LONDON BRIEFING: NatWest raises outlook; boohoo hits back at Frasers

(Alliance News) - London's FTSE 100 is called to open slightly higher on Friday, but is still set ...

Alliance News 25 October, 2024 | 6:50AM
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(Alliance News) - London's FTSE 100 is called to open slightly higher on Friday, but is still set for a weekly loss as equities have been held back by US interest rate and election uncertainty, as well as some pre-UK budget nerves.

UK Chancellor Rachel Reeves signalled she would rewrite the way government debt is measured in her first budget.

The chancellor said she faced difficult choices but insisted her budget would "begin to fix the NHS and start to rebuild our economy".

The cost of government borrowing increased in response to speculation the chancellor would change debt rules to spend billions more on investments.

Pepperstone analyst Michael Brown commented: "Unsurprisingly, the gilt market has taken a rather dim view of this fiddling of the fiscal rules. 10-year yields rose 5bp yesterday, back to 4.25%, and to their highest level since the government took office in early-July. At the same time, 2- and 5-year swap rates have jumped, likely soon sparking a rise in mortgage rates, while the spread on gilts over Treasuries also widened. Another weekend of pre-budget leaks likely lies ahead, posing further downside risks to gilts in the short-term."

Reeves is expected to target public sector net financial liabilities as her new benchmark for government debt rather than the current measure of underlying public sector net debt.

A shift to PSNFL would give her greater headroom to meet her debt reduction target, because it includes a wider mix of state assets and liabilities – notably including expected student loan repayments to offset some of the liability.

In early UK corporate news, lender NatWest raised its guidance, transport firm FirstGroup made an acquisition, while online retailer boohoo defended a debt refinancing plan which drew the ire of its shareholder Frasers.

boohoo also said it must consider its "commercial position" as it responded to the Sports Direct owner's plan to jettison Mike Ashley to the role of CEO at the AIM listing.

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

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MARKETS

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FTSE 100: called up 0.1% at 8,280.28

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Hang Seng: up 0.6% at 20,614.69

Nikkei 225: down 0.6% at 37,913.92

S&P/ASX 200: up 0.1% at 8,211.30

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DJIA: closed down 140.59 points, 0.3%, at 42,374.36

S&P 500: closed up 0.2% at 5,809.86

Nasdaq Composite: closed up 0.8% at 18,415.49

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EUR: higher at USD1.0817 (USD1.0799)

GBP: higher at USD1.2961 (USD1.2955)

USD: higher at JPY151.97 (JPY151.84)

GOLD: lower at USD2,728.53 per ounce (USD2,729.94)

(Brent): lower at USD74.34 a barrel (USD74.48)

(changes since previous London equities close)

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ECONOMICS

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Friday's key economic events still to come:

09:00 BST eurozone money supply

09:00 BST Germany Ifo business climate

13:30 BST US durable goods orders

15:00 BST US Michigan consumer sentiment index

Annual meeting of IMF and World Bank continues

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UK Prime Minister Keir Starmer does not think all owners of stocks and shares fall outside his definition of "working people", Downing Street has signalled. The prime minister had suggested asset owners would not fall within his conception of what a working person is. The government has been asked repeatedly to define this term, in a bid establish which taxes may rise in the budget. Labour's manifesto said the party would not increase taxes on working people, including VAT, national insurance, and income tax. During a broadcast interview at a Commonwealth summit in Samoa, Starmer told Sky News that he does not consider people who have an income from assets such as shares of property to be working people. "They wouldn't come within my definition," he said. The hint at who falls outside the scope of Starmer's definition could point to where tax rises might come from in the budget. Among the levies which are reportedly under consideration for a hike are capital gains tax, inheritance tax, and fuel duty. In a partial climbdown on Starmer's position, Downing Street later clarified that people who hold a small amount of savings in stocks and shares still count as working people. The prime minister's official spokesman said Starmer meant someone who primarily gets their income from assets in his interview.

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UK companies which import key minerals used in laptops, phones and electric cars will be given greater financial support at the budget, in an effort to reduce British industries' reliance on China. Rachel Reeves is expected to use her budget on October 30 to announce companies bringing critical minerals like lithium, cobalt and graphite into UK manufacturing will get access to UK Export Finance, according to government sources. A public body, UK Export Finance helps British exporters and their buyers with financing and insurance. The move, only available to companies which have long-term contracts with British exporters, will help secure supplies of these critical minerals for makers of solar panels, wind turbines, electronic goods, and planes, among others. It would also allow companies backed by UK cash to extract minerals in countries like Australia, which has large lithium deposits, as opposed to relying on China, which currently dominates the critical minerals market.

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Plans to ban smoking outside pubs are reportedly being dropped after opposition from the hospitality industry. Proposals leaked earlier this year suggested the government would ban smoking in some outdoor areas, such as at restaurants and hospitals, to improve public health. Concerns were raised over the potential bans, which could include beer gardens and outside stadiums. The Guardian reported that Downing Street is now blocking the ban on outdoor smoking, citing one official who called it an "unserious policy". The Sun reported that Downing Street was watering down the plans. A government source said no decision has been made. The tobacco & vapes bill is expected to be introduced to Parliament before Christmas. Health Secretary Wes Streeting said earlier this week that Labour's smoking bill will be "more ambitious" than the bill introduced by the previous Conservative government. The tobacco & vapes bill tabled in the last parliament sought to prevent anyone born after January 1, 2009 from legally smoking by gradually raising the age at which tobacco can be bought.

