LONDON MARKET OPEN: Strong set of earnings and dovish Fed boost shares

(Alliance News) - The FTSE 100 rallied at the open on Thursday, bolstered by well-received quarterly earnings from Smith & Nephew, Unilever and Royal Dutch Shell.

The FTSE 100 index was up 43.73 points, or 0.6%, at 7,007.40 early Thursday. The mid-cap FTSE 250 index was up 39.39 points, or 0.2%, at 22,479.21. The AIM All-Share index was slightly higher at 1,274.37.

The Cboe UK 100 index was up 0.6% at 697.11. The Cboe 250 was up 0.3% at 20,111.28, and the Cboe Small Companies up 0.1% at 14,551.62.

In mainland Europe, the CAC 40 in Paris was up 0.5% while the DAX 30 in Frankfurt was 0.1% lower early Thursday.

The mood in markets on Thursday was lifted by dovish commentary by the US Federal Reserve, AvaTrade chief market analyst Naeem Aslam said.

Fed Chair Jerome Powell on Wednesday highlighted the commitment of the policy-setting Federal Open Market Committee to keep the US benchmark lending rate near zero, where it has been since the start of the crisis, and continue its massive bond buying program until employment recovers and inflation exceeds the two percent threshold "for some time".

However, Aslam added: "The overall effect of the FOMC meeting may not last long because today, we do have important economic data for the US."

US gross domestic product and jobless claims figures are at 1330 BST. Before that, there are German unemployment and inflation readings at 0855 BST and 1330 BST, respectively.

The dollar was softer in the wake of the Fed, while gold prices rose.

Sterling was quoted at USD1.3961 early Thursday, higher than USD1.3912 at the London equities close on Wednesday.

The euro traded at USD1.2119, rising from USD1.2100 late Wednesday. Against the yen, the dollar edged down to JPY108.80 from JPY108.85.

Gold was quoted at USD1,781.46 an ounce early Thursday, higher than USD1,772.08 on Wednesday.

In China, the Shanghai Composite closed up 0.5%, while the Hang Seng index in Hong Kong was up 0.8%. The S&P/ASX 200 in Sydney ended 0.3% higher. Markets in Japan were shut for the Showa Day holiday.

At the top of London's FTSE 100 was Smith & Nephew, shares rising 5.3% after the medical devices maker reinstated its full-year guidance following a strong start to the year.

First quarter revenue of USD1.26 billion was up 12% on a year ago on a reported basis and 6.2% higher underlying. All three global franchises - Orthopaedics, Sports Medicine & ENT and Advanced Wound Management - returned to growth on a reported and underlying basis.

S&N reinstated guidance for 2020, targeting underlying revenue growth in a range of 10.0% to 13.0% and a trading profit margin around 18.0% to 19.0%. This assumes improvement in conditions through the year, with surgery volumes largely unconstrained by Covid-19 in the second half.

"Our first priority for 2021 is to return to growth and recapture our pre-Covid momentum, and we are encouraged by our early progress through Q1," said Chief Executive Roland Diggelmann, adding that there is "improving visibility" as vaccine programmes roll out and healthcare systems reopen.

Unilever shares gained 3.6% as investors gave a warm reception to an upbeat quarter for ice cream and plans for a huge share buyback.

The consumer goods firm reported annual underlying sales growth of 5.7% for the first quarter of 2021, driven by volume, up 4.7%, with price hikes contributing 1.0%. Turnover fell by 0.9% to EUR12.3 billion, however, largely due to a negative currency-related impact of 8.0%.

Unilever's Foods & Refreshment arm achieved underlying sales growth of 9.8% - with out-of-home ice cream returning to growth and in-home ice cream up double-digits - fuelled by volumes, while Home Care reported sales growth of 5.9% and Beauty & Personal Care growth of 2.3%.

"We are confident that we will deliver underlying sales growth in 2021 within our multi-year framework of 3% to 5%, with the first half around the top of this range. We expect to increase underlying operating margin slightly for the full year, though with a decline in the first half driven by Covid-19 impacts, higher cost inflation and increased marketing spend over the prior year," said Chief Executive Alan Jope.

Unilever will pay a quarterly dividend of EUR0.4268 per share and has approved a share buyback programme of up to EUR3 billion, to commence in May.

Standard Chartered advanced 2.7% after reporting a "strong" start to 2021, with a sharp drop in credit impairments and a record quarter from its Wealth Management arm, giving the bank confidence for the rest of 2021.

In the three months to March 31, the Asia-focused lender reported a sharp jump in pretax profit to USD1.41 billion from USD886 million a year before. This followed a dramatic drop in the lender's credit impairment to USD17 million from USD962 million.

Shares in oil heavyweight Shell increased after a consensus-beating quarter. 'A' and 'B' shares both were up 1.6% in early trade.

Shell's adjusted earnings jumped to USD3.23 billion from USD2.86 billion - ahead of company-compiled consensus at USD3.13 billion - as it swung to a profit attributable to shareholders of USD5.66 billion from a loss of USD24 million year-on-year.

The improved earnings print reflects higher realised oil and liquefied natural gas prices, Shell said. Brent oil was trading at USD67.46 a barrel early Thursday, soft on USD67.65 late Wednesday but having more than tripled in value year-on-year.

At the end of the quarter, Shell's net debt stood at USD71.3 billion, down from USD75.4 billion at the end of 2020 as the company progresses towards the USD65 billion target. Once this is achieved, Shell plans to increase shareholder distributions to 20% to 30% of cash flow from operations.

The dividend for the quarter was USD0.1735 per share, up 4% on the previous quarter.

"As previously announced, the first quarter 2021 dividend per share has been increased by around 4%, in line with our progressive dividend policy. We have reduced net debt by more than USD4 billion this quarter, progressing towards the USD65 billion milestone to increase shareholder distributions. Our competitive and robust financial performance provides the platform to achieve the goals of our Powering Progress strategy," said Chief Executive Ben van Beurden.

Peer BP, which reported on Tuesday, said it would buyback USD500 million of shares in the second quarter after reducing net debt to USD33.31 billion - less than half Shell's current total. BP shares were up 0.4%.

All of this was offsetting a lacklustre response to NatWest's first quarter print. The UK state-back bank's pretax profit surged to GBP946 million for the first quarter of 2021 from GBP519 million a year ago, on total income of GBP2.66 billion, down 16% from GBP3.16 billion.

Natwest recorded a net impairment release of GBP102 million in the first quarter, compared to a charge of GBP802 million a year ago.

"Whilst we continue to navigate a high degree of uncertainty in the wider economic environment, a net impairment release of GBP102 million in the quarter reflects releases in non-default portfolios, principally in Commercial Banking, as support schemes continue to mitigate realised levels of default," the bank said.

Shares in NatWest were down 3.0%, the worst performer in the FTSE 100 early Thursday.

By Lucy Heming; lucyheming@alliancenews.com

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