LONDON BRIEFING: Rolls-Royce plans disposals, sets out 2027 targets

(Alliance News) - Stocks in London are called lower on Tuesday, with a stronger pound likely to ...

Alliance News 28 November, 2023 | 7:42AM
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(Alliance News) - Stocks in London are called lower on Tuesday, with a stronger pound likely to weigh on the FTSE 100.

On a macro level, the focus is on US bond yields and the trajectory for rate cuts from the Federal Reserve.

"The Fed expectations remain soft and sweet, the falling yields further weigh on the US dollar. The US dollar index is now testing the 103 support to the downside and has given away more than half of gains it recorded between July and October. And the combination of falling long-term yields and cheaper dollar continues to push the price of an ounce of gold higher," explained Ipek Ozkardeskaya, Swissquote Bank senior analyst.

In local economic news, shop price inflation continued to ease in November, as the pace of price increases for food and non-food cooled further. Meanwhile, house sellers are seeing discount-to-asking prices rise to a five-year high, as the buyers' market strengthens.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: called down 17.5 points, 0.2%, at 7,443.20

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Hang Seng: down 0.9% at 17,370.37

Nikkei 225: closed down 0.1% at 33,408.39

S&P/ASX 200: closed up 0.4% at 7,015.20

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DJIA: closed down 56.68 points, 0.2%, at 35,333.47

S&P 500: closed down 0.2% at 4,550.43

Nasdaq Composite: closed down 0.1% at 14,241.02

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EUR: up at USD1.0947 (USD1.0931)

GBP: up at USD1.2631 (USD1.2604)

USD: down at JPY148.27 (JPY148.97)

Gold: up at USD2,015.69 per ounce (USD2,00.74)

Oil (Brent): up at USD80.10 a barrel (USD79.98)

(changes since previous London equities close)

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ECONOMICS

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Tuesday's key economic events still to come:

10:00 CET EU monetary developments

11:00 GMT Ireland retail sales

17:00 GMT UK BoE MPC member Jonathan Haskel speaks

08:55 EST US Johnson Redbook retail sales index

09:00 EST US house price index

09:00 CST US Fed Chicago President Austan Goolsbee speaks

10:00 EST US Richmond Fed business activity survey

10:00 EST US consumer confidence index

13:00 EST US money stock measures

16:30 EST US API weekly statistical bulletin

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UK shop price inflation fell for the sixth month in a row in November, hitting levels not seen since June 2022, figures showed. Annual inflation decelerated to 4.3% in November, down from 5.2% in October, according to BRC-Nielsen shop price index data. This is below the three-month average rate of 5.3%. Non-food inflation cooled to 2.5% in November, down from 3.4% in October, below the three-month average rate of 3.5%. Food inflation eased to 7.8% in November, down from 8.8% in October, below the three-month average rate of 8.9% and the seventh consecutive deceleration in the food category.

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UK house sellers are accepting discounts of GBP18,000 on average in order to agree a deal with buyers, according to a property website. Zoopla, which released the figures, said they are further evidence of a strong buyers' market, as higher mortgage rates hit demand and more supply boosts buyers' choice and negotiating power. The typical 5.5% discount-to-asking price for achieved for UK property sales is at a five-year high, Zoopla said. It took the average across all sales, including ones where there would be no discount.

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BROKER RATING CHANGES

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Morgan Stanley raises Lloyds Banking to 'overweight' (equal-weight) - price target 64 (60) pence

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Citigroup raises B&M European Value Retail to 'buy' (neutral) - price target 640 (540) pence

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Morgan Stanley cuts Man Group to 'equal-weight' (overweight) - price target 266 (305) pence

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COMPANIES - FTSE 100

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Barclays is exploring potentially dropping thousands of its investment bank clients amid a strategic overhaul to bolster its bottom line and cut GBP1 billion of costs, according to the Financial Times. According to "people briefed on the discussions", the restructuring has been codenamed "Minerva" after the Roman goddess of wisdom, and has seen the firm's executives meeting several times this year. The executives had considered other proposals, including raising capital to buy a wealth or asset management business or cutting its investment bank's trading assets by as much as 25%, but ultimately decided against these, the FT reported. The bank is thought to be likely to cut ties with its least profitable IB clients, the FT's sources said.

