LONDON MARKET PRE-OPEN: Lloyds and WPP raise outlook; Aveva cautions

(Alliance News) - Stock prices in London are set to open higher on Wednesday, despite the brutal ...

Alliance News 27 April, 2022 | 6:53AM
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(Alliance News) - Stock prices in London are set to open higher on Wednesday, despite the brutal losses endured in New York overnight, though with sentiment downbeat following mixed US tech earnings and concerns over an escalation of tensions between Russia and the EU.

In early UK company news, lender Lloyds Banking upgraded guidance even as first quarter profit dipped. Marketing and advertising firm WPP also raised its outlook, but industrial software firm Aveva warned that revenue growth is set to slow in the year ahead.

IG says futures indicate the FTSE 100 index of large-caps to open up 21.81 points, or 0.3%, at 7,408.00 on Wednesday. The FTSE 100 closed up 5.65 points, or 0.1%, at 7,386.19 on Tuesday.

"European energy markets will be the main focus of Wednesday's London session after Russia said it would halt supplies to Bulgaria and Poland. The move increases the possibility of a near-term stand-off between Russia and the rest of the EU on whether to meet Russia's demand to pay for gas in roubles," said Stephen Innes at SPI Asset Management.

"Moves towards greater EU energy independence from Russia offer the potential for sharply higher oil prices, which should continue to undermine EURUSD."

Brent oil was trading at USD105.36 a barrel early Wednesday, higher than USD103.65 late Tuesday. Meanwhile, the euro traded at USD1.0625, soft against USD1.0655 late Tuesday.

The Bulgarian Energy Ministry said late Tuesday that the Bulgarian natural gas supply company Bulgargaz had received a notification of the gas cut from Russia's state-backed energy giant Gazprom. Bulgaria has taken steps towards alternative gas supplies, said the ministry, adding that for the time being no limits on gas consumption was necessary.

The Polish natural gas company PGNiG said Tuesday afternoon that Gazprom was stopping gas flows as of Wednesday morning because Warsaw refused a demand by Moscow to pay for its supplies in roubles. Polish officials said the country has been preparing for such a scenario and that gas storage facilities are currently 76% full, compared to 39% a year ago.

Renewed worries over Russia put further pressure on markets, with stocks in the US already reeling after a mixed start to US tech earnings season.

Wall Street ended with significant losses on Tuesday. The Dow Jones Industrial Average closed down 2.4%, the S&P 500 down 2.8%, and the Nasdaq Composite down 4.0%.

Alphabet shares fell 3.6% and dropped a further 2.6% after-hours after the Google parent reported a sharp fall in first-quarter earnings.

For the three months to March 31, revenue was up 23% at USD68.01 billion from USD55.31 billion in the first quarter last year. Alphabet posted first-quarter net income of USD16.44 billion, or USD24.62 per diluted share, down from USD17.93 billion, or USD26.29 diluted EPS, last year.

"Alphabet's results will increase nerves about the outlook for the tech heavyweights that are announcing this week. That sector has been the last man standing in the Nasdaq index. Meta announces tonight and if my recent user experience with them is anything to go by, there is downside risk again in their results," said Jeffery Halley, senior market analyst at Oanda.

Microsoft shares closed down 3.7%, but rebounded 4.5% after-hours after reporting a strong third-quarter performance through continued robust demand for its cloud platform.

For the three months ended March 31, net income rose 8.2% to USD16.73 billion from USD15.46 billion the same period a year before, while diluted earnings per share increased 9.4% to USD2.22 from USD2.03. This was on revenue which grew 18% year-on-year to USD49.36 billion from USD41.71 billion, which the Redmond, Washington-based software giant attributed to Microsoft Cloud generating USD23.4 billion, reflecting a 32% annual increase.

In early UK company news, Lloyds Banking saw its first quarter profit dip and noted the outlook for the UK economy "remains uncertain", though upgraded guidance.

Underlying net interest income for the first quarter of 2022 rose 10% to GBP2.95 billion, with total net income for the period up 12% to GBP4.11 billion. Despite this increase, pretax profit fell 14% to GBP1.62 billion, with Lloyds's profit hit by a GBP177 million underlying impairment versus a net credit of GBP360 million a year before.

The impairment reflects "a low incurred charge and limited impact from revised economic outlook, including higher inflation offset by stronger house prices and unemployment."

"In the first three months of 2022, we delivered solid financial performance, with strong income growth and capital build. These results demonstrate the consistent strength of our business model," said Chief Executive Charlie Nunn.

"Whilst we are seeing continued recovery from the coronavirus pandemic, the outlook for the UK economy remains uncertain, particularly with regards to the persistency and impact of higher inflation."

Given the solid start to the year, Lloyds now expects its full-year banking net interest margin to be above 270 basis points, versus guidance of 260 basis points previously, and return on tangible equity to be greater than 11%, versus a prior prediction of around 10%. This compares to a banking net interest margin of 2.68% in the first quarter and RoTE of 10.8%.

