LONDON MARKET PRE-OPEN: AB Foods warns Primark must raise prices

(Alliance News) - Stocks in London are seen opening higher on Tuesday, taking heart from a decent ...

Alliance News 26 April, 2022 | 6:54AM
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(Alliance News) - Stocks in London are seen opening higher on Tuesday, taking heart from a decent trading day in New York overnight, where the tech sector got an M&A boost.

Twitter agreed on Monday to be bought for USD44 billion by Tesla founder Elon Musk. Its stock rose 5.7%.

IG futures indicate the FTSE 100 index will open 75.5 points, 1.0%, higher at 7,456.04 on Tuesday. The blue-chip index closed down 141.14 points, or 1.8%, at 7,380.54 on Monday.

In early UK corporate news, Primark-owner Associated British Foods said interim earnings have returned to pre-virus levels. Housebuilder Taylor Wimpey said recent UK interest rate hikes have not hampered "customer appetite". National Express reported a "seventh consecutive quarterly improvement", with first-quarter revenue back to 2019 levels.

In early economic news, UK public sector borrowing fell in the financial year that ended in March, but still remained at historically high levels.

AB Foods said revenue in the financial first half ended March 5 rose 25% to GBP7.88 billion from GBP6.31 billion a year prior.

Pretax profit more than doubled to GBP635 million from GBP275 million. Operating profit jumped to GBP686 million from GBP320 million.

The company also more than doubled its interim payout to 13.8 pence from 6.2p.

Fortunes were helped by the Primark retail business trading "largely" restriction free.

Chief Executive George Weston said: "This half year sales and operating profit for the group returned to pre-Covid levels. Our people have responded well to the many challenges we faced.

Our food businesses have once again proved their operational resilience and Sugar had another strong period, building on its recent track record of recovery. Measures to mitigate higher costs in all our businesses have been taken and more are planned. Primark delivered a significant increase in sales and profit, with stores now open and trading largely free of restrictions."

Weston warned that Primark will need to raise prices to customers in order to offset rampant cost increases.

"Looking further ahead, inflationary pressures are such that we are unable to offset them all with cost savings, and so Primark will implement selective price increases across some of the autumn/winter stock. However, we are committed to ensuring our price leadership and everyday affordability," Weston said. "Notwithstanding the inflationary pressures we are experiencing, our outlook for the year is for significant progress in adjusted operating profit and adjusted earnings per share for the group."

All the company's food units are "experiencing increasing inflationary pressures", it said.

Inflation has forced the Bank of England to lift interest rates in recent meetings. Housebuilder Taylor Wimpey said that, for now, the higher cost of mortgages has not hurt demand.

"The UK housing market remains healthy, underpinned by continued strong customer demand, low interest rates and good mortgage availability. The recent increase in interest rates, from 0.5% to 0.75%, has not impacted customer appetite and the mortgage market remains competitive, with good availability of low-cost fixed rate mortgage products," the FTSE 100 listing explained.

Its net private sales rate for 2022 up to April 17 was 0.96 per week, down a touch from 1.00 a year prior.

The value of its order book stands at GBP2.97 billion, up 5.8% year-on-year.

Taylor Wimpey said: "We continue to see healthy levels of house price growth reflecting the strength of the market, that are offsetting labour and material cost inflation.

"We continue to make good progress on our priorities, including improving operating profit margin and opening new outlets to enable material volume growth in 2023. Our focus remains on delivering our operating profit margin target of 21% to 22%, and we expect to see further progress towards this in 2022."

Taylor Wimpey is on track to meet annual guidance, it said.

Flammable cladding has been in focus in recent weeks, with several housebuilders signing pledges to commit to the UK Building Safety Fund. Taylor Wimpey said it has paid GBP245 million for fire safety remediation works so far.

On Tuesday, Jennie Daly succeeds Pete Redfern as CEO. Redfern steps down after 15 years in the role.

Daly said: "Trading has continued to be strong, supported by a healthy market backdrop. We have also continued to make good progress against our strategic priorities, including driving growth in operating profit margin and outlet openings. Demand for our homes remains strong, with the business well positioned to deliver further progress in 2022 and beyond.

