Weekly review

The FTSE 100 ended the week 195.48 points higher, closing at 7,585.46 on Friday.

Equity view

Housebuilder Vistry has launched a £35.0m share buyback programme as part of an effort to return surplus capital to investors and reduce the group's overall share capital. Vistry said on Friday that the share buyback comes after a "strong start to the year" that has led the company to expect full-year margins in both housebuilding and partnerships to be ahead of previous 2022 targets, with adjusted pre-tax profits expected to be at the top end of market forecasts.

UK pharma giant GSK said China's National Medical Products Administration has approved a two-dose vaccine schedule for its Cervarix treatment in girls aged between 9 to 14 years for the prevention of cervical cancer. In 2020, there were approximately 110,000 new cases of cervical cancer and 59,000 deaths due to the disease in China, GSK said on Friday.

Office space provider Workspace said on Friday that following "significant interest, it is considering the disposal of the light industrial assets formerly owned by McKay Securities, as a single portfolio. Workspace completed its £272m acquisition of property investment company McKay in early May.

Moonpig tumbled on Friday after various shareholders sold around £80m worth of shares in the online greeting cards and gift retailer in a placing. According to terms seen by Bloomberg, the selling shareholders were Exponent Private Equity LLP, LCP VIII Holdings, Strategic Partners VII Investments, LGT Capital Partners, GoldPoint Partners, K Athena Investments No 40 Limited Company, Storebrand International Private Equity and Aberdeen Standard Investments.

Digital car sales platform Auto Trader almost doubled annual profits as more customers spent time online making purchases. The company on Thursday reported a 91% rise in pre-tax earnings to £301m as revenue rose 65% year on year to £432.7m and 17% in 2020. Revenue in the prior year was impacted by the company’s decision to give free advertising to retailer customers several times during the Covid pandemic.

Government contractor Serco said on Thursday that better than expected trading and a "positive outlook" had led it to increase full-year guidance for both revenue and underlying trading profits. Serco stated it now expects reported revenues of £4.3bn-£4.4bn for the full year, as well as reported underlying trading profits of roughly £225.0m, significantly ahead of previous expectations for UTP of £195.0m set out at the time of its full-year results in February and approaching levels reported in 2021.

Investment platform AJ Bell reported a decline in interim pre-tax profit on Thursday as dealing activity normalised, but lifted its margin guidance for the year. In the six months to the end of March, pre-tax profit fell to £26.1m from £31.6m in the same period a year earlier, while revenue nudged up to £75.5m from £73.9m. The pre-tax profit margin was 34.6% versus 42.8%.

Sustainable technologies firm Johnson Matthey said it expected current operating performance to be in the lower half of forecasts, as its customers were impacted by Covid lockdowns in China and the Ukraine war, and also announced the sale of its batteries business. Annual pre-tax profits fell 13% to £195m as it took a 17% hit to operating profit from the sale of the batteries business. Revenue rose 4% primarily driven by higher average precious metal prices.

IT services provider Softcat on Wednesday said annual operating profit would be slightly ahead of expectations after a strong third quarter. The company said it delivered double-digit year-on-year growth in revenue, gross profit and operating profit in the three months to April 30 across all technology segments, “reflecting strong and stable customer demand”. The supply chain situation remains challenging but consistent with the first half, Softcat added.

Ventilation equipment manufacturer Volution Group said on Wednesday that it had continued to perform "strongly" through the second half of its trading year, with the company expecting FY earnings to be towards the upper end of market expectations after third-quarter revenues grew 17.6% at constant currency. Volution stated it had been "particularly encouraged" by UK residential revenues, where growth rates accelerated in the second half, underpinned by "good growth" in new build residential systems and strong public RMI demand. Organic growth accounted for 8.8% of Q3's revenue growth.

Packaging company Smurfit Kappa has begun construction of a new €35.0m packaging plant in Morocco, its first corrugated plant in the country. Smurfit Kappa said on Wednesday that the new plant, located in Rabat and covering an area of 25,000 square miles, will enable it to supply "innovative and sustainable packaging solutions" to its local customer base by creating packaging for the industrial, agriculture, FMCG, automotive, pharmaceutical and ceramics sectors.

Marks & Spencer reported a jump in annual earnings on Wednesday, boosted by a strong performance in food, but warned that growing headwinds could curtail profits in the current year. The high street stalwart reported revenues of £10.8bn for the year to 2 April, compared to £9.2bn a year previously or £10.2bn in the year to 28 March 2020, before the pandemic.

