LONDON MARKET OPEN: Mid and small caps outperform

(Alliance News) - The FTSE 100 index was underperforming other European stock market measures at the open on Thursday, while London's midcap and smallcap listings were off to a more positive start.

The FTSE 100 index opened down 1.19 points at 7,464.05. The FTSE 250 was up 117.89 points, 0.6%, at 19,618.39 and the AIM All-Share was up 4.24 points, 0.5%, at 844.54.

The Cboe UK 100 was down 0.1% at 746.67, the Cboe UK 250 was up 0.8% at 16,984.17, and the Cboe Small Companies was up 0.2% at 12,986.17.

In European equities early Thursday, the CAC 40 in Paris was up 0.2%, while the DAX 40 in Frankfurt was up 0.5%.

Released on Wednesday, the minutes from the US Federal Reserve's November policy meeting suggested that the large interest hikes of late are set to slow.

"A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate," the minutes read.

They noted that a slower pace would better allow the Federal Open Market Committee to "assess progress toward its goals of maximum employment and price stability".

The more dovish rhetoric from the Fed weakened the dollar.

Sterling was quoted at USD1.2074 early Thursday, higher than USD1.2062 at the London equities close on Wednesday. The euro traded at USD1.0416 early Thursday, higher than USD1.0362 late Wednesday. Against the yen, the dollar was quoted at JPY138.93, down from JPY139.64.

A weaker dollar boosted the price of gold. It was quoted at USD1,755.95 an ounce early Thursday, up sharply from USD1,743.02 on Wednesday.

Brent oil was trading at USD84.81 a barrel, up slightly from USD84.66.

Market trading volumes are expected to be light on Thursday, given that US markets will be closed for the Thanksgiving holiday. Wall Street will hold a shortened trading day on Friday.

The key retail trading period of Black Friday and Cyber Monday officially kicks off in one day's time.

"Retailers are desperate for some spending cheer but the worry is that it could turn out to be more of a Bleak Friday. With the promotional event taking place amid the cost-of-living storm, could consumers stay more cautious about splashing the cash," said Hargreaves Lansdown's Susannah Streeter.

"Retailers offering the best shopping experiences may prove to be more resilient, with many more customers expected to hit the high streets and retail parks this year, rather than surfing stores from the sofa."

In the FTSE 100, retailer Kingfisher shed 1.5%.

The DIY products seller said sales in the three months that ended October 31 were up 0.6% year-on-year to GBP3.26 billion, and it saw continued gains in market share during the period.

"While the market backdrop remains challenging, DIY sales continue to be supported by new industry trends such as more working from home and a clear step-up in customer investment in energy saving and efficiency," Kingfisher said.

However, the B&Q owner said it expects annual adjusted pretax profit of between GBP730 million to GBP760 million, which is down from a previous estimate of around GBP770 million. It also will be below the financial 2022 and 2021 figures of GBP949 million and GBP786 million, respectively.

The fourth quarter has started well, Kingfisher said, with like-for-like sales in the three weeks to November 18 up 2.8% year-on-year.

"The DIY group fared extremely well during the pandemic with profits of GBP949 million last year. Although year-on-year this looks set to slow, Kingfisher is enjoying a tailwind from increased sales of energy efficiency products to offset the surge in energy bills facing consumers this year," said interactive investor's Victoria Scholar.

In the FTSE 250, shares in Dr Martens plummeted 20%.

The bootmaker warned of pressure on margins, as well as slower-than-expected growth in its direct-to-consumer arm, due to a weaker consumer environment.

Dr Martens expects its annual earnings before interest, tax, depreciation and amortisation margin to be 100 to 250 basis points lower than the previous year, due to its investments as well as the appreciation of the dollar, which dilutes the margin.

However, the footwear company recorded strong revenue growth in the six months to September 30, as this rose 13% year-on-year to GBP418.6 million, compared to GBP369.9 million. Pretax profit declined by 5% to GBP57.9 million from GBP61.3 million, which it said was mostly due to higher depreciation and amortisation costs following investment in new stores and IT systems.

Dr Martens declared an increased interim dividend of 1.56 pence per share, up 28% from 1.22p.

Imperial Leather-maker PZ Cussons was 2.2% lower.

The consumer goods firm has hired David Tyler to be non-executive director from Thursday. Tyler is expected to be appointed as chair of the board, as Caroline Silver's term at the business expires at the end of March next year.

Tyler currently serves as chair of Domestic & General, and has been chair of J Sainsbury, Hammerson, and Logica. He is a former Unilever executive.

At the other end of London's midcap index, office space firm Workspace and lender Virgin Money were up 3.6% and 3.2%, after receiving broker upgrades.

Elsewhere, budget airline Jet2 rose 4.0%.

Jet2 said revenue in the half year ended September 30 leapt to GBP3.57 billion from GBP429.6 million the year before, which had been blighted by pandemic-related travel restrictions.

Jet2 swung to a pretax profit of GBP450.7 million from a loss of GBP205.8 million, and reinstated a dividend of 3.0 pence.

Due to the broader disruption in the aviation sector in the mid-summer, Jet2 paid out delay and compensation costs in excess of GBP50.0 million.

It warned that margins may come under pressure, due to input cost pressures from fuel, carbon, a stronger dollar, wage increases and investment. However, Jet2 said it is presently on track to exceed market expectations for profit before foreign exchange revaluation and taxation for its year ending March 31.

AIM-listed Michelmersh rose 9.6% in early trading.

The specialist brick maker announced the acquisition of Fabspeed Holdings, a manufacturer of off-site pre-built brick products for an initial GBP6.3 million. Fabspeed operates from three facilities, two in West Yorkshire and one in Oxfordshire.

"The transaction is expected to be immediately accretive to earnings and, in our view, will bring cross-selling opportunities, enabling Michelmersh to capture a greater share of customer wallet and provide a wider distribution network for Fabspeed," Berenberg considered.

Michelmersh also reported strong trading, and now expects revenue and profit in 2022 to be ahead of market expectations. It intends to launch a share buyback for up to GBP3.0 million.

AIM's DeepMatter plunged 38%, as it mulled delisting.

The digital chemistry data company said its board has concluded that de-listing from AIM and re-registering as a private company would provide better opportunities to raise additional capital. This comes after discussions with major shareholders over securing future working capital, it said.

Delisting will be conditional on shareholder approval in due course, and currently has the support of major shareholders. DeepMatter predicts it will need GBP1 million prior to any delisting, to fund its long-term growth ambitions.

In Tokyo on Thursday, the Nikkei 225 index closed up 1.0%, after reopening from Wednesday's break for Labor Thanksgiving Day in Japan. The Shanghai Composite closed down 0.3%, while the Hang Seng index in Hong Kong was up 0.6%. The S&P/ASX 200 in Sydney closed up 0.1%. 

By Elizabeth Winter; [e-mail]

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