LONDON MARKET PRE-OPEN: National Express, Stagecoach in merger talks

(Alliance News) - Stock prices in London are seen opening higher on Tuesday, rebounding from ...

Alliance News 21 September, 2021 | 7:51AM
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(Alliance News) - Stock prices in London are seen opening higher on Tuesday, rebounding from sharp losses on Monday linked to a possible large debt default in China, as investors look ahead to the US Federal Reserve's two-day monetary policy meeting starting Tuesday.

In early company news, DIY retailer Kingfisher announced a GBP300 million share buyback. Caterer Compass Group expects a strong revenue performance. Transport companies National Express and Stagecoach confirmed a Bloomberg press report of a possible merger.

IG futures indicate the FTSE 100 index is to open 48.39 points higher at 6,952.30. The blue-chip index ended down 59.73 points, or 0.9%, at 6,903.91 on Monday.

Kingfisher said it delivered a strong financial performance in the first half of its financial and saw an improved position in key markets.

For the six months to July 31, revenue was GBP7.10 billion, up 20% from GBP5.92 billion last year, and pretax profit was GBP677 million, up 71% from GBP398 million.

Kingfisher posted like-for-like sales growth of 23% from a year before, with strong performances in the UK & Ireland, France, Iberia and Romania.

Kingfisher declared an interim dividend of 3.80 pence, up from the 2.75p paid last year. In addition, the board announced the return of GBP300 million of surplus capital via a share buyback programme. The programme will commence soon, it said.

Kingfisher said it has seen a good start to the second half of the year with resilient demand across all markets, though like-for-like sales to this past Saturday were down 0.6%.

Looking ahead, Kingfisher expects financial 2022 adjusted pretax profit in the range of GBP910 million to GBP950 million. It posted adjusted pretax profit of GBP786 million in financial 2021, so results will be up at least 16%.

"We have had a very strong first half of the year, with growth across all our categories and channels, particularly e-commerce. This is a testament to the rapid progress being made against our strategic priorities which continue to drive customer engagement and an improved competitive position in our key markets," said Chief Executive Officer Thierry Garnier.

"With the business in a strong position, we are now ready to accelerate our investments to capitalise on the attractive growth opportunities available to us. We are accelerating Screwfix's expansion in the UK & Ireland, and will open our first Screwfix stores in France in 2022. We are accelerating our digital investments with new initiatives enabling faster fulfilment and broader choice. We are also moving faster with our expansion plans for Castorama Poland. While we are prioritising growth in our capital allocation, we are also delivering attractive returns to shareholders," he added.

Compass Group, ahead of the end of its financial year on September 30, said revenue in the fourth quarter is expected to improve to 86% of 2019 revenue, which is slightly ahead of previous guidance of 80% to 85%. For the full year 2021, the catering firm said revenue is expected to be 76% of 2019 levels.

Compass said the outperformance was led by its Sports & Leisure unit with improved attendance - particularly outdoor sports - and strong per capital spend. Further, it noted that, since the start of September, the return to Education venues has been strong, with high on campus spending, while trading in its Business & Industry division was in line with "cautious" expectations.

Compass said its underlying operating margin in the fourth quarter is expected to be around the mid-point of the guidance range of 5.5% to 6.0%, as it continues to manage mobilisation costs and inflation. For the full year 2021, underlying operating margin is expected to be 4.4%.

Looking ahead to the start of the new financial year, Compass said most of its sectors are expected to continue performing well. However, it remains cautious about Business & Industry, given continued uncertainty over the pace of office reopening in major markets.

"The group's recovery is unlikely to be linear and will depend on a number of factors including vaccination and infection rates as well as any further containment measures taken by governments," Compass said. "However, we remain confident in our ability to return to a group underlying margin above 7% before we return to pre-Covid volumes."

National Express confirmed that it is in discussions with peer Stagecoach over a possible all-share combination.

Under the terms, it is expected that Stagecoach shareholders would receive 0.36 of a new National Express share for each Stagecoach share, resulting in them owning around 25% of the combined group.

National Express has a market capitalisation of GBP1.36 billion, while Stagecoach has a value of GBP374.87 million.

The boards of National Express and Stagecoach said the potential merger would be a "strategically compelling proposition" with significant growth and cost synergies, as well as delivering strong value creation for both sets of shareholders.

In the US on Monday, Wall Street ended sharply lower, with the Dow Jones Industrial Average down 1.8%, S&P 500 down 1.7% and Nasdaq Composite down 2.2%.

The Nikkei 225 index closed down 2.2% on Tuesday, Tokyo reopening after being closed on Monday for a holiday. The Hang Seng index in Hong Kong was down 0.6%. Markets in Shanghai remained closed for the Mid-Autumn Festival. The S&P/ASX 200 in Sydney ended up 0.4%.

Evergrande Property Services Group, one of China's biggest developers, is on the brink of collapse as it wallows in debts of more than USD300 billion.

There are fears that Chinese authorities may not be able to contain the fallout of the firm's potentially disorderly collapse, which could affect many other companies and poses contagion risks, experts say.

Evergrande shares were up 2.9% in Hong Kong, having closed down 11% on Monday.

CMC Markets analyst Michael Hewson commented: "With Japanese markets returning today it is perhaps no surprise that we've seen a weaker Nikkei 225, as concerns over events in China, rising costs, and slowing growth keep investors on the back foot, however the losses while heavy have been contained, and with that European markets look set to open modestly higher this morning, with US futures also rebounding. Concerns about Evergrande remain but for now there appears to be a wait and see approach being adopted."

On the political front, UK Prime Minister Boris Johnson blamed his lack of a post-Brexit trade deal with the US on President Joe Biden having "a lot of fish to fry" as he heads to the White House with the hope of restarting the stalled negotiations.

The UK PM suggested the free trade agreement touted by Leave supporters as a major prize of leaving the EU was not high on the president's list of priorities. Johnson was expected to push to get talks going on Tuesday when he makes his first visit to the White House since Biden succeeded Donald Trump.

The pound was quoted at USD1.3675 early Tuesday, down slightly from USD1.3678 at the London equities close Monday.

The euro was priced at USD1.1735, little changed from USD1.1734. Against the Japanese yen, the dollar was trading at JPY109.55, up from JPY109.46.

Brent was quoted at USD74.61 a barrel Tuesday morning, flat from USD74.58 late Monday. Gold stood at USD1,762.35 an ounce, marginally lower from USD1,764.07.

In the economic events calendar on Tuesday the US Federal Reserve's two-day monetary policy meeting gets underway, with an announcement on Wednesday at 1900 BST.

By Arvind Bhunjun;

Copyright 2021 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Kingfisher PLC 343.50 GBX 0.50
Compass Group PLC 1,440.00 GBX -0.14
National Express Group PLC 229.00 GBX 2.05 -
Stagecoach Group PLC 77.35 GBX 0.98 -

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