Home repairs and emergency services provider Homeserve on Tuesday almost trebled annual profits as it prepared to be sold to Brookfield Asset management in a £4.4bn deal. The company posted a pre-tax profit of £175.1m for the year to March 31, up from £47.2m a year earlier. No final dividend was declared in light of the cash offer, it added.

Drugmaker Hikma Pharmaceuticals revealed on Tuesday that chief executive Siggi Olafsson has resigned from both the role and the company's board of directors in order to pursue other opportunities. Hikma, which has initiated an externally facilitated process to replace Olafsson, stated chairman Said Darwazah will assume all CEO responsibilities.

Infrastructure group Hill & Smith Holdings said on Tuesday that year-to-date trading had been "positive", with reported revenues 9% ahead of the same time a year earlier, driven by pricing actions and "robust levels of demand" across its portfolio. Hill & Smith Holdings stated its galvanising division delivered a strong performance in the four months ended 30 April, with good levels of organic revenue and profit growth across all three regions reflecting actions taken to offset input cost inflation, a strategic focus on higher-margin customers, and a modest increase in total volumes.

Convenience food manufacturer Greencore said on Tuesday that it swung to an interim profit as revenues grew and announced the resumption of a £50m return to shareholders. In the 26 weeks to 25 March, the company swung to a pre-tax profit of £1m from a loss of £1.8m in the same period a year earlier, with revenues up 33.6% to £770.8m, driven by strong growth in food to go and other convenience categories and new business wins.

Self-storage facilities operator Big Yellow Group has conditionally agreed to dispose of its industrial warehouse scheme at Harrow, London for gross proceeds of £61.0m. Big Yellow said on Monday that completion of the sale was conditional on practical completion of the development, which was expected to occur in August 2022.

Real estate investment trust LondonMetric has acquired a portfolio comprising two single-tenant triple-net retail assets for £23.3m, reflecting a blended net initial yield of 6.7%. LondonMetric said on Monday that the two NNN properties generate £1.6m in rent per annum, which equates to £13.90 per square foot.

UK fashion retailer Ted Baker on Monday said it had selected an unnamed preferred bidder after receiving a number of revised takeover proposals, adding that private equity fund Sycamore Partners Management LP had withdrawn from the process. The company said it would now start a due diligence process with the preferred bidder, which will probably take several weeks and reserved the right to reject any approach or terminate talks with any bidder at any time.

Shares in legal and professional services outfit Ince slumped early on Monday after the group revealed full-year revenues had come in "slightly" lower year-on-year following "a challenging last quarter". Ince now expects revenues for the year ended 31 March to come in at roughly £97.0m, while pre-tax profits were also expected to be short of market expectations.

Economic news

The Chancellor of the Exchequer has announced a £15bn package of measures intended to help households with the soaring cost of living, including a windfall tax on energy companies. Addressing the House of Commons, Rishi Sunak said high inflation was causing "acute distress" for people, adding: "We need to make sure that for those whom the struggle is too hard, and for whom the risks are too great, this government will not sit idly by."

The Competition and Markets Authority is investigating whether Alphabet division Google has broken the law by restricting competition in the digital advertising technology market, it announced on Thursday. It would be the regulator’s second investigation into Google’s practices in ad tech, following the launch of a probe into Google and Facebook parent Meta’s ‘Jedi Blue’ agreement.

The Chancellor Rishi Sunak is poised to unveil a £10bn package of emergency support to help households struggling with soaring energy bills, it was reported on Thursday. Surging wholesale prices, pushed even higher following Russia’s invasion of Ukraine, had seen household bills shoot up. In April, average bills rose 54% to £1,971 and Ofgem, the regulator, on Wednesday acknowledged they were likely to increase again to around £2,800 in October when the price cap is next reviewed.

Retailers expect sales to soften in June, a survey showed on Tuesday, as high inflation and the weakening economic outlook weigh on consumers. According to the Confederation of British Industry’s latest quarterly Distributive Trades Survey, retail sales were broadly average for the time of year in May, with a balance of 0% compared to -24% in April.

Energy bills are on course to rise by more than £800 in October, the head of Ofgem has warned politicians. Appearing before the Business, Energy and Industrial Strategy committee, in a session on the future of the energy market, Jonathan Brearley said that while the next price cap review was ongoing, early indications were for a significant increase.