"Taylor Wimpey is an outstanding business, and it is an honour to take up the role of chief executive today. The business is strongly positioned to deliver sector-leading growth and returns, and I am truly excited by the opportunities ahead."

National Express said revenue in the first quarter of 2022 clawed back to levels seen in 2019, before the onset of the pandemic. Quarterly revenue climbed 30% annually at constant currency, helped by a 33% hike at the transport provider's UK & Germany arm.

It is confident of securing 2022 revenue in line with the 2019 level, as well as delivering on more further out guidance of GBP1.25 billion worth of free cash flow between 2022 and 2027.

"We have made a good start to the year and it's pleasing that revenues have bounced back to 2019 levels, improving through the first quarter. The strong recovery in our discretionary coach businesses in both the UK and Spain shows the pent-up demand for travel which is further evidenced by our strong trading over Easter," CEO Ignacio Garat said.

"The cost of living crisis is starting to bite for many people, and our bus services offer an attractive low cost alternative form of travel to help offset higher prices elsewhere."

Recently, National Express has been involved in a takeover battle. It once again said it believes its all-share combination with Stagecoach remains the better choice for Stagecoach shareholders, after being spurned by the Stagecoach board in favour of a cash offer from DWS Infrastructure.

In March, Stagecoach walked away from its all-share merger with larger UK peer National Express, opting instead for a GBP594.9 million cash offer from Pan-European Infrastructure III SCSp, an infrastructure fund managed and advised by DWS Infrastructure.

Stagecoach no longer recommends the previously agreed all-share merger with Birmingham-based National Express. That deal, struck back in December, would have created a roughly GBP2.0 billion market-cap public transport provider, though it was being reviewed by the UK Competition & Markets Authority.

Earlier Tuesday, HSBC reported a slump in profit in the first quarter, but the expected rise in interest rates in coming months gives the bank confidence for future income generation.

In the three months to March 31, the Asia-focused lender recorded USD4.17 billion in pretax profit, down 28% from USD5.78 billion in the same period the year prior.

Total revenue in the first quarter dropped 4.1% to USD12.46 billion from USD12.99 billion.

In addition, profit was hurt by a net charge for expected credit losses, compared with a net release the year before.

The bank booked a USD642 million expected credit losses charge in the first quarter, versus a USD435 million release last year.

HSBC shares were down 3.7% in Hong Kong on Tuesday, while the blue-chip Hang Seng index was 0.4% higher.

In Tokyo, the Nikkei 225 closed up 0.4%. The Shanghai Composite was down 1.1%. The S&P/ASX 200, playing catch-up after financial markets in Sydney were closed on Monday to mark Anzac Day, ended down 2.1%.

The dollar was mixed early Tuesday. The pound rose to USD1.2736 early Tuesday from USD1.2715 late Monday. The euro faded slightly to USD1.0707 from USD1.0715. Against the yen, the dollar climbed to JPY127.84 from JPY127.70.

Brent oil was quoted at USD102.89 a barrel early Tuesday in London, up from USD100.33 late Monday. Gold stood at USD1,903.19, up from USD1,898.25.

The economic events calendar on Tuesday has the US advance report on durable goods at 1330 BST.

Already out, figures showed the UK government borrowed more than expected in March, figures from the Office for National Statistics showed.

UK public sector net borrowing - excluding public sector banks - was GBP17.32 billion in March, halved from GBP26.08 billion a year earlier. The figure topped FXStreet cited consensus of GBP15.0 billion, however.

Compared to February, borrowing increased from GBP9.85 billion.

For the financial year, net borrowing amounted to GBP151.8 billion, around 6.4% of gross domestic product for the year ended March.

It was the third-highest borrowing figure since records began in 1947, but less than half the GBP317.6 billion borrowed the previous financial year, at the height of Covid-19 pandemic.

By Eric Cunha; ericcunha@alliancenews.com

Copyright 2022 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Associated British Foods PLC 1,578.00 GBX -3.72
Taylor Wimpey PLC 116.65 GBX -1.52 -
HSBC Holdings PLC 535.60 GBX -2.99
National Express Group PLC 194.40 GBX -3.38 -
Stagecoach Group PLC 1.23 -
Twitter Inc 37.34 USD -1.22
Tesla Inc 671.50 USD -2.04

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