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Burberry gains as China laps up luxury goods
17.00: Britain’s FTSE 100 continued to track early-day gains as Burberry (BRBY.L) led the index.
The FTSE 100 added 0.5%, or 28 points, to 5,714 and the Mid-250 index gained 1.41%, or 157 points, to 11,243.
Luxury retailer Burberry rose to the top of the FTSE 100, adding 52p, or 4.2%, to £12.84 as Chinese consumers showed no sign of losing their appetite for expensive goods from Hermés and Rémy Cointreau.
Sales for both companies rose more than 20% in the second quarter, spurring investor hopes that Burberry would bounce back following its decline in first-quarter sales growth.
Sports shop owner JJP Sports (JJB.L) slid 1.8p, or 24%, to 5.7p as group like-for-like sales fell 8.7% in the first half of the year, forcing it into talks with partners.
European markets also made gains: Germany’s DAX index took on 1.11% to 6,758, France's CAC 40 index inched ahead 0.87% to 3,264, and the FTSEurofirst 300 index of top European shares added 0.95% to 1,064.
However, Spanish 10-year bond yields rose to 7.02% following weak demand at a £2.3 billion auction of two-, five- and seven-year securities.
US market rises on Fed stimulus hopes
15.20: US markets opened on the front foot as unemployment claims rose ahead of expectations, raising investor hopes of further economic stimulus from the Federal Reserve.
The Dow Jones Industrial Average added 0.29% to 12,946, the Standard & Poor's 500 index took on 0.27% to 1,376, and the Nasdaq Composite index gained 0.75% to hit 2,296.
Jobless claims rose to 386,000 last week ahead of the forecast 367,000. Chris Williamson, chief economist at Markit, said: ‘US unemployment benefit claims are showing an improving trend, despite an uptick in the jobless count last week, pointing to subdued payroll growth in July.
'It therefore seems increasingly likely that the Fed will need to see the economic data deteriorate further before sanctioning more aggressive stimulus.’
Oil prices have peaked above $107, their highest level in seven weeks, on fears of further unrest in the Middle East as political tensions in Syria rise. Brent crude added 1.7% to $106.99 and light crude gained 1.7% to $91.43.
Carsten Fritsch, analyst at Commerzbank, commented: ‘Within just a week, prices have climbed by more than 8%, primarily on the back of geopolitical risks. The conflict in Syria, which has already been under way for 16 months, appears to be escalating.
‘Yesterday saw an attack in which two high-ranking representatives of the Assad regime were killed. The Iran conflict is also coming into increasingly sharp focus, Israel having blamed Iran for the attack on Israeli tourists in Bulgaria.’
Avocet Mining boss quits over unrealistic forecast
12.55: There’s a flurry of mining news today. West Africa-focused miner Avocet Mining (AVM.L) shed 0.45p, or 0.65%, to 68.8p as its chief executive, Brett Richards, stepped down over problems at its Inata mine in Burkina Faso. Shares tumbled 70% when it was announced that the site was expected to miss its output target, following an increase in production costs last month.
Current chief operating officer, David Cather, will step up as the company’s new chief executive. Tim Dudley, analyst at Canaccord Genuity, raised his outlook on the stock to ‘buy’ from ‘hold’ with a target price of 100p.
Dudley commented: ‘Clearly with a drastic share price response to another delay in the release of scoping study results for the Inata expansion the company’s strategy had to change. We believe that with the appointment of Mr. Cather, experienced mining engineer, the direction will move towards conservative planning.’
On the FTSE 250 miner Afren (AFR.L) is the second-highest riser on the index, up 7.1p, or 5.9%, to 126p with a boost from its Kurdistan operations where more oil was found.
Nick Copeman, analyst at Oriel Securities, said: 'Afren issued a positive update on the Jebel Simrit exploration well in Kurdistan this morning which has now encountered 460 meters of net pay and delivered 135,000 barrels of oil a day from the first three flow tests. We retain our buy recommendation.’
Rain drags on retail sales
10.50: More on retailing. It's official, the rain beat the Queen. Retail sales grew much less than expected in June, rising just 0.1% as the wet weather damped down the impact of the Diamond Jubilee. Analysts had forecast a rise of 0.6%. The low figure means second-quarter sales figures fell by 0.7%, the biggest decline in over two years, hence the pain being expressed by many retailers today. On an annual basis, sales are up 1.6%, but again this is below forecasts.
Philip Rush of Nomura says, 'for the retail sector as a whole, easing inflation has failed to support sales volumes as much as it had done over the previous several months. Worse still, quarterly growth in the value of sales slipped into negative territory for the first time since the start of 2010. Bad weather is compounding retailers' numerous other woes in this challenging retail environment.'
Mothercare means business
Time to look at Mothercare (MTC.L). The baby-products retailer advances 4.75% or 9.75p to 215p on a familiar sounding trading statement. The UK, where it is closing stores in a bid to restore profits, saw total sales dive over 10% in the 15 weeks to 14 July. However, once again this is offset by an 11% rise in its international sales from 59 countries, including India.
Tom Dobell, manager of the M&G Recovery fund, is a big investor in Mothercare because of the twin stories around the potential UK recovery and international growth. The shares have risen 29% this year.
Oriel Securities repeats its ‘buy’ stance saying. ‘There are real signs of encouragement at Mothercare with sales over the last five weeks in positive territory on the website as customers respond well to new and more keenly priced product. A pick up in the store opening programme overseas will see the rate of sales growth improve.’
There is another solid set of results from Howden Joinery (HWDN.L), the supplier of kitchens to the building trade which emerged from the old MFI Furniture business. Half-year profits at the Citywire Top Stock are 8% up at £25.4 million on revenue 7% higher at £364.6 million. Andy Brown of Panmure says: 'Howden is being well managed but the end market remains tough, hence our neutral stance.'
