LONDON MARKET OPEN: Intertek and Babcock tumble as earnings disappoint

(Alliance News) - Stock prices in London opened lower on Friday, with miners giving back some of their gains from a strong Thursday session, weighing on the blue-chip index.

The latest slew of corporate updates failed to leave a positive impression, with quality assurance firm Intertek tumbling after a first half revenue fall and mid-cap aerospace, defence and nuclear engineering company Babcock sliding after a sharp annual loss and a tough outlook. NatWest shares were lower, despite unveiling plans for a share buyback.

The FTSE 100 index was down 69.69 points, or 1.0%, at 7,008.73 early Friday. The mid-cap FTSE 250 index was down 181.99 points, or 0.8%, at 22,868.47. The AIM All-Share index was down 7.46 points, 0.6%, at 1,239.81.

The Cboe UK 100 index was 1.0% lower at 697.89. The Cboe 250 was down 0.8% at 20,659.63. The Cboe Small Companies was 0.1% higher, however, at 15,313.19.

The CAC 40 in Paris was down 0.4% early Friday, while the DAX 30 in Frankfurt was 1.1% lower.

Global equities had rallied on Thursday, shaking off US economic data missing expectations, as blue-chip earnings and shareholder return plans lifted the mood.

"The tone in markets has weakened considerably since the US close," Daiwa Capital Markets analyst Emily Nicol commented.

"China-related regulatory concerns have re-emerged, while reports of China curbing steel production to meet emissions targets has also sent metals prices lower during Asian trading."

Bloomberg on Friday reported Chinese steel producer Shagang Group is cutting production in order to comply, with Chinese government efforts to reduce emissions.

In London, shares in Russian steel maker Evraz were 2.6% lower.

Miners also fell, giving back strong gains from Thursday. Rio Tinto lost 3.3%, Anglo American fell 3.0%, and Glencore gave back 3.2%.

Glencore on Friday posted first half output hikes in copper, cobalt, zinc, gold, silver and ferrochrome, though coal, lead and nickel production fell.

Intertek dropped 8.7%. It said interim revenue declined 1.0% to GBP1.32 billion from GBP1.33 billion a year earlier. However, pretax profit in the first half of 2021 rose 30% to GBP169.1 million from GBP130.8 million. Intertek left its payout unchanged at 34.2 pence per share.

It remains confident it can post "robust like-for-like revenue growth at constant currencies" in 2021.

Hargreaves Lansdown analyst Steve Clayton said expectations were high going into Intertek's interim results.

Clayton added: "These interims were always going to be a tough act for Intertek to pull off. Demand has been highly volatile and only relatively recently translated into robust growth.

"Full year forecasts are likely to edge down, so no surprise to see the market pushing the stock lower. But this risks missing the point. There is a quiet revolution going on in business, as firms start to put net zero [emissions] plans into place. Intertek has a vital role to play here."

Intertek was the worst-performing FTSE 100 stock.

Babcock similarly weighed on the mid-caps, tumbling 11%.

Revenue in the year ended March 31 fell 5.6% to GBP4.18 billion from GBP4.43 billion. Babcock's pretax loss ballooned to GBP1.72 billion from GBP88.9 million.

The financial year is a "year of transition and, as such, we remain cautious", the company said.

Not including disposal proceeds, Babcock expects "significantly" negative free cash flow this financial year.

Babcock added: "The impact of Covid-19 on performance in FY22 is uncertain. While activity levels have broadly recovered, the additional costs from operating in a Covid-secure way remain. These costs, combined with the uncertainty over business interruption from increased cases and potential new variants, mean that we do not currently expect a material boost in profitability from Covid-19 restrictions easing."

Back among London blue-chips, NatWest fell 1.4% but posted a swing to first half profit, helped by an impairment release.

The Edinburgh-based bank posted total income of GBP5.32 billion in the first half of 2021, down 8.9% from GBP5.84 billion a year earlier. It swung to a pretax profit of GBP2.51 billion from a GBP770 million loss a year earlier.

Profit was boosted by a net impairment release of GBP707 million, contrasting with a hit of GBP2.86 billion taken a year earlier.

NatWest declared a 3 pence per share payout and also unveiled plans to buyback GBP750 million worth of shares in the second half of 2021.

The shareholders returns do not stop there.

The company added: "NatWest Group now aims to distribute a minimum of GBP1 billion per annum from 2021 to 2023, via a combination of ordinary and special dividends." This means total shareholder distributions for 2021 will be a minimum of GBP2.9 billion, it said.

NatWest largely retained annual guidance, though it now expects a net impairment release for all of 2021 and tipped risk-weighted assets to come in below its previous GBP185 billion and GBP195 billion range. Its CET1 ratio is 18.2%, flat on the first quarter.

Though its shares declined early on Friday, NatWest is still up 1.6% this week, having benefited from a positive read across from the results of peers Barclays and Lloyds Banking. Barclays was down 0.7% early Friday and Lloyds down 0.3%.

Against the yen, the dollar was trading at JPY109.51 on Friday morning UK time, down from JPY109.54 at the London equity market close on Thursday.

In New York, traders will have a eye on the US personal consumption expenditures reading, due at 1330 BST. Core PCE is the US Federal Reserve's preferred inflationary gauge.

Before that, eurozone unemployment, GDP and consumer price inflation figures are released at 1000 BST.

The euro stood at USD1.1895 early Friday, up from USD1.1885 at the European equities close Thursday. The pound fetched USD1.3964, down slightly from USD1.3967, but rising from USD1.3934 earlier on Friday morning.

Brent oil was quoted at USD75.70 a barrel early Friday, up from USD75.51 at the London equities close on Thursday. Gold was trading at USD1,830.06 an ounce, up slightly from USD1,829.48.

By Eric Cunha; ericcunha@alliancenews.com

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