GlaxoSmithKline reported first quarter earnings growth amid "cost discipline" as it readies the demerger of consumer healthcare firm Haleon in the summer.

Revenue in the first quarter of 2022 was GBP9.78 billion, up 32% from a year ago. Pretax profit jumped 71% to GBP2.60 billion from GBP1.52 billion year-on-year.

Following the results, GSK affirmed its full-year outlook and said it is on track to demerge and list Haleon in July.

"We have delivered strong first quarter results in this landmark year for GSK, as we separate Consumer Healthcare and start a new period of sustained growth. Our results reflect further good momentum across specialty medicines and vaccines, including the return to strong sales growth for Shingrix and continuing pipeline progress," said Chief Executive Emma Walmsley.

GSK declared a quarterly dividend of 14 pence, down from 19p a year ago. It expects to pay 27p for the first half of 2022, split as 22p from the remaining business - referred to as new GSK - and 5p from the consumer business. New GSK will pay a 22p dividend for the second half of 2022 as well and 45p for 2023, the company said.

Aveva warned that revenue growth in its current financial year is expected to slow and margins are set to reduce amid cost pressures.

The firm said it delivered a strong end to its 2022 financial year, which finished on March 31. It registered revenue growth of 18% in the fourth quarter on a pro forma organic constant currency basis, with full-year growth of 7%.

Aveva aims to drive an acceleration in annual recurring revenue growth in the recently commenced financial year to a level of 15% to 20%. As ARR accelerates, it cautioned, reported revenue will be impacted by the timing of revenue recognition. In addition to this, revenue will be knocked by the war in Ukraine and sanctions on Russia - though Aveva noted that Russia is a "relatively small" market for the group.

Adjusted earnings before interest and tax in the current financial year will be pressured by additional costs, including wage inflation, increased travel and event costs post-Covid and investment, the company said.

"Taking all of these factors into account, revenue growth is expected to be lower in FY23 than in FY22 and adjusted Ebit margin is expected to reduce, before resuming growth in FY24," Aveva said.

Advertising and marketing firm WPP reported first-quarter revenue less pass-through costs growth of 9.5% on a like-for-like basis. It now expects full-year growth to be in the region of 5.5% to 6.5%, up from "around 5%" previously.

"Demand is strong for our services, particularly in digital media, e-commerce, data and marketing technology," said Chief Executive Mark Read.

London Stock Exchange Group said it is on track to meet all financial targets despite expecting a hit from actions taken in response to Russia's invasion of Ukraine.

Total income excluding recoveries was GBP1.75 billion in the first three months of 2022, up 8.0% on a year before. Gross profit rose 7.6% to GBP1.59 billion.

The revenue hit from Russia's invasion of Ukraine is anticipated to be around GBP60 million in 2022. "Most of the impact reflects the suspension of Data & Analytics services to customers in Russia, with the largest impact in Trading & Banking," LSEG said.

More positively, the company said it had achieved GBP25 million in run-rate revenue synergies by the end of the March from its acquisition of Data & Analytics firm Refinitiv.

WH Smith swung to a half-year profit with its pandemic recovery "underway". The stationary and magazines retailer posted a pretax profit of GBP18 million for the six months to the end of February, turning from a loss of GBP38 million year-on-year.

"The group has delivered a good performance with a strong rebound in profitability. We have seen a recovery across all our travel markets despite the impact of the Omicron variant in Q2, and we are in a strong position to capture growth as the recovery continues," said Chief Executive Carl Cowling.

Drax Group said it expects full-year adjusted Ebitda around the top end of current range of analyst expectations after reporting a strong system support performance during the first three months of 2022.

In Asia on Wednesday, the Japanese Nikkei 225 index closed down 1.2%. In China, the Shanghai Composite was up 2.2%, while the Hang Seng index in Hong Kong was up 0.2%. The S&P/ASX 200 in Sydney closed down 0.8%.

Against the yen, the dollar strengthened to JPY127.99 versus JPY127.27.

Sterling was quoted at USD1.2583 early Wednesday, lower than USD1.2622 at the London equities close on Tuesday.

Safe-haven asset gold eased amid the dollar strength. Gold was quoted at USD1,901.00 an ounce early Wednesday, down from USD1,903.55 on Tuesday.

The economic events calendar on Wednesday has US trade data at 1330 BST.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2022 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
WH Smith PLC 1,361.50 GBX 1.53 -
London Stock Exchange Group PLC 7,668.00 GBX 3.20
WPP PLC 780.60 GBX 2.49
Lloyds Banking Group PLC 41.30 GBX -0.15
AVEVA Group PLC 2,363.00 GBX 2.61 -
Drax Group PLC 624.50 GBX -1.96 -
GSK PLC 1,790.20 GBX 0.20

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