Grocery inflation hit its highest level in 13 years in May, industry research showed on Tuesday, as the cost of living crisis continued to mount. According to retail consultancy Kantar, like-for-like grocery inflation was 7% in the past four weeks, the highest since May 2009. In the 12 weeks to 15 May, grocery inflation was 5.7%, with prices rising fastest in dog food, savoury snacks and beef, and falling in spirits.

Business activity in the UK slowed sharply in May as inflationary pressures and geopolitical uncertainty weighed on customer demand, according to a survey released on Tuesday. The S&P Global/CIPS composite purchasing managers’ index - which measures activity in the services and manufacturing sectors - fell to 51.8 from 58.2 in April, hitting a 15-month low. This was below expectations for a reading of 56.5 and marked the slowest rise in business activity since the current phase of the recovery began in March 2021.

Shares in electricity generators tumbled on Tuesday after it emerged that chancellor Rishi Sunak was considering imposing a windfall tax on excess profits. According to the Financial Times, the Treasury is drawing up plans that would widen any possible windfall tax beyond oil and gas producers to cover electricity generators as well, including wind farm operators.

UK government borrowing fell more than expected in April but remained above pre-Covid levels, according to figures released on Tuesday by the Office for National Statistics. Government borrowing fell by £5.6bn from the previous year to £18.6bn, coming in below analysts’ forecasts of £18.8bn and the Office for Budget Responsibility’s forecast of £19.1bn.

House prices continued to push higher in May, industry data showed on Monday, hitting a fresh record as lack of supply weighed heavily. According to Rightmove, the average asking price of a property coming to market hit a fourth consecutive record in May, rising 2.1% on the previous month to £367,501, the highest for the time of year since May 2014. Year-on-year the price jumped 10.2%.

International events

China’s industrial profits fell sharply in April as Covid lockdowns took their toll, according to data released on Friday by the National Bureau of Statistics. Industrial profits fell 8.5% on the year, making the fastest decline in two years. There is no official figure available for March, but according to calculations by Pantheon Macroeconomics, industrial profits rose 12.2%.

The US economy shrank at a slightly quicker pace than previously thought, revised data showed, but the underlying levels of activity and prices came in a tad better than expected. According to the Department of Commerce, gross domestic product shrank at a quarterly annualised pace of 1.5%.

US initial jobless claims fell by a better-than-expected 8,000 in the week ended 21 May, dropping from an unrevised print of 218,000 to 210,000, according to the Labor Department. On a non-seasonally adjusted basis, initial claims fell by 14,534 week-on-week to 183,927, with notable declines in California, Illinois, Kentucky, and New York.

Economic activity in the US slowed by more than expected in May, amid heightened price pressures, slowing supplier deliveries and softer demand, the results of two closely-followed surveys revealed. A preliminary reading for S&P Global's services sector Purchasing Managers' Index came in at 53.5, which was down from 55.6 in April and below economists' projections for a reading of 55.2.

New home sales in the US fell by far more than economists had anticipated in April. In seasonally adjusted terms, according to the Department of Commerce, new single-family home sales dropped at a month-on-month pace of 16.6% to reach an annualised pace of 591,000.

Euro area economic growth was resilient in May despite being buffeted by multiple headwinds, the results of three closely-followed surveys revealed. But economists were cautious. S&P Global's preliminary Eurozone services sector Purchasing Managers' Index printed at 56.3, which was down on April's reading of 57.7 and below the consensus for 57.5.

The European Central Bank does not need to rush interest rate hikes because inflationary pressures were coming from the so-called supply side of the economy, Christine Lagarde said. Speaking in an interview with Bloomberg, the ECB's chief said the euro area was not seeing "surging demand", rather. “It’s definitely inflation that is fuelled by the supply side of the economy."

Interest rates in the single currency area may well be out of negative territory by the end of September, the head of the European Central Bank said. Writing in a post on the ECB's blog, Christine Lagarde said she expected net purchases under the central bank's asset purchase programme to conclude "very early in the third quarter", laying the groundwork for a first rate hike in July and an exit from negative rates by the end of September "based on the current outlook".

German business sentiment unexpectedly improved in May, according to a survey released on Monday by the Ifo Institute. The business climate index increased to 93.0 from 91.9 in April, coming in above expectations for a reading of 91.4.