LONDON MARKET PRE-OPEN: Royal Mail raises interim profit guidance

(Alliance News) - Stock prices in London are seen opening higher on Thursday as fears over ...

Alliance News 23 September, 2021 | 7:53AM
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(Alliance News) - Stock prices in London are seen opening higher on Thursday as fears over embattled Chinese property firm Evergrande ease and as investors welcome the latest policy announcement from the US Federal Reserve.

In early company news, Royal Mail said it expects a stronger performance in the second half. Household goods firm Reckitt Benckiser said trading is in line with expectations. Gambling and financial trading software Playtech expressed confidence in its prospects.

IG futures indicate the FTSE 100 index is to open 26.63 points higher at 7,110.00. The index of London large-caps closed up 102.39 points, or 1.5%, at 7,083.37 Wednesday.

Royal Mail said the first five months of trading saw continued revenue growth across the group, with both domestic arm Royal Mail and international operation GLS reporting higher revenue.

In the five months to the end of August, group revenue grew by 8.2% year-on-year and by 18% compared to the same period in 2019.

At Royal Mail, revenue increased by 7.2% year-on-year and by 12% against the same period in 2019. The company said domestic parcel volumes are up by around third compared to pre-Covid levels and that it is maintaining its share of the UK market.

At its GLS international logistics unit, revenue rose 9.3% from the same time last year and by 31% versus the same period in 2019. The FTSE 100 member explained that volume growth slowed during the period as a result of lapping strong volumes seen during the first Covid-19 lockdown in 2020 and the easing of restrictions in a number of countries over the summer.

Looking ahead, Royal Mail said the evolution of the Covid-19 pandemic, including levels of transmission, consumer behaviour and factors such as economic growth and inflation will influence future performance.

Royal Mail said adjusted operating profit for the six months to the end of September is expected to be GBP395 million to GBP400 million, with at least GBP230 million from Royal Mail unit. It posted adjusted operating profit of GBP37 million at its interim results last year.

Chair Keith Williams said: "Domestic parcels performance continues to be more robust against ongoing challenges in international. Whilst we continue to expect further normalisation of parcel performance as we unwind from the pandemic and anticipate some upward pressure on costs, both adjusted operating profit and margin are expected to be higher in the second half compared to the first half.

"GLS continues to deliver good volume and revenue growth, both year on year and against 2019. Whilst we are seeing upward pressure on costs in a number of our markets, we maintain our outlook for the full year of low single digit revenue growth and 8% operating margin."

Reckitt Benckiser said trading since its half-year results in July has been in line with management expectations.

The household goods firm said it continued to be confident in delivering 2021 like-for-like net revenue growth in a range of 0% to 0.2% and adjusted operating profit margins between 22.7% to 23.2%. Reckitt posted like-for-like net revenue growth of 12% and an adjusted operating profit margin of 23.6% for 2020.

Reckitt said the guidance excludes the IFCN China business, as the disposal of this business completed in early September.

In the FTSE 250, Playtech said it made strategic and operational progress to date in 2021, despite the challenges posed by the pandemic.

For the six months to June 30, revenue was EUR457.4 million, down 4% from EUR476.7 million last year, as the company swung to a pretax profit of EUR278.1 million from an EUR19.2 million loss.

Playtech declared no interim dividend, in line with the year prior.

The company said it saw continued progress on US strategy as it launched with Parx Casino in Michigan and made new partnerships with Scientific Games and Novomatic, alongside continued progress with bet365 and BetMGM in New Jersey.

Looking ahead, Playtech said it made a strong start to the second half. Due to the strong interim performance, combined with the easing of lockdown restrictions, Playtech said it was confident in its prospects for the remainder of 2021 and beyond.

"Playtech has gone through a period of intense change, with adjustments to its board, a portfolio rationalisation, and attempts to improve its disclosures," commented Andrew Garrod, an analyst at Third Bridge. "Investors will now be looking for signs of sustained growth after a period of underperformance."

The US Federal Reserve on Wednesday said a tapering of economic stimulus may "soon be warranted" as the US economy edges closer to its employment and price stability goals.

The Fed left its benchmark rate unchanged in the range of 0.00% to 0.25%. Chair Jerome Powell said the US economy has made progress towards the Fed's goals and if things continue to advance at a speed that the Federal Reserve Open Market committee expects, a "moderation in the pace of asset purchases" may occur.

The Fed is currently buying at least USD80 billion in Treasury securities and USD40 billion in agency mortgage‑backed securities every month as part of its stimulus efforts.

Powell said if the economy continues to improve, "a gradual tapering process that concludes around the middle of next year is likely to be appropriate".

Still, the US economy will be "well away" from passing the lift-off test when stimulus tapering happens, according to Powell.

In the US on Wednesday, Wall Street ended higher, with the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all ending up 1.0%.

"The Fed has officially given notice that if the recovery continues as planned, a moderation in the pace of asset purchases can happen soon," said Oanda Markets analyst Edward Moya, adding that investors "can now completely price in a formal November taper announcement with a December start date".

In China on Thursday, the Shanghai Composite was up 0.2%, while the Hang Seng index in Hong Kong was up 0.6%, reopening after a holiday on Wednesday. Financial markets in Japan were closed for the Autumn Equinox Day holiday. The S&P/ASX 200 in Sydney ended up 1.0%.

Evergrande on Wednesday said it had agreed to a deal with domestic bondholders that should allow it to avoid missing one of its interest payments.

"As we look ahead to today's European session, Asia markets have seen a continued recovery with Chinese real estate companies also rebounding, along with Evergrande, although we still have no news about the US dollar interest payment. The optimistic mood in Asia looks set to ripple out into today's European open with another positive start," said CMC Markets analyst Michael Hewson.

On Thursday, the Bank of England announces its latest interest rate decision at 1200 BST. The central bank is widely expected to keep rates unchanged.

The dollar was higher in the wake of the Fed's rate decision.

The pound was quoted at USD1.3646 early Thursday, down from USD1.3659 at the London equities close Wednesday. The euro was priced at USD1.1712, down from USD1.1738. Against the Japanese yen, the dollar was trading at JPY109.85, up from JPY109.57.

Brent was quoted at USD76.22 a barrel Thursday morning, higher against USD75.44 a barrel late Wednesday. Gold stood at USD1,764.22 an ounce, down from USD1,778.80.

Elsewhere, a slew of flash purchasing managers' index readings are set to be released, including for the eurozone at 0900 BST, the UK at 0930 BST and the US at 1445 BST.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Playtech PLC 429.20 GBX 1.27 -
Royal Mail PLC 421.90 GBX 1.27 -
Reckitt Benckiser Group PLC 5,448.00 GBX -0.73

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