LONDON MARKET PRE-OPEN: Covid costs hit Sainsbury; Lloyds profit jumps

(Alliance News) - Stocks in London are set to for a modestly higher open on Wednesday amid market ...

Alliance News 28 April, 2021 | 7:55AM
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(Alliance News) - Stocks in London are set to for a modestly higher open on Wednesday amid market caution ahead of the US Federal Reserve's latest interest rate decision, due after the European close.

In early UK company news, supermarket chain J Sainsbury swung to a full-year loss on hefty Covid-19 costs, Lloyds Banking Group's profit shot up in its outgoing chief executive's last set of results, and Dixons Carphone has decided to shutter its airport retailing business.

IG says futures indicate the FTSE 100 index of large-caps will open up 9.33 points, or 0.1%, at 6,954.30 on Wednesday. The FTSE 100 closed down 18.15 points, or 0.3%, at 6,944.97 on Tuesday.

"Investors continue to reshuffle exposure ahead of today's US FOMC meeting, with equities trading sideways, the US dollar rising modestly, and the long end of the US yield curve steepening," commented Jeffrey Halley, senior market analyst at Oanda.

The dollar was stronger across the board ahead of the interest rate decision.

Sterling was quoted at USD1.3886 early Wednesday, lower than USD1.3915 at the London equities close on Tuesday. The euro traded at USD1.2074, soft on USD1.2085 late Tuesday. Against the yen, the dollar was quoted at JPY108.86, up from JPY108.50.

In New York on Tuesday, Wall Street ended broadly flat as traders await the Fed's latest decision. The Dow Jones Industrial Average closed slightly higher, the S&P 500 marginally lower, and the Nasdaq Composite down 0.3%.

There were mixed fortunes for the two tech giants reporting late Tuesday.

Shares in Alphabet rose 4.2% after-hours, having reported sharp growth in earnings and revenue for the first quarter of 2021, driven by a rise in online consumer activity and advertiser revenue.

For the three months to the end of March, the Google parent posted net income of USD17.93 billion, more than doubled from USD6.84 billion the same period the year before.

Microsoft shares, meanwhile, dipped 2.7% post-market despite also reporting a strong quarter. For the third quarter ended March 31, revenue was USD41.7 billion, up 19% from USD35.02 billion the year before and net income jumped 44% to USD15.46 billion from USD10.75 billion.

Due out Wednesday in the US are Apple and Facebook earnings.

In early UK company news on Wednesday, supermarket chain J Sainsbury reported an annual loss as it shouldered nearly GBP500 million in Covid-19 related costs.

Sainsbury's reported a 0.2% rise in revenue for the financial year that ended March 6 to GBP29.04 billion, from GBP28.99 billion the year before, but swung to a pretax loss of GBP261 million from the prior year's GBP255 million profit.

Underlying pretax profit of GBP356 million, down 39% on the year before, was hit by GBP485 million of direct Covid-19 costs, offsetting a strong sales performance excluding fuel. Grocery sales were up 7.8%, general merchandise sales up 8.3%, and digital sales doubled. Fuel sales drop by 39%, however, and Financial Services sales by 24%.

Fuel sales were hurt by reduced demand during lockdown and the impact of lower oil prices on the petrol sales price.

The underlying profit figure was, however, ahead of market consensus at GBP338 million.

The grocer will pay a total dividend for the year of 10.6 pence, in line with the year before.

"This year's financial results have been heavily influenced by the pandemic. Food and Argos sales are significantly higher, but the cost of keeping colleagues and customers safe during the pandemic has been high," said Chief Executive Simon Roberts.

"We have a bold three-year plan to put food back at the heart of Sainsbury's and drive improved performance," said Roberts. "We are transforming the way we workn and I am encouraged by how all of our teams have responded and the early momentum and performance towards our plan."

Sainsbury's said it has carried good momentum into the new year, but noted it will come up against tough year-on-year comparatives as customer behaviour normalises. Sainsbury's expects underlying pretax profit in the year to March 2022 to exceed the GBP586 million reported in the 2020 financial year, and it is "comfortable" with consensus of around GBP620 million.

Lloyds Banking boss Antonio Horta-Osorio went out with as bang as profit shot up in the first quarter of 2021.

Pretax profit for the three months to the end of March surged to GBP1.99 billion from just GBP74 million a year ago, despite net income nudging down 7% to GBP3.66 billion. The impairment charge in the quarter was a net credit of GBP323 million, versus a charge of GBP1.43 billion a year ago.

"The net credit in the quarter was driven by continued strong asset quality with a low charge of GBP209 million given the continued benign credit environment and a GBP459 million release of expected credit loss allowances resulting from improvements to the UK's economic outlook," the lender said.

