London midday: Stocks up after construction data; BP surges

London stocks were off highs but still in the black by midday on Tuesday after a better-than-expected reading on the UK construction sector, and with BP pacing the gains as the oil giant expanded its share buybacks.

The FTSE 100 was up 0.5% at 7,651.67.

A survey out earlier showed the construction sector remained in contraction territory in January, but business optimism hit a two-year high amid expectations of rate cuts.

The S&P Global/CIPS construction purchasing managers’ index rose to 48.8 from 46.8 in December. This marked the highest reading since August 2023 and was above consensus expectations of 47.3.

Nevertheless, the index remained below the 50.0 mark that separates contraction from expansion for the fifth month in a row.

Civil engineering was the best-performing segment in January, with output levels close to stabilisation. Commercial activity also showed some resilience, with the respective index pointing to only a marginal rate of decline. However, house building continued to fall sharply at the start of 2024.

Survey respondents pointed to subdued demand conditions and a lack of work to replace completed projects.

Despite subdued order books, the survey found there was a sharp upturn in business activity expectations. Around 51% of the panel forecast a rise in business activity in the year ahead, with only 12% expecting a decline. This marked the highest level of business optimism since January 2022, with lower borrowing costs and higher consumer confidence expected to boost construction activity over the course of the year.

Tim Moore, economics director at S&P Global Market Intelligence, said: "UK construction companies seem increasingly optimistic that the worst could be behind them soon as recession risks fade and interest rate cuts appear close on the horizon. The prospect of looser financial conditions and an improving economic backdrop meant that business activity expectations strengthened to the highest for two years in January. Moreover, there were again signs that customer demand is close to turning a corner as total new orders fell to the smallest extent for six months.

"Relatively subdued pipelines of new work nonetheless resulted in lower levels of construction output for a fifth successive month in January. House building remained by far the weakest-performing category, despite the rate of decline easing to its slowest since March 2023. "Meanwhile, higher prices paid for imported items contributed to a rise in overall cost burdens for the first time since last September. However, there were still signs of space capacity across the construction supply chain as vendor delivery times shortened again at the start of 2024 and sub-contractor availability increased at a robust pace."

Investors were also mulling the latest data from BRC and KPMG, which showed that the annual rate of UK retail sales growth slowed to its lowest level in 17 months in January as non-food sales dropped despite an easing of inflationary price pressures.

In equity markets, BP surged to the top of the FTSE 100 as the energy giant announced a $1.75bn share buyback despite a slump in annual profits as oil prices fell during 2023 from the spike caused by Russia's invasion of Ukraine.

Full-year underlying replacement cost profit - the company's preferred earnings measure - halved to $13.8bn from $27.6bn a year earlier. Looking ahead, BP expects first quarter 2024 reported upstream production to be higher compared to the final three months of the 2023.

Russ Mould, investment director at AJ Bell, said: "A big plunge in BP’s profit year-on-year is not really big news. Volatile oil prices will inevitably feed through to the company’s bottom line. It is also worth remembering that last year’s profit represented a record level.

"The fact BP’s latest profit beat expectations makes this a solid start for Murray Auchincloss as its new chief executive. A big share buyback is also helping to get investors on side, as the new boss demonstrates his commitment to returning cash to shareholders."

Prudential was in the black after Barclays lifted its price target on the overweight-rated shares to 1,640p from 1,610p.

Renishaw shot up as it said that higher costs, pay inflation and currency movements hit margins in the first half, leading to a 23% slump in adjusted profits amid challenging market conditions, but that it expects things to pick up in the second half.

Banking group Virgin Money advanced after saying it had delivered a first-quarter performance in line with guidance with growth in new accounts, deposits and target lending activities at stable margins.

On the downside, Ladbrokes owner Entain slumped after Barclays downgraded the shares to ‘equalweight’ from ‘overweight’ as it said the stock appears cheap but the risk/reward is fairly balanced.

Market Movers

FTSE 100 (UKX) 7,651.67 0.51%
FTSE 250 (MCX) 19,020.17 0.01%
techMARK (TASX) 4,407.82 1.00%

FTSE 100 - Risers

BP (BP.) 480.45p 5.79%
Prudential (PRU) 843.20p 3.11%
Kingfisher (KGF) 215.60p 2.62%
Rolls-Royce Holdings (RR.) 317.80p 2.58%
BAE Systems (BA.) 1,205.00p 2.21%
Weir Group (WEIR) 1,797.00p 2.13%
HSBC Holdings (HSBA) 630.50p 1.82%
Smith (DS) (SMDS) 273.60p 1.07%
Pershing Square Holdings Ltd NPV (PSH) 3,866.00p 1.05%
Hikma Pharmaceuticals (HIK) 1,900.50p 1.01%

FTSE 100 - Fallers

Entain (ENT) 962.60p -2.75%
Pearson (PSON) 943.40p -2.60%
BT Group (BT.A) 107.05p -2.50%
Ocado Group (OCDO) 515.40p -1.45%
United Utilities Group (UU.) 1,035.50p -1.33%
Coca-Cola HBC AG (CDI) (CCH) 2,295.00p -1.29%
National Grid (NG.) 1,034.50p -1.19%
Fresnillo (FRES) 499.30p -1.09%
SEGRO (SGRO) 847.60p -1.03%
Severn Trent (SVT) 2,529.00p -0.98%

FTSE 250 - Risers

Renishaw (RSW) 4,128.00p 20.14%
Trustpilot Group (TRST) 185.40p 3.52%
Fidelity China Special Situations (FCSS) 188.40p 2.84%
Energean (ENOG) 945.00p 2.38%
Diversified Energy Company (DEC) 915.00p 2.18%
Fidelity Emerging Markets Limited Ptg NPV (FEML) 629.50p 1.86%
Asia Dragon Trust (DGN) 353.00p 1.73%
Apax Global Alpha Limited (APAX) 156.00p 1.69%
Templeton Emerging Markets Inv Trust (TEM) 148.20p 1.51%
Victrex plc (VCT) 1,357.00p 1.34%

FTSE 250 - Fallers

Discoverie Group (DSCV) 734.00p -4.18%
Mobico Group (MCG) 84.75p -2.47%
Aston Martin Lagonda Global Holdings (AML) 179.40p -2.34%
Future (FUTR) 689.50p -2.27%
Close Brothers Group (CBG) 490.80p -2.23%
Keller Group (KLR) 843.00p -2.20%
Helios Towers (HTWS) 75.30p -2.14%
Empiric Student Property (ESP) 90.90p -1.94%
Hochschild Mining (HOC) 99.05p -1.93%
Watches of Switzerland Group (WOSG) 363.80p -1.78%