HSBC faces £3bn bill from scandals
10.20: Talking of Citywire Top Stocks, HSBC (HSBA.L), the only bank in the top holdings of the five fund managers we follow, is trading 2.25p up at 548.25p, which may look strange following the reports of the money laundering the bank permitted in Mexico and the Financial Times's story today naming the bank as one of four EU banks under investigation for Libor rigging.
Cormac Leech of Liberum expects a $1 billion fine for money laundering and $4 billion in fines and damages for Libor manipulation, a £3.2 billion hit in total. However, despite the eye-watering sums he says they are in the price and that the shares trade on just 8.5 times forecast earnings for 2013 and yield 4.8%.
10.00: Luxury brand retailer Burberry (BRBY.L) leads the FTSE 100 with a 2.7% rise to £12.65. Engineeer IMI (IMI.L) follows, recovering 2.3% to 809.5p after yesterday's 'reduce' rating from Nomura. Resources companies lead the fallers list with BG Group (BG.L) down 2.2% to £12.88 and Vedanta Resources (VED.L) 1.4% off at 896p. National Grid (NG.L) continues to languish, 1.4% lower at 661.5p, following this week's clash with regulator Ofgem.
Seymour Pierce 'buys' Halford on CEO departure
09.10: There is a lot of retail news this morning. The FTSE 100 is eight points up at 5,694.
Halfords (HFD.L) jumps 5%, or 9.7p, to 207p after chief executive David Wild (above) quits the struggling bike shop chain following a sharp fall in first quarter sales. Chairman Dennis Millard is taking on an executive role and will lead the search for Wild's successor.
Halfords, whose shares have fallen 27% or 80p this year, says sales at stores open over a year dropped 5.6% in the 13 weeks to 29 June. This is a deterioration from the 2.3% sales decline in the previous quarter. It expects like-for-like sales to be negative for the rest of the first half and warns they could remain negative in the second half as well.
‘The consumer environment remains difficult and the unseasonal weather conditions this quarter had a direct impact on sales of cycles and outdoor leisure products,’ Millard says in a statement.
Kate Calvert, analyst at Seymour Pierce, upgrades Halfords to 'buy' from 'hold' believing 'significant value could be created for shareholders as the business still generates c£75 million of post tax cashflow before £25 million of capex [capital expenditure].' Philip Dorgan of Panmure is reassured by Halfords' commitment to holding the interim dividend. He writes: 'On our forecasts, the shares trade at 9x prospective earnings and yield 5.6%. We retain our recently downgraded 'hold' recommendation.'
DIY retailer Kingfisher (KGF.L) falls 2.6% or 7.1p to 268p despite claiming a recovery in underlying sales in its second quarter. In the 10 weeks to 7 July group sales rose 3.7% but on a like for like basis dipped 0.4%. The group owns Castorama in France where sales fell 0.2%, worse than analyst forecasts of a 1.7% rise. B&Q did better in UK and Ireland with like-for-like sales up 1.6% compared to forecasts of a 0.4% fall. However, margins have taken a hit as the company cut prices to maintain demand during the wet weather.
Sports Direct, which is run by billionaire Newcastle United owner Mike Ashley, unveiled a rise in full-year, pre-tax profits to £162.1 million from £135.5 million. Sales, up 13% to £1.84 billion, were driven by an 82% surge in online business. The shares fell 3.2p or 1% to 291.5p but are up 36% or 78p this year.
Chief executive Dave Forsey said in a statement. ‘In spite of the low expectations surrounding England’s participation in Euro 2012 and the unseasonal weather our core divisions are performing well.’
By contrast JJB Sports tumbled a further 2.1p, or 28.3%, to 5.4p, on another dire trading statement with group like-for-like sales plunging 8.7% in the 24 weeks to 15 July 2012. This leaves the company valued at just £17 million, which is around the level of its bank debts. The company is in talks with its ‘strategic partners’.
Lloyds sells 632 branches to Co-Op
08.15: Lloyds Banking Group (LLOY.L) shares slip after the terms of a deal to sell 632 branches to the Co-Operative group are announced.
Lloyds, down 0.3% to 29.6p, will receive just £350 million upfront for the ‘Project Verde’ divestment, which the European Commission required it to make in return for its bailout by the British government. The Co-Op will pay a further £400 million depending on performance of the business until 2027. Lloyds says this is worth around £800 million 'on a nominal basis'.
Lloyds, which is 40% owned by the taxpayer, had originally hoped to get up to £1.5 billion, but that valuation was scuppered by the economic slowdown.
It is a huge deal for the Co-Op, giving it 4.8 million customers and a balance sheet of £24 billion of assets. It takes its branch network to 1,000 or 10% of all bank branches in the UK and gives it a 7% share of the personal current account market.
The FTSE 100 has opened 5.5 points, or 0.1%, higher at 5,691 after overnight gains in the US and Asia.
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- Lloyds Banking Group PLC (LLOY.L)
- Halfords Group PLC (HFD.L)
- Kingfisher PLC (KGF.L)
- Sports Direct International PLC (SPD.L)
- JJB Sports PLC (JJB.L)
- Burberry Group PLC (BRBY.L)
- IMI PLC (IMI.L)
- BG Group PLC (BG.L)
- Vedanta Resources PLC (VED.L)
- National Grid PLC (NG.L)
- HSBC Holdings PLC (HSBA.L)
- Mothercare PLC (MTC.L)
- Howden Joinery Group PLC (HWDN.L)
- Afren PLC (AFRE.L)
- Avocet Mining PLC (AVM.L)
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