Given the "solid performance" in the first quarter of 2021, Lloyds enhanced its guidance for 2020. Its net interest margin is now expected to be in excess of 245 basis points, after posting 249 basis points for the first quarter, and operating costs to be reduced to GBP7.5 billion.

"The long-run transformation of the group has positioned the business well to address the challenges of the pandemic. We have made a strong start to the year with the quarterly results and on delivering Strategic Review 2021," said Chief Executive Horta-Osorio.

"It is with both pride and sadness that I will step down as group chief executive later this month. Most importantly, the group is well placed for sustainable success and the publication of Strategic Review 2021 in February shows that the group has clear execution outcomes for 2021, underpinned by long-term strategic vision."

HSBC Wealth & Personal Banking head Charlie Nunn will become the new Lloyds CEO on August 16. Lloyds Chief Financial Officer William Chalmers will be interim-CEO after Horta-Osorio departs and before Nunn comes in.

London Stock Exchange Group reported a good performance in the first quarter as it achieved first cost synergies from recently acquired Refinitiv.

The stock exchange operator said first quarter total income was up 3.9%, with good growth in Data & Analytics and Capital Markets.

The acquisition of Refinitiv was completed at the end of January, and integration is going to plan with around GBP40 million of cost synergies already realised on a run-rate basis and new products arising from the combination now launched. The sale of Borsa Italiana is progressing well, LSEG added, and is expected to complete "shortly" this quarter.

"The successful re-financing of our bridge facilities with longer-term debt at the end of Q1, together with the reduction in leverage with the proceeds from the expected completion of the divestment of Borsa Italiana, puts LSEG in a strong financial position. We look forward to further progress during the rest of 2021," said Chief Executive David Schwimmer.

Reckitt Benckiser reported like-for-like revenue growth in the first quarter, leaving its full-year guidance unchanged.

Total net revenue for the first quarter of 2021 grew 4.1% on a like-for-like basis, though fell 1.1% on a reported basis.

"2021 has started well with like-for-like net revenue growth of 4.1% in line with our expectations. This brings two-year growth to over 17% as we lap the pantry loading of March 2020," said Chief Executive Laxman Narasimhan.

Demand for Lysol and Dettol continues to be strong, the company said, amid "ongoing, elevated demand" for its disinfection products overall.

Reckitt continues to expect full-year like-for-like revenue growth of between flat to growth of 2%.

"We continue to be confident in the outlook for both 2021 and the medium-term," said Narasimhan.

Technology products retailer Dixons Carphone said trading has remained strong as it revealed a decision to shutter its Dixons Travel business.

Electricals sales were up 12% like-for-like in the 25 weeks to April 24, with UK & Ireland sales up 11% and International up 14%.

Given its strong financial position, Dixons has reimbursed all government support for the GBP73 million of furlough paid to UK&I employees during the year. After this repayment, it expects full-year adjusted pretax profit to be broadly in line with current consensus of GBP151 million.

However, it has made the "difficult decision" to close the Dixons Travel business, which historically made an annual profit contribution of over GBP20 million.

"We do not expect passenger numbers to recover sufficiently to compensate for the removal of airside tax-free shopping by the UK government from 1 January," Dixons explained.

In Asia on Wednesday, the Japanese Nikkei 225 index closed up 0.2%. In China, the Shanghai Composite was up 0.1%, while the Hang Seng index in Hong Kong was up 0.2%. The S&P/ASX 200 in Sydney closed up 0.4%.

Gold was quoted at USD1,767.93 an ounce early Wednesday, lower than USD1,780.50 on Tuesday. Brent oil was trading at USD66.72 a barrel, up from USD66.11 late Tuesday.

The US Fed announces its latest interest rate decision at 1900 BST on Wednesday, with a press conference with Fed Chair Jerome Powell at 1930 BST.

Analysts widely expect the US central bank to leave policy untouched this week, but with an accelerated vaccine rollout programme, bumper stimulus and signs of a recovering economy, anticipation over the timing of tightening is beginning to build.

"Fed chair Jay Powell may well have said that the US economy was at an 'inflection point' last month, however given the strength of recent data there is a case for arguing the economy is already starting to reach escape velocity. While no one is suggesting that the Fed needs to tighten now, at some point it will start to have to lean into a taper if upcoming data continues to surprise to the upside," commented CMC Market's Michael Hewson.

Besides the Fed, the economic events calendar on Wednesday has US trade data at 1330 BST.

By Lucy Heming;

Copyright 2021 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Dixons Carphone PLC 124.20 GBX 0.57 -
London Stock Exchange Group PLC 7,922.00 GBX 0.18
Sainsbury (J) PLC 294.70 GBX -0.64
Lloyds Banking Group PLC 49.28 GBX 0.33
Reckitt Benckiser Group PLC 5,500.00 GBX 0.95

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