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BROKER RATING CHANGES

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Berenberg raises Flutter price target to 20,300 (18,800) pence - 'buy'

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COMPANIES - FTSE 100

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NatWest Group raised its annual outlook and reported an improved third-quarter. The lender's total income increased 7.3% on-year to GBP3.74 billion in the three months to September 30, from GBP3.49 billion a year prior. On-quarter, it climbed 2.3% from GBP3.66 billion. Pretax profit spiked 26% year-on year to GBP1.67 billion from GBP1.33 billion. It slipped 1.5% from GBP1.70 billion in the second-quarter. Nonetheless, it topped consensus of GBP1.46 billion. NatWest also beat on total income, which had been expected to land at GBP3.58 billion. NatWest's net interest margin rose to 2.18% from 2.05% a year prior, and 2.10% in the second quarter. The company now expects to achieve a return on tangible equity above 15%, its outlook raised from "above 14%". Total income excluding notable items is to be around GBP14.4 billion, up from its previous forecast of "around GBP14.0 billion". Total income excluding notable items in the third-quarter rose 7.3% on-year and 5.1% on-quarter to GBP3.77 billion. Chief Executive Paul Thwaite said: "As the UK's biggest bank for business, and one that serves millions of households, NatWest Group plays a key role in driving economic growth across the UK. Throughout the third quarter of 2024, we have grown our lending, helping customers to buy or remortgage their homes or to start and grow their businesses. With customer activity increasing, defaults remaining low and optimism amongst businesses and consumers, we are well placed to succeed with our customers and for our shareholders in the months and years ahead."

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Airtel Africa reported a half-year profit rise, and it said a cost savings plan is showing "green shoots". The Africa-focused telecommunications and mobile money services provider said pretax profit in the half-year to September 30 jumped to USD178 million from USD12 million a year prior. Revenue, however, weakened 9.8% on a reported basis to USD2.37 billion from USD2.62 billion. At constant currency, however, revenue improved 20%. The reported revenue decline reflects "the impact of currency devaluation, particularly in Nigeria". Airtel Africa's total customer base rose 6.1% to 156.6 million from 147.7 million a year prior. CEO Sunil Taldar said: "Furthermore, we have seen our cost optimisation programme already show initial green shoots, which combined with operational leverage, has contributed to an expansion of our [earnings before interest, tax, depreciation, and amortization] margins in Q2'25 compared to the previous quarter. Foreign currency debt has fallen to just 11% of market debt at the end of September which reflects the work we have undertaken to de-risk the balance sheet."

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COMPANIES - FTSE 250

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FirstGroup said it has acquired a Cheshire-based provider of school, B2B and B2C private bus and coach hire services. The transport firm said the buy of Lakeside Group boosts its "coaching business and offers the potential to increase our presence in the West Midlands". Lakeside has a fleet of 145 buses and coaches. "The majority of Lakeside's revenue is derived from school and private hire contracts, with the remaining revenue coming from tours, a small local bus operation (under contract to Shropshire County Council) and B2B operations. The business has grown significantly over recent years, both organically and inorganically, and has retained strong levels of profitability," FirstGroup said. Lakeside achieved revenue of GBP12.5 million and adjusted earnings before interest and tax of GBP2.5 million in the year to March 31. FirstGroup did not disclose the sum of the acquisition.

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OTHER COMPANIES

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boohoo hit back at shareholder Frasers, defending its debt refinancing and explaining the online retailer's "commercial position" is a factor to consider when naming a chief executive. Sports Direct owner Frasers wants Mike Ashley, which has a 73% stake in the FTSE 100 company, to take over as CEO of boohoo. Frasers owns 27% of boohoo. The AIM listing said that while it "remains willing to discuss board representation with Frasers in a constructive manner", it must be mindful of the fact that Frasers is an investor in Asos, which operates in a similar market to boohoo. "Appropriate governance will be required to protect the company's commercial position and the interests of other shareholders. boohoo has sought assurances from Frasers in this regard and they have not to date been provided," boohoo added. boohoo explained that the evening of October 18 was when Frasers first communicated that it would like Ashley as CEO. "Frasers sought to establish a 48-hour deadline for the board to confirm that it would proceed to make this appointment. This was the first occasion on which Frasers had identified its preferred board candidate and followed Frasers having formally ruled out Ashley for the role on 9 October 2024 and having previously and consistently indicated that its one nominee would perform a non-executive role," boohoo added. The company earlier in October said Chief Executive John Lyttle would be stepping down but would stay with the business whilst a successor is found and to ensure a smooth transition. It had also agreed a new GBP222 million debt facility with a consortium of its existing relationship banking group, which Frasers hit out at on Thursday. Frasers said the term of the refinancing were "wholly unsatisfactory". boohoo deemed that assessment "inaccurate and unfair".

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By Eric Cunha, Alliance News news editor

Comments and questions to newsroom@alliancenews.com

Copyright 2024 Alliance News Ltd. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
FirstGroup PLC 154.40 GBX -0.26 -
Airtel Africa PLC Ordinary Shares 106.00 GBX -0.19 -
Frasers Group PLC 638.00 GBX -3.63 -
Boohoo Group PLC 35.26 GBX 0.74 -
ASOS PLC 386.80 GBX 0.16
NatWest Group PLC 413.90 GBX 0.34
Flutter Entertainment PLC 21,750.00 GBX -1.00
Flutter Entertainment PLC 280.38 USD 0.28

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