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Rolls-Royce laid out mid-term targets, which the aero-engine maker said will represent "a step change" in its financial performance. It is targeting operating profit between GBP2.5 to GBP2.8 billion, at an operating margin between 13% and 15%. It is also aiming for free cash flow of GBP2.8 to GBP3.1 billion, with a return on capital between 16% and 18%. "These targets are based upon our expectations for a 2027 timeframe. We expect a progressive, but not necessarily linear, improvement year-on-year, and if we can accelerate the achievement of our ambitions we will," Rolls-Royce said. The firm is also planning a divestment program targeting GBP1.0 to GBP1.5 billion in proceeds over five years. It is looking to exit Rolls-Royce Electric in the short run or reduce its position to a minority stake, while pursuing a full exit down the line. It also noted that recent trading was in line with expectations for the full year, and it expects profit and cash in 2023 to be "materially ahead" of 2022.

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Unilever has come under fire for selling billions of polluting plastic sachets as research by Greenpeace International suggests 1,700 will have been sold every second in 2023. Greenpeace analysed Unilever's own reports as well as those from the Ellen MacArthur Foundation and Future Market Insights to form a picture of the consumer giant's plastic footprint over the years. The London-based company has been vocal about its aims to conduct business that benefits the environment as well as its plans to use "less plastic, better plastic or no plastic". But Greenpeace found that Unilever is the biggest corporate seller of plastic sachets in the world and is predicted to sell 53 billion in 2023, 1,700 per second.

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COMPANIES - FTSE 250

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easyJet reinstated dividends as promised, alongside reporting a swing to annual profit. In the year to September 30, the budget airline said revenue jumped to GBP8.17 billion from GBP5.77 billion a year before. It swung to a total pretax profit of GBP432 million from a loss of GBP208 million. It noted a "record" performance in the summer, which it attributed to its recent initiatives, which helped to offset the hit from higher fuel costs and external operating challenges. It reinstated dividends at 4.5p a share. easyJet last paid a dividend for financial 2019. It was 43.9p per share, which had represented a 25% cut from financial 2018. The amount for financial 2023 represents 10% of profit after tax, which it expects to increase to 20% in financial 2024. "We see a positive outlook for this year with airline and holidays bookings both ahead year on year and recent consumer research highlights that around three quarters of Britons plan to spend more on their holidays versus last year with travel continuing to be the top priority for household discretionary spending," said CEO Johan Lundgren.

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OTHER COMPANIES

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Supreme said its interim profit jumped, and upgraded annual guidance after strong third-quarter to-date trading. In the six months to September, revenue rose 63% on-year to GBP105.1 million from GBP64.6 million. Pretax profit nearly tripled to GBP12.3 million from GBP4.4 million. It raised its interim payout to 1.5p per share from 0.8p the prior year. The firm said its second half has "begun very well", with growth reported across all divisions. It now expects financial 2024 revenue to be between GBP210 and GBP225 million, which is up from March's guidance of GBP195 to GBP205 million. Adjusted earnings before interest, tax, depreciation and amortisation are forecast between GBP32 to GBP35 million, compared to the prior range of GBP28 to GBP30 million.

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By Elizabeth Winter, Alliance News deputy news editor

Comments and questions to newsroom@alliancenews.com

Copyright 2023 Alliance News Ltd. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Supreme PLC Ordinary Shares 112.50 GBX 0.00 -
Barclays PLC 169.52 GBX 3.08
easyJet PLC 556.80 GBX 2.39 -
Lloyds Banking Group PLC 47.37 GBX 1.72
Rolls-Royce Holdings PLC 374.80 GBX 1.54
Man Group PLC 245.60 GBX 0.86 -
B&M European Value Retail SA 532.80 GBX 1.33 -
Unilever PLC 3,868.00 GBX 0.04

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