London’s FTSE 100 had another tricky day on Wednesday, as it continues to struggle to find its groove in 2024, though trade was more confident in New York.
There was M&A activity in the housing sector on Wednesday, a strategic plan from grocer Sainsbury’s and a dividend hike from packaging company Smurfit Kappa.
The FTSE 100 index lost 52.26 points, 0.7%, at 7,628.75. So far this year, the blue-chip benchmark has fallen 1.4%.
The FTSE 250 ended down 66.81 points, 0.4%, at 19,104.53, and the AIM All-Share fell 2.71 points, 0.4%, at 751.46.
The Cboe UK 100 ended down 0.8% at 763.32, the Cboe UK 250 lost 0.6% at 16,520.31, and the Cboe Small Companies fell marginally to 14,633.42.
In European equities on Wednesday, the CAC 40 in Paris ended down 0.4% while the DAX 40 in Frankfurt closed down 0.7%.
In New York, the Dow Jones Industrial Average was up 0.4% at the time of the London equities close. The S&P 500 was up 0.6%, after earlier hitting a record high. The Nasdaq Composite was 0.7% higher.
Equities in New York pushed higher despite lingering US interest rate worries.
It would be a ‘mistake’ for the US Federal Reserve to start cutting interest rates too soon, despite its recent progress against inflation, a senior Fed official said Tuesday.
On Tuesday, Cleveland Fed president Loretta Mester, who is a voting member of the Fed’s rate-setting committee this year, joined Powell in pouring cold water on the idea of imminent cuts.
The pound was quoted at $1.2623 late Wednesday in London, higher compared to $1.2590 at the equities close on Tuesday. The euro stood at $1.0765, up against $1.0749. Against the yen, the dollar was trading at JP¥148.01, down from JP¥148.09.
Bannockburn Global Forex analyst Marc Chandler commented: ‘Sterling has moved back into the $1.26-$1.28 trading range that dominated since the middle of last December until the start of this week.
‘Stronger resistance is likely in the $1.2645-75 area, but intra-day momentum indicators are stretched.’
In London, housebuilders Barratt Developments and Redrow moved in opposite directions after announcing a merger deal. Barratt slumped 6.5%, while Redrow surged 13%.
Barratt said it will be taking over its smaller peer Redrow, in an all-share takeover offer which values Redrow at £2.52 billion.
Each Redrow shareholder will receive 1.44 new Barratt shares for each Redrow share. Following completion, shareholders in Redrow will hold around 33% of the combined group, while Barratt shareholders will hold around 67%.
The combined group will be renamed Barratt Redrow PLC upon completion.
Separately, the two firms announced results for the six months ended December 31. Both slashed dividends amid lower profit and revenue.
AJ Bell analyst Russ Mould said the deal suggests other names in housebuilding could be in play.
Mould added: ‘[The merger] valued Redrow at 1.29 times its historic tangible net asset value, or book value, per share, compared to the 1.02x multiple that prevailed at Tuesday’s close. That brings in another rule of thumb, namely that builders are potentially cheap when they trade around one times book value and below and are probably expensive when they trade toward two times TNAV and above.
‘It also begs the question of what this price tag means for other builders, allowing for how they have, in some cases, different business mixes, target markets and geographic exposures. Crest Nicholson, Bellway and Taylor Wimpey look cheap compared to the 1.29 times TNAV implied by the undisturbed Barratt share price and even Tuesday’s early-morning falls in Barratt, which trim the value of the offer for Redrow and the implied multiple of book value, still leave the shares offering some upside.’
Crest Nicholson added 4.4%, Bellway rose 2.8% and Taylor Wimpey shares climbed 1.2%.
Smurfit Kappa added 3.6%. The Dublin-based packaging company boosted its dividend by 10% to 118.4 euro cents. The company’s annual earnings declined, though its chief executive said these were still the firm’s second-best yearly numbers in its history.
Sainsbury’s shares fell 6.1%, dragging grocery peer Tesco down 3.4% with it.
The London-based supermarket chain committed to returns as it set out is ’next level Sainsbury’s’ strategy, which it said builds on the ‘food first’ programme that it launched in November 2020. The new strategy aims to make grocery market volume share gains, while still building on the range offered by general merchandise arm Argos.
Sainsbury’s said it will commit to the progressive dividend policy from the start of the next financial year, and the share buyback also will take place over the course of that year.
Funding the payouts, Sainsbury’s said it continues to forecast retail free cash flow of at least £500 million per year and added on Wednesday that it now expects at least £1.6 billion over the next three years.
It will aim for £1 billion in cost savings over the three years to financial 2027, expecting to take £150 million in one-off costs related to those savings over the next three years.
Future shares fell 7.7% as the magazine publisher, and operator of price comparison site Go Compare, said trading has been ‘broadly in line with expectations’ in the four months to January 31. However, it said macroeconomic pressure meant it was a slower start to the financial year for affiliate products and digital advertising.
It releases results for the first-half to March 31 in May.
Zinc Media shares climbed 3.1%. The television and audio production firm said revenue in 2023 rose 30% to £40 million from £30 million in 2022.
Brent oil was quoted at $78.98 a barrel in London on Wednesday, up from $78.57 late Tuesday.
Gold was quoted at $2,039.13 an ounce, up against $2,036.43.
Thursday’s economic calendar has Chinese inflation data overnight, before US initial jobless claims reading at 1330 GMT.
The local corporate calendar has annual results from pharmaceutical firm AstraZeneca and consumer goods company Unilever. Utility SSE and contract caterer Compass release trading statements, while Miner Anglo American posts a production report.
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