG.

Kantar data showed all of the "Big Four" grocers, Tesco, Sainsbury's, Morrisons, and Asda lost market share in the 12 weeks to July 14.

Tesco sales declined 2.0% in the period to GBP7.49 billion, with market share slipping to 27.2% from 27.6%. Sainsbury's sales fell 2.3% to GBP4.24 billion, and market share reduced to 15.3% from 15.5%.

Morrisons sales fell 2.6% to GBP2.85 billion, with market share declining to 10.3% from 10.5%. Walmart Inc's Asda sales were down 2.0% to GBP4.11 billion, and market share dipped to 14.9% from 15.1%.

Ocado's sales rose 12%, the strongest of all grocers included in the survey, with market share rising to 1.4% to 1.2%.

The two major discounters, Aldi and Lidl, however, registered strong periods. Aldi sales climbed 6.7% to GBP2.04 billion and Lidl's sales increased 7.0% to GBP1.48 billion.

Towards the top of the blue-chip index were packaging firms, boosted in a positive read-across from Mondi.

Mondi, which is listed in both London and Johannesburg, sees underlying earnings before interest, taxes, depreciation, and amortisation for the six months to June "to be above" the EUR852 million recorded a year prior.

Basic earnings per share are guided by Mondi to be between 93 euro cents and 99 cents, which would be increases year-on-year of 28% and 37%, respectively.

Mondi was up 3.2% at midday. Packaging peers DS Smith and Smurfit Kappa were up 3.6% and 3.2% respectively at midday.

FTSE 250-listed Beazley was up 3.9% after premiums grew well in the first half of the year amid an improved rating environment.

Gross premiums written in the first half of 2019 rose 12% year-on-year to USD1.48 billion, with net premiums written up 11% to USD1.23 billion. Pretax profit shot up, meanwhile, to USD166.4 million from USD57.2 million.

The FTSE 250 constituent lifted its dividend to 4.1p from 3.9p.

"The past nine months have seen a material change in sentiment in our market as heavy claims in numerous lines of business have driven prices higher," Beazley commented. "In September last year, our 2019 business plan envisaged rate rises well below what we have actually seen in the first half of the year."

Beazley said the improving rating environment means double-digit premium growth "should be attainable" this year. Previously, the company had anticipated premium growth in the "high single digits" in 2019.

On AIM, premium tonic water maker Fevertree Drinks shed 11% after posting revenue growth in the first half of 2019 despite poor weather in the UK.

First-half revenue was up 13% to GBP117.3 million, while pretax profit improved to GBP35.0 million from GBP32.7 million. In the UK, revenue was up 51% and in the US, sales grew 17%, which the firm deemed "very encouraging".

"While we have not been immune to the impact of the unseasonably poor weather in the UK, we have further strengthened our market leadership position within the UK and have seen positive momentum in Europe and the rest of the world reflecting our increasingly global footprint," said Chief Executive Tim Warrillow.

It was a better session for chipmaker IQE, boosted 17% after announced the setting up of new supply chains in Asia, which have already led to new orders.

IQE, which makes wafers for the semiconductor industry, has previously warned the trade dispute between the US and China has impacted sales, and has meant supply chains have had to be realigned. IQE has now set up new Asia-centric supply chains for hetero-junction bipolar transistors, which are used as power amplifiers in mobile phones, wifi hotspots, and other wireless devices. IQE has already begun production for these and the company is to ramp this up going ahead.

Further, a second Asian customer has made "significant" new orders, while in Singapore the firm has also won new work, in this case for high-electron mobility transistors, which are also used in wireless devices.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2019 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Smith (DS) PLC 379.10 GBX 1.96 -
IQE PLC 42.88 GBX -5.76 -
Fevertree Drinks PLC 2,095.00 GBX 4.54 -
Mondi PLC 1,680.00 GBX 2.28 -
Sainsbury (J) PLC 214.40 GBX 1.28
Morrison (Wm) Supermarkets PLC 200.10 GBX 1.39
Ocado Group PLC 1,126.50 GBX -2.47 -
Tesco PLC 232.60 GBX 1.22
Beazley PLC 533.00 GBX -0.09 -
Smurfit Kappa Group PLC 2,722.00 GBX 2.56 -
Smurfit Kappa Group PLC 31.86 EUR 